Nonprofit Finances for Dummies and the Rest of Us

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I was listening to someone on the radio this morning talking about how few of us would even think twice about a friend or family member confess to “not being good with math,” while if the same person were to confess to “not being good” at reading, we might be more concerned. So it goes: Innumeracy is a kind of sanctioned illiteracy that no manager or trustee or nonprofit can afford.

When people are uncomfortable talking fluently about financial matters—not the numbers themselves, but the conceptual framework of how numbers relate and are moved by one another and other aspects of our enterprise—we may have a problem in managing nonprofit budgets, beset as they are with a variety of revenue streams with wildly different transaction costs, margins, and fluidity, etc..

That’s why NPQ tries hard to break down the concepts you must work with on a day-to-day basis in ways that allow you to communicate with others. That is, after all, the only way that shared governance can work properly.

With that, I want to direct your attention to a report we covered yesterday in a newswire. The report, linked to in the newswire, is called “Risk Management for Nonprofits,” and the content is one of the most concise and clearest descriptions of the frailties of government-funded nonprofits that I have ever read.It contains two calls to action: one for better advocacy to protect the health of nonprofits contracted with government, and one for execs and board members to educate themselves about the financial dynamics of the enterprise they are guiding. The government contracted social service agency is one enterprise model in a sector full of them, but the description is achingly on target.

I want also to remind you that in BoardSource’s recent pulse survey, they found that general economic uncertainty, increased volatility and shocks, and the changing relationships and responsibilities between government, the private sector, and nonprofits were among the top three concerns that were expressed by respondents to a question about what boards were most concerned about. So, if you have not already done so, read the report referred to above and think carefully about your organization’s own financial dynamics.