Ensure the Continued Financial Stability of the District

We are pleased to share this week's guest column by Mark Payne, CPA and Partner at James Moore and Company, CPAs. Mark specializes in providing accounting services to nonprofit organizations. We asked Mark to address ensuring financial sustainability, one of the most important board responsibilities. He shares a great checklist of information boards should receive monthly and red flags that could indicate possible financial problems.

New times for nonprofits: Financial sustainability & leadership transition

Nonprofits are facing unprecedented times. Not only is there a worldwide pandemic causing hardship and crisis, but baby boomers are getting set to retire — leading to higher turnover in organizational leadership.

Here are the steps your nonprofit can take to increase its financial stability and prepare for leadership transitions.

Shoring up financial sustainability

Your financial sustainability isn't just about receiving enough donations. It's also affected by your operations. How well are you budgeting? Are you sticking to that budget? Do you have redundant or outdated processes that waste money? How strong are your internal controls?

That last question is key because fraud is particularly high right now given the federal and state aid being distributed. Without proper oversight on your processes, your nonprofit is vulnerable. And having actions become front-page news is the last thing you need.

To combat fraud, review your internal controls regularly and make sure you have as many checks and balances as you can. You must also get the following monthly financial information from your accounting department (especially heading into the new year):

• Statement of financial position
• Statement of activities
• Budget to actual for the entity as a whole
• Budget to actual by grant
• Aged accounts receivables and payable reports
• Cash projections

Another important aspect of your financial sustainability is cash. Cash is the gas in the boat that will get you across the river. It pays your bills. So, look at every line item on your budget. If you have assets you are not using, consider selling them. If you have a mortgage, see if your bank will let you refinance at a lower rate.

Going forward, do more than you previously have to ensure your financial stability. This includes having more than the standard three months' expenses in your reserves. Taking the steps above can help you get started on that path.

Finally, watch for these red flags that indicate possible financial problems:

• Continued losses year after year
• Late payroll or sales tax deposits
• Management saying things are better than what financial statements reflect
• Concentrations from one grantor/contributor
• High turnover in the accounting department
• Board is unable to speak to the CFO and all conversations must go through the executive director
• Accounts payables grow each month
• Financial statements from an Excel spreadsheet and not the accounting software package
• Delayed audit reports
• Last-minute financial information provided the day of a board meeting
• Line(s) of credit tapped out
• Continual debt restructuring
• Credit cards not paid off each month
• Board asks questions and responses are vague (or none are given)
• Board members assume the treasurer has everything under control
• CPA has the same findings year after year and issues never seem to get corrected
• Bank statement shows a negative balance
• Lack of working capital
• Receivables show as 90 days past due

Remember, shoring up your financial stability helps you find opportunity to save (or get more) money and combat fraud.

Passing the baton beyond the boomers

With the wave of baby boomers retiring or approaching retirement, we are seeing a lot of executive directors and other leaders closing out their careers. While it's exciting for them, it can cause challenges in fundraising.

As you know, relationships between EDs and key donors are a big part of successful fundraising. These relationships can go back 25 years or more and, in many cases, include personal sentiment. People are concerned that those relationships — and their corresponding donations — could disappear.

But as Alyce Lee Stansbury, CFRE says, "The relationship needs to be between the donor and the mission, not the donor and the ED." Donors are more likely to give when they care about your mission. While personal friendship can certainly be part of your relationship with them, the real motivation to give should be the impact your nonprofit has the community. It shouldn't matter who your leader is.

If your ED is thinking of retiring in the next five years, their replacement should be figuratively tied to them until that happens. They need to go everywhere together so the replacement can meet key donors, learn about them, and develop their own relationships with them. And remember, while this connection is important, it's the donor's commitment to your mission that drives this bond.

As we all know, times are quite different now — and there's no telling if or when things will go back to how they were before. So plan for tomorrow in a new way. Paradigm shifts are in order during these new times; boards have to be willing to adapt to ensure the financial sustainability of the organization.

Mark Payne is a CPA and Partner with James Moore & Company, CPAs. Contact him at Mark.Payne@JMCo.com. Notes on Nonprofits is produced by Kelly Otte, MPA, Interim Executive Director at The Oasis Center for Women & Girls and Alyce Lee Stansbury, CFRE, President of Stansbury Consulting. Follow us at Notes on Nonprofits on Facebook and join us weekly when we go live and talk in more depth about this and other topics. Write to us  notesonnonprofits@gmail.com.

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Source: https://www.tallahassee.com/story/money/2020/12/19/checklist-boards-help-ensure-financial-stability-notes-nonprofits/3951013001/

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