When your nonprofit creates a new strategic plan, your team outlines the mission-driven goals you want to accomplish over the next few years and the projects and programs you’ll use to reach them. Fundraising planning is also critical to this process, since you’ll need revenue to fund these vital initiatives. But do you also consider how to allocate that funding to make the most of it for your mission?

Effective financial management isn’t just essential for fulfilling your nonprofit’s strategic plans—it also keeps your organization running day-to-day. While you don’t need to be an accountant or financial planner as a nonprofit professional (although it’s immensely helpful to work with one!), you should have at least a basic understanding of where your organization’s funding comes from and where it goes.

In this guide, we’ll review four strategies to help your nonprofit manage its finances more effectively, both for covering everyday needs and for propelling your organization toward greater success. Let’s dive in!

Bringing in funding from various sources is highly beneficial for your organization. By diversifying your nonprofit’s revenue streams, you’ll create a stronger financial safety net since you have backups in case one source falls through or costs are higher than expected, leading to greater stability for your organization. Plus, if everything goes according to plan, you’ll have more flexibility in planning for the future.

Consider incorporating sources from all five major categories of nonprofit revenue into your funding model, which are as follows:

• Individual donations: This category includes individual donors’ monetary contributions at all levels (small, mid-level, major, and planned), as well as event revenue and non-cash gifts of goods, services, and assets like stocks or real estate.

• Corporate philanthropy: Double the Donation defines this type of revenue as “the ways in which a company gives back to its community or promotes the welfare of others” by contributing to nonprofits through methods like sponsorships, matching gifts, and volunteer grants.

• Earned income: While this type of revenue isn’t typically associated with nonprofits, your organization can generate some of its own income through membership programs, merchandise and product sales, and fees for services provided (e.g., animal shelter adoption costs).

• Investments: This also isn’t the most common or lucrative nonprofit revenue stream, but investing in vehicles like treasury bills, bonds, and mutual funds is an effective way to steward and grow your organization’s reserve funds.
• Grants: Whether they come from government entities or foundations, grants can provide critical funding for your nonprofit’s most important projects and programs—if you submit a standout proposal by the deadline that appeals to the funder and follows their instructions.

Offering more contribution options can also help your nonprofit engage its community more effectively. For example, giving major and planned donors the option to donate both money and assets can provide additional flexibility that makes more donors want to give these significant gifts. Also, supporters who feel like they don’t have much to give your organization could multiply their impact by taking advantage of their employers’ corporate philanthropy programs.

Fiscal policies govern your team’s daily use of funds, ensuring all staff and board members are on the same page about how to handle financial matters in their respective roles. The most important policies your nonprofit should implement (or review and update if you already have them in place) include:

• Gift acceptance policies, which outline the types of gifts—both monetary and in-kind—that your organization can and can’t accept, as well as the conditions under which you can accept gifts. For example, a food bank might detail that all in-kind gifts of shelf-stable food should be unopened and not expired.

• Conflict of interest policies, which explain the steps to take if a leader or board member has a personal or business interest that may conflict with their duty to your organization. For instance, if your nonprofit wants to buy a new project management system and one of your board members owns a company that makes that software, this policy would come into play to eliminate their bias from the decision-making process.

• Expense reimbursement policies, which detail when and how employees, board members, and volunteers can be reimbursed for spending their personal money on behalf of your nonprofit. If your fundraising director were to represent your organization at an industry conference and pay for their flight and accommodations with their personal credit card, they could be reimbursed for those costs if your policy allows.
• Employee compensation policies, which create guidelines for setting and reviewing staff members’ total compensation packages. These include direct (monetary) compensation like salaries and bonuses and indirect compensation like healthcare and retirement benefits, paid time off, and professional development opportunities.

Compile these policies into a handbook and share it throughout your organization so your team can reference it whenever they have questions.

When your nonprofit started tracking its finances, you probably used a spreadsheet to make recording revenue and expenses easy on your team. Although this is an effective short-term solution, your organization’s financial needs will almost certainly outgrow the capabilities of spreadsheets in the long run. As soon as it’s within your budget to do so, look into a dedicated accounting platform to help your nonprofit scale its financial recordkeeping and reporting.

Some popular accounting solutions are designed specifically for nonprofits, while others are built primarily for businesses but can be configured for nonprofit use. Whichever route you choose, Jitasa recommends ensuring your platform can help you do the following:

• Record all types of transactions, organizing revenue generated by source and expenses incurred according to how they further your mission (i.e., whether they’re related to your programs or part of your nonprofit’s overhead).

• Track restricted funds from endowments, major and planned gifts, grants, and sponsorships to help you follow through on your promises to funders and spend this revenue as intended.

• Store your annual operating budget and compare your actual spending and fundraising numbers to it throughout the year to adjust your approach as needed.

• Manage grants to help you meet deadlines and follow requirements for grant applications and post-grant reporting.

• Create financial statements that organize and summarize your financial data in straightforward, actionable ways to help with internal decision-making and external transparency.
• File tax forms, including your annual federal tax return via Form 990, any additional returns your state requires, and individual W-2s and 1099s to help your organization’s employees and contractors do their taxes.

Additionally, check that your accounting platform integrates with other essential tools your nonprofit already uses, such as your CRM and online donation processor. This will help eliminate data silos across your organization and reduce the risk of errors in information transfer between platforms.

The strategies above should help you as a nonprofit professional to navigate the basics of your organization’s financial situation. If you have any questions or need additional help managing more complex aspects, don’t hesitate to reach out to an accountant or other financial professional who specializes in the nonprofit sector. They’ll be able to use their expertise and experience working with other organizations to help you handle any challenges that come your way.