So you’re a veteran nonprofit staffer and have just landed your first executive director (ED) gig? Now what?

Nonprofit financial management can be highly challenging and it helps to be prepared for the months and years ahead.

The tips that follow should help with overcoming some of the financial management hurdles you’ll face…

Potential financial management challenges in a nonprofit

Perhaps you have years of experience as a fundraising professional or a program director. Now you’ve taken the step up as an executive director, you find yourself in charge of the whole organization.

It can be quite a step as you look towards managing the finances of the nonprofit.

What you’ve learned so far about the financials may not seem like rocket science but it’s not knowing what you don’t know that keeps you up awake at night.

If you’re lucky, you inherited a “well-oiled machine” and your predecessor gave you very detailed instructions. You feel confident that you have everything under control.

Alternatively, you were brought on board to clean up a total mess and you’re finding your way as you go.

Either way, the following three tips will be useful…

Three nonprofit financial management tips

Here are three practical tips for overseeing the organization’s finances:

1. Get an understanding of the lay of the land

Firstly, find out how financial responsibilities are divided amongst clerical staff, accounting or bookkeeping staff, and the treasurer/finance committee of the board.

This means everything from processing basic transactions to high-level reviews of financial statements.

Make sure that you have a clear understanding with your board on how oversight responsibilities are allocated.

Ultimately, the board of directors has fiduciary responsibility for the organization but they rely on the executive director for handling day-to-day operations.

Every organization is different. Some boards are focused exclusively on governance, while others are more involved in co-managing the organization.

Having an active treasurer who is also a financial expert may alleviate some of the oversight work for you as the ED.

Conversely, if your accounting staff is limited to a part-time contract bookkeeper, you may need to be more involved in the finances than if you have a CFO or finance director on staff.

The most valuable nonprofit financial management advice is to never assume that someone else is taking care of things.  The failure to communicate can literally lead to the failure of an organization.

2. Examine historical documentation

The second nonprofit financial management tip is to read through the organization’s most recent tax return (IRS Form 990), if you haven’t already done so.

In addition to giving you information about its financial position and operating results for the most recently completed fiscal year, it will also help familiarize you with programmatic accomplishments, major donors and funding diversification, as well as various transparency and accountability mechanisms employed by the organization. (Extra bonus: You can also see how much your predecessor was compensated!)

As well as the tax return, read the most recent audit to gain additional insight into the organization’s finances. Don’t stop with simply the auditor’s report on the financial statements; also read through the auditor’s management letter or “communication with those charged with governance,” which is where recommendations are made for enhancing operating effectiveness.

You may even want to schedule a call with the independent auditor to gain additional insight.

3. Make a list of financial documents to review each month and stick to it

Another great piece of nonprofit financial advice for any ED is to review the bank statements and cancelled check images every month. This will let you know if the flow of money is consistent with your expectations.

It’s best if you can access these documents from the bank’s website, rather than relying on an employee to provide them.

Establish clear expectations with your bookkeeper regarding the frequency of financial statements. Make sure you review financial statements (balance sheet, activity statement, and budget vs. actuals report) generated from the nonprofit’s accounting software.

Ideally, this should happen at least quarterly, preferably monthly. As an ED, don’t be afraid to ask your bookkeeper for “backup” documentation for any amounts reflected in the financial statements.

For example, if your balance sheet shows that the organization has $300,000 in outstanding pledges, your bookkeeper should be able to provide a report (without notice) that shows the donor names and amounts that add up to $300,000.

Get nonprofit financial management advice

For more in-depth guidance on nonprofit financial management for new and aspiring executive directors, watch out for our short-term nonprofit financial management courses. These are offered through San Francisco State University and California State University, East Bay.

Alternatively give us a call on (415) 621-1112.