With news of executive orders and their potential impact on federal funding, management and board members of many not-for-profit organizations are anxious and concerned about the financial stability of their organization and its ability to continue to fulfill its mission. The following are a few best practices we recommend for all organizations.

Understanding
Make sure management and the board have a thorough understanding of the financial health of the organization. This requires accurate and timely financial reporting. It is important to understand the assets, liabilities, revenue sources and expenses of the organization.

Liquidity
Review and monitor the liquidity of the organization. This includes measuring current assets over current liabilities and the number of months of expenses that are covered by cash. Consider future liquidity needs by generating regular cash flow projections that include best case and worst case scenarios. Also, discuss any designations or reserves including “rainy day” funds so that management and the board understand when and what the funds can be used for.

Diverse Revenue
For revenue sources, review contract and grant agreements to understand terms and  responsibilities of both the organization and the funder. Determine if your revenue sources are diverse and from different funders. If your organization is heavily reliant on government funding, consider plans to market the organization’s mission and development efforts to individuals, companies, and foundations in order to help diversity your revenue sources.

Program Efficiency
If your organization operates more than one program, evaluate each program’s efficiency to determine which programs run at a surplus and which programs run at a deficit. Consider the level of demand in the future for your programs and whether the programs contribute to the overall mission of the organization.

Budgets
A conservative budget should be adopted after input from leaders of programs and departments within the organization. After a budget is adopted, actual results should be reviewed and compared against budgeted results at least monthly. Management should be able to provide explanations for significant variances. It is also prudent to review the organization’s growth plans and related costs including any planned investments in property, infrastructure, and personnel.

Communication
Communicate regularly and often among leadership and the board to avoid surprises. The board can also take a more active role in assisting leadership with promoting the organization, including to new funders. It is also important to communicate with your existing funding sources. They may be able to increase their funding or provide funds sooner to better align with the needs of the organization. We also recommend you reach out to your bank to communicate how things are going. Make sure you understand the terms of any line of credit or other financing, including covenants you should be monitoring.  

We are here to help. Reach out to your ORBA advisor and we can schedule a meeting to discuss your concerns, plans for the future and ideas to navigate financial stability.

For more information, contact Jim Quaid at [email protected] or 312.670.7444. Visit ORBA.com to learn more about our Not-For-Profit Group.  Sign up here to receive our blogs, newsletters and Client Alerts.