Over the course of the year, I’ve worked with a nonprofit organization on financial management.  The organization had experienced some losses, the board had not been exercising proper oversight and the cash flow looked precarious.

The first step was diagnosing the problem.  The organization had many contracts where the funds and activities had to be kept separate, making it very hard (impossible really) to allocate costs without violating one contract or the other.  These were government funding sources requiring high levels of documentation, reporting and auditing.

In addition, there had been poor bookkeeping practices, incomplete financial statement understanding, insufficient reporting to the board, improper use of a line of credit and lack of tools to stay on top of the situation.

We got the board engaged by providing information that identified issues and suggested some steps going forward.  While this sounds like just a typical business discussion, it was quite personal as board and management had to come to grips with a challenging situation and have some difficult conversations.

We then sorted out which funding sources were worth keeping and which were not, even though it meant shrinking the organization a bit.  This relieved nightmarish cost allocation and conflicting program directives, and simplified the financial picture.

There were many steps along the way, some of which were:

• Establish 12-month budget by funder
• Anticipate cash flow needs using 15-month cash flow projection
• Use the line of credit to float receivables only, not to compensate for revenue shortfalls
• Assign expenditures to a funder class at the time the expense is entered into QuickBooks
• In the future, identify cash flow impact of any grant/contract opportunity before accepting it

Recently we created a worksheet that identified the four reports the board wants to see, established analysis questions for each report and determined actions that would be taken based on that analysis.

Four financial reports are a lot to digest, but the board is committed to better monitoring and want full information for the time being.  In the future, as the board grows, I suggested developing a dashboard with key indicators as the main financial management document.  Dashboards work far better for most board members than a stack of budgets, balance sheets and revenue and expense reports.

The organization is much more stable at this point and is continuing to implement, bit by bit, improved financial management practices.