For-profit and nonprofit organizations alike depend on strategic financial management to maintain their operations. Nonprofits, however, are especially reliant on skilled leadership to optimize resources and secure, manage and maintain funds. Further, nonprofit executives must be adept at navigating the singular terrain of their sector’s financial strategies and practices, which differ significantly from those of traditional corporate enterprise.
For nonprofit executives, effective financial management entails continually evaluating a nonprofit’s overall financial health while securing resources and defining long-term financial strategy. Given the scope of effective nonprofit financial management, nonprofit leaders must demonstrate numerous professional competencies.
Nonprofit financial managers are responsible for both historical and ongoing financial assessments, which collect data in response to four core questions:
A central feature of any organization’s financial portrait, its cash position describes its liquid assets, from cash itself to short-term government debt and certificates of deposit. As part of a comprehensive financial assessment, nonprofit executives should document the organization’s rent and debt collection status, current credit standing and payroll history. Understanding these key features is central to evaluating the organization’s fixed versus liquid asset management strategies and adjusting each accordingly.
Successful nonprofits usually rely on multiple streams of revenues, including program service fees, fundraising income, endowments and donations. The latter alone often require a multi-pronged funding strategy, most of which feature capital campaigns, planned giving and annual funds.
Skilled nonprofit executives can manage various discrete revenue sources simultaneously while cultivating new strategies for income growth. Perhaps most importantly, nonprofit financial managers must exercise agility in resource allocation and fundraising initiatives by responding quickly to industry trends and organizational flux.
Raising revenue and developing funding models are interdependent and concurrent activities for effective nonprofit financial managers. In general terms, an organization’s funding model defines initiatives and overall strategy for securing and maintaining healthy revenues. Three cornerstone elements characterize funding models:
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