The Nonprofit Times just released a study of over 219,000 nonprofits and came up with a couple startling conclusions.
1. One in 12 are insolvent already 2. 30% face liquidity issues
In normal people speak, that means 8% of organizations are currently operating in the red and 30% are on the verge. We’re talking spending more than you’re bringing in and not having enough cash to pay your bills.
It seems dramatic but it doesn’t take much to get yourself into this place. A few months of a casual review of your financials combined with not forecasting your cash flow can easily turn a nonprofit upside down.
The results of this study, that a third of organizations are teetering on the brink of financial disaster, is not surprising. Two thirds of those surveyed had operating budgets of less than $1M, and I can almost guarantee that they also didn’t have a CFO or other finance leader on board.
A bookkeeper or accountant simply isn’t tasked with seeing the financial future of the organization. They’re responsible for day-to-day operations, maybe some reporting, but rarely analysis and forecasting.
What these <$1M organizations need is a CFO, a visionary to help them see into the future and avoid insolvency LONG before it happens. And how, might you ask, do we do this?
- It starts with strategic planning, setting up a vision for long term accomplishments and success.
- Then the next step is a solid budget that puts numbers behind the strategic plan and gives us metrics to track.
- We use financial reporting to look at past performance and help make decisions about the future.
- Finally, we create cash flow forecasts to see the future and confirm we’ll be able to meet our obligations.
Ensuring financial sustainability isn’t HARD but it takes time and attention that, frankly, you can’t afford not to give.
So what do you think? Is this study unnecessarily dramatic or do you feel less than confident about the sustainability of your organization?
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