4 Nonprofit Finance Mistakes to Avoid

Many nonprofit leaders feel self-conscious about their lack of knowledge regarding nonprofit financial management. At Spark Group, Executive Directors often whisper to us, “I don’t really understand the ins and outs of nonprofit budgeting and planning.” 

If that sounds like you, you’re not alone! You may be a fantastic nonprofit leader because you rose from an entry-level position in your organization. You know your organization’s programs, fundraising, and community partnerships inside and out. But, you never learned the ABCs of nonprofit finance, leaving it to your treasurer to run the show. It is great to have a strong finance committee to support you. Though, you still need to provide your due diligence of oversight.  

There are plenty of ways to learn more about the ins and outs of financial management best practices for nonprofits. In fact, I spend an entire webinar on this subject in my Executive Director Certification. But to get you started, here is a list of four common nonprofit finance mistakes to avoid that will give you more confidence and set you on track for nonprofit financial stability. 

Mistake # 1 Leaving your financial management in someone else’s hand. 

Even if you have a skilled Chief Financial Officer, you still need to understand the best practices, the rules, and the regulations. You do not need to be a certified public accountant to be an ED. Still, you are the top staff person for your organization, and you need to ensure that your organization is stewarding your resources ethically and legally. 

Take a course on financial basics, ask your finance team to walk you through complicated processes, and always seek to know more!

Mistake # 2 Leaving your budgeting and reporting to the last minute

Ignoring your finances has several negative impacts. Your budget process happens late and lacks the attention it deserves, your board meeting reports become rushed and unclear, and you miss out on opportunities. Instead, create a nonprofit financial reporting and budgeting calendar that gives your organization enough time to prepare. Don’t leave your budgeting and reporting to the last minute; dive in and learn as much as possible to set your organization up for success!

Mistake # 3 Forgoing checks and balances

Far too often, nonprofits assume the best intentions. It is common to hear phrases like, “Oh, Pete wouldn’t mishandle funds. He’s too sweet.” or “We can’t hang over our finance volunteers' shoulders. We will turn them off from working with us.” or “Yeah, it’s suspicious that there is missing petty cash but I’m sure there is a reasonable excuse. We shouldn’t address it. We’re a nonprofit, aren’t we supposed to be nice?”

Checks and balances provide clear direction and transparency for your organization. They protect you from liability, and they protect your staff and volunteers as well. Include policies around petty cash, reimbursements, and credit card usage. Designate separate individuals to receive, count, and deposit donations. You can even establish random internal audits, like a secret shopper, to keep everyone honest. 

Mistake # 4 Not sharing your weaknesses

Many of these mistakes result from a tendency to keep secret that you need more guidance on financial management. As I stated in the beginning, leaders often don’t want to admit they don’t have a handle on this task. Those EDs who share their fears with us are concerned that their board and volunteers won’t think they can lead an organization if they aren’t knowledgeable about this task. 

You are a smart, competent leader. You have many skills and assets for leadership. If you resonate with this vulnerability, you are NOT alone. Share with a trusted board member that you want to learn more, and find a resource to educate yourself. I’ll tell you a secret! Many board members don’t understand the ins and outs either! You may want to share your findings with your board as well!

Looking for a webinar on nonprofit financial management? Contact Spark Group today!