How Not to Manage
Instead of New Year’s resolutions, my first entry for 2007 is a list of ten common mistakes (with comments) that nonprofits make in managing their financial life. This list is excerpted from a terrific paper submitted by one of my students, Nick Eoloff, in a Financial Management for Nonprofits class at Hamline University. I thank Nick for giving me permission to share his paper.
Ten Mistakes Nonprofits Make in Financial Management:
- All your eggs in one basket – Pay attention to your reliance on any particular source of revenue, in particular government contracts.
- Cash flow analysis done annually – You can’t know everything at the beginning of the year. Management cash flow never stops.
- Financials that are opaque – Nonprofit financial reports can be complex and difficult but that’s not an excuse for board members that don’t understand them or poor communication about your financial situation.
- Inflexible – Things always change – go with it.
- Little to no overhead – Some organizations still believe that infrastructure and overhead are not a good use of resources. This decision never turns out well.
- Low operating reserves – Everyone wants to have operating reserves but the only way to build them to by planning and managing surplus budgets.
- Never leverage – Using loans and credit lines to build the organization and grab opportunities is smart management.
- No long term plan – Strategic plans are great, but how much better if they include a basic financial plan for three or five years.
- Preparing financial projections, but never reading them – See above.
- The auditor’s notes don’t mean much – Make sure you read all the pages of your audit report. I know they don’t look interesting, but you’ll be surprised at how informative they are.
For a complete copy of Nick Eoloff’s paper with more description and references, click here. Use this list as the start of your New Year’s resolutions for better financial management.