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How To Deal With Bad Financial Decisions

Dealing with a bad financial decision is a cumbersome task, especially for the nonprofits since they cannot rely on backup investments and having a consistent profit as for-profit businesses can. Not to mention your emotions and guilt you feel for creating such decisions. Most nonprofits are preoccupied with bringing in more money. But rarely do we see a nonprofit that carefully watches how and where are their existing funds being spent.

Hence, nonprofit executives have a difficult task between constantly balancing mission and money, all the while sharing and collecting data about financial or social performance. With limited staff numbers and various sources of financial data, it’s no surprise that these leaders and their staff often struggle to create a clear-cut picture of their financial story that actually makes sense.

In this article, we'll delve deeper into different options that lay before you when your nonprofit finds itself in such a situation.

1

Decide what part of your business can be let go

The first thing you can do about cutting costs is streamlining your operations. Think about the initial idea your organization has developed around. Is this idea still a core part of your business or have you moved away from this? Are there different add-ons which aren’t essential to that core?

Look for what can be cut down, at least for some time, in order to keep the essential core business running within those limited income streams. Also, funds that are inappropriately spent can lead to the loss of the organization’s tax-exempt status or involve other legal actions and lawsuits. As social pressures continue to build up for nonprofits, it is quite easy to lose sight of the organization’s original mission.

2

Keep fundraising files in an orderly fashion

Instead of missing a funding deadline because you weren’t able to produce a required supporting document and managing your money flow in a chaotic fashion, secure your files in order to secure the future of your organization.

Create a fundraising folder that is only accessible to the person who has lead responsibility for fundraising in your organization. It must include everything needed for a complete funding application with added copies of crucial supporting documents. Back it up either as printed copies that are in a single folder that’s visible or save it digitally on an enterprise cloud storage or your own personal digital storage.

By doing this, you will complete funding applications more easily, simplify the process of taking over fundraising responsibilities for another person, and provide committee members with an easy way of accessing crucial fundraising data.

3

Explore emergency funds

If by any chance there is some unavoidable funding required, it’s crucial to find an option to borrow some cash for a few days until your main funding goes through. For example, you can use payday loans as a short-term loan to cover your nonprofit business emergency expenses for a few days.

It will allow the nonprofit to go through the usual business operations until the main funding kicks in.  With nonprofits, unexpected operational expenses can arise at any time, and if your nonprofit isn't making a surplus in cash to cover for those, you must always have an ace ready in your pocket.

4

Focus on general management control

One of the best ways to control your nonprofit financial decisions and stop the bad ones from happening is to have effective internal control. There isn't a nonprofit that doesn't require procedures and policies to control the access and use of its financial resources.

General management controls are made up of the senior management's and the board's responsibilities for establishing the right supervision of financial operations. The board needs to get informative and clear financial statements and reports on a frequent basis.

If possible, the nonprofit should have a certified public accountant and an outside independent audit. If the audit is unaffordable at this point, at least find an outside party to review your nonprofit financial reports and accounting records. A word of care though, this audit isn’t about fraud detection. Its purpose is to affirm current financial position and records of the nonprofit.

The board needs to initiate appropriate financial policies such as loan policies and investment policies. The board and the senior management also must be sure that the proper accounting and financial procedures are in place and should set up the nonprofit's goals and priorities in a way that keeps the core mission going.

5

Don't forget the importance of accounting

These procedures safeguard the nonprofit’s assets. They also provide accurate and reliable financial records. Both of these goals will allow the senior management and the board to monitor the nonprofits financial operations.

You'll need to focus on four areas here. Physical security, proper documentation, early detection and authority, and approval. Authority and approval procedures are about the identification of who has the authority to approve and perform certain transactions, such as approving expense accounts, invoices, dispensing supplies and signing checks. Proper documentation is a crucial part of the authority and approval process – in other words, every financial transaction should leave a "paper trail".

Physical security is about limiting access to numerous physical assets such as personnel files, supplies, merchandise, accounting records, and other equipment.

Further information

Nonprofits often ignore the early signs of bad financial decisions. But, by keeping fundraiser files in a proper way, and installing a great accounting and good management controls, certain wrongdoings can be avoided and their financial losses minimized.

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Page last edited Mar 18, 2019 History

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