Insight

Nonprofits: Heed these Financial Danger Signs

Nonprofits: Heed these Financial Danger Signs | Tax Accountants in Baltimore County | Weyrich, Cronin & Sorra

Many not-for-profits are just starting to emerge from one of the most challenging environments in recent memory due to the COVID-19 pandemic. Even if your organization is in good shape, don’t get too comfortable. Financial obstacles can appear at any time and you need to be vigilant about acting on certain warning signs. Consider the following.

Budget variances

Once your board has signed off on a budget, you should carefully monitor it for unexplained variances. Although some variances are to be expected, staff should be able to provide reasonable explanations — such as funding changes or macroeconomic factors — for significant discrepancies. Where necessary, work to mitigate negative variances by, for example, cutting expenses.

Also make sure you don’t:

  • Overspend in one program and funding it by another,
  • Dip into operational reserves,
  • Raid an endowment, or
  • Engage in unplanned borrowing.

Such moves might mark the beginning of a financially unsustainable cycle.

Messy financials

If your financial statements are untimely and inconsistent or aren’t prepared using U.S. Generally Accepted Accounting Principles (GAAP), you could be heading for trouble. Poor financial statements can lead to poor decision-making and undermine your nonprofit’s reputation. They also can make it difficult to obtain funding or financing.

Insist on professionally prepared statements as well as annual audits. Members of your organization’s audit committee should communicate directly with auditors before and during the process, and all board members should have the opportunity to review and question the audit report.

Declining donations

Let’s say you’ve noticed a decline in donations. Then you start hearing from long-standing supporters that they’re losing confidence in your organization’s finances or leadership. Investigate immediately.

Ask supporters what they’re seeing or hearing that prompts their concerns. Also note when development staff hits up major donors outside of the usual fundraising cycle. These contacts could mean your nonprofit is scrambling for cash.

Faulty leadership

Even the most experienced and knowledgeable nonprofit executive director shouldn’t have absolute power. Your board needs to step in if an executive tries to ignore expense limits and breaks other rules of good fiscal management. The board also should question an executive who attempts to choose a new auditor or makes strategic decisions without the board’s input.

Don’t ignore the signs

If one of these danger signs appears, it’s important to act swiftly. Financial problems don’t disappear on their own.

Contact us for help evaluating the situation and for advice on how to get your organization back on track.

 

 

© 2021

 

Related Insights

Reviewing — and possibly revising — your nonprofit’s spending policy | tax accountant in alexandria va | Weyrich, Cronin & Sorra

Non-Profits

Reviewing — and possibly revising — your nonprofit’s spending policy

A spending policy is the formula used to determine how much of the value of investments a nonprofit organization will tap each year for such…
What charitable givers need to know about taxes | tax preparation in elkton md | Weyrich Cronin & Sorra

Non-Profits

What charitable givers need to know about taxes

Although most charitable donors aren’t primarily motivated by potential tax breaks, they still need to know how donations affect their taxes.…
CFO, yes or no? Here’s how to decide | tax accountant in baltimore md | Weyrich Cronin & Sorra

Non-Profits

CFO, yes or no? Here’s how to decide

Whether your not-for-profit organization needs a chief financial officer (CFO) depends on many factors, such as the size of your organization,…

Connect with us

Use the form below to send us an email. WCS responds directly to all inquiries and general questions within 24 hours of posting.

This contact form is deactivated because you refused to accept Google reCaptcha service which is necessary to validate any messages sent by the form.