Managing Foundation Finances with Technology: 3 Top Tips

It’s no mystery that charitable contributions are central to your organization’s ability to make an impact. After all, foundations are responsible for 21% of total nonprofit giving, or an estimated $105.21 billion, meaning your monetary support has a significant impact on nonprofits’ funding.

But your foundation must have the resources to give charitably, making financial management a crucial part of fulfilling your mission. As technology changes the world of fundraising, there are more tools at your disposal now than ever before to effectively handle your budget. In this guide, we’ll explore three tips for managing your foundation’s finances with technology:

1. Monitor your expenses closely.
2. Automate processes when possible.
3. Gain insights from financial data.

As you explore the following tips, consider whether your current technology toolkit is equipped to streamline your foundation’s financial management. Solutions that offer robust integrations and flexible features may be more likely to meet your foundation’s needs, from finances to grant applications.

1. Monitor your expenses closely.

While your foundation spends and receives funding differently than other 501(c)(3) organizations, you’ll still have to abide by the IRS’s requirements for distributing your income. One such standard is the minimum distribution requirement (MDR), which mandates that private foundations distribute 5% of the previous year’s assets to charitable causes.

However, MDR also includes your foundation’s operational expenses, such as legal or accounting fees paid to start and maintain the organization. To avoid the penalties associated with underpaying, use an online ledger/bookkeeping system to monitor all your expenses, including:

• Salaries and wages: This includes compensation for officers and employees.

• Outside professional fees: This includes third-party expenses, such as fees for outsourced work or the cost of implementing a new system.

• Rent: This is the cost of the facility in which your foundation operates.

To keep your books organized and ensure accurate budgeting, categorize your expenses according to the nature of the cost. For example, combine charitable distributions from one grant into the same category.

Also, technology can help your foundation keep its database hygienic by notifying you of errors such as duplicate data entries. This way, you can accurately evaluate your organization’s funding and its impact.

2. Automate processes when possible.

While many charitable organizations are familiar with marketing automation, there are numerous opportunities to automate financial processes, as well. Automation not only streamlines these tasks but also ensures accurate financial records by eliminating the risk of user error.

Financial management tools can help your foundation automate tasks such as:

• Data entry: Automated data entry helps to avoid errors when inputting various financial data points. Then, when the time comes for annual tax filings, you’ll have thorough and updated records to file without issue. Foundation Group recommends using web-based accounting apps to track financial activity and stay on top of your records over time.

• Budgeting: By automating and consolidating data collection, your foundation can track the progress of its grant distribution and expenses all from one place.

• Reconciliation: Improve accountability and compliance by choosing a reliable tool to reconcile your foundation’s books. Technology can quickly identify errors and generate alerts to warn you when there’s an error. Plus, financial management software will always be neutral, ensuring that all your foundation’s leaders are held accountable to uphold the foundation’s funding for its charitable purpose.

You can use a variety of tools to automate different tasks across your foundation, but ensure they allow for integrations so that various data points can be easily combined. For example, integrate the grant system so that dates and amounts are in sync with grant payments. It’s essential to ensure that grant data is within the account system with the same dates as the grantee is expecting. If you’re using a tool that doesn’t integrate with other solutions, be ready to migrate your data to another platform.

3. Gain insights from financial data.

As you monitor your foundation’s finances and improve your approach to financial management, you’ll gain a better understanding of your organization’s financial performance. You can then use this information to make informed decisions about next steps.

The right solution will automatically produce reports and analytics, making it easier for you to gain insights from your foundation’s financial data. Equipped with these conclusions, you can:

• Identify trends and patterns. Note any patterns shown in your data. For example, did you have any grant applicants return from the previous year? This might highlight opportunities to change your approach in the future and adhere to the current trends.

• Evaluate your foundation’s impact. What does your financial data reveal about the effectiveness of your grants? Use these insights to determine which grants were utilized to make a positive change.

• Make strategic funding decisions. Reflect on your foundation’s financial history and consider how you can grow your impact in the future. For example, do your available grants provide the resources needed to fulfill nonprofit missions? If not, how can you optimize your grantmaking strategy to spark real change?

Producing financial statements is a crucial component of effective bookkeeping for nonprofits, meaning the insights you gain from financial data can reveal valuable insights into your foundation’s financial situation. Be sure to use the information in your reports to make informed decisions for your organization.

It’s clear that foundations can benefit from streamlined financial reporting in numerous ways—from effective budgeting to federal compliance to informed decision-making. However, you’ll also better engage your stakeholders when you can share accurate financial reports and analytics.

Providing this data allows your organization to collect feedback and maintain transparency so that you can continue using your funding to support other nonprofits. In the end, well-structured financial management enables your foundation to make a bigger impact.