1. Ngo Financial Management Training

Share. LinkedIn. Facebook. Twitter41. IntroductionFinancial management is crucial for the success of any organization, be it private, government or non-government. Successful enterprises watch their finances very closely and therefore take the right decisions at the right time, ultimately leading to success.

Most businesses have a well structured finance department responsible for looking after the accounts and finances of the company. On the other hand, NGOs most often do not consider financial management to be a priority and lack adequate financial knowledge. This is often characterized by poor financial planning and adequate financial systems in place.Very often NGOs work effortlessly towards implementing projects that cater to the need of deprived people and in this process do not pay enough attention to financial control. This practice makes the NGOs vulnerable to financial losses. In the absence of proper backup plans and funds, NGOs are unable to cope with funding crisis.NGOs should realize that managing their finances is of critical importance and they should incorporate necessary measures towards risk management, resource mobilization and budgeting. It is the responsibility of NGO leaders to plan their expenditures and investments and manage funds in a way that leads to a sustainable enterprise.The purpose of this guide is to introduce NGOs to basic financial procedures and systems that are required for efficient functioning of an NGO.

By implementing the procedures and systems mentioned in the guide you will be able to manage your finances and accounts more competently. What is Financial Management?Financial Management is a vital activity in any organization. It is the process of planning, organizing, controlling and monitoring financial resources with a view to achieve organizational goals and objectives. It is an ideal practice for controlling the financial activities of an organization such as procurement of funds, utilization of funds, accounting, payments, risk assessment and every other thing related to money.In other terms, Financial Management is the application of general principles of management to the financial possessions of an enterprise. Proper management of an organization’s finance provides quality fuel and regular service to ensure efficient functioning. If finances are not properly dealt with an organization will face barriers that may have severe repercussions on its growth and development.There are several options that one can use for managing their finances, this could be either managing them on your own, hire a full time employee, hire a part time accountant or a third party who manages all finance related activities for you, for example a Chartered Accountant.Most often organizations have a dedicated department that looks after the financial matters of the company.

A finance manager is designated for handling finance and managing its resources within an enterprise. All finance-related decisions are taken at this position. Depending on the company profile the finance department can have several designations to cater to the various needs of the company.

Importance of Financial Management for NGOsAs a NGO you might be thinking your primary task is to work towards social service and not financial management. But unless your finances and funds are sorted, you cannot achieve your objectives. The primary significance of financial planning and management in NGOs lies in achieving its overall goals and objectives. Here are some points indicating the importance of financial management for an NGO.

Being accountable to the donors: Most NGOs rely completely on funding and therefore having proper accounting systems in place becomes all the more important. As a NGO you need to be accountable to the donor agencies and individuals who support your cause.

With proper systems in place you can keep track of your expenditures and submit timely reports to them. This would lead to enhanced trust between you and the donor, thereby increasing the chances of your NGO getting a continuous support from them.

With limited funding it is important for an NGO to manage all the funds in a careful manner. Furthermore, proper finance systems will also help the NGO maintain financial reports and showcase their entire spending to the regulatory bodies as per the agreed terms. Securing future: The present financial condition of any organization determines its future.

In a similar manner, NGOs should also opt for sustainable use of finance. This simply means that NGOs should spend in their present ventures, keeping in mind the future. After all, it is quite important to have future plans and become well secured as well as future-ready. Eliminating fraud and theft: Malpractices and illegal deeds such as overuse of resources, fraud and theft have become prevalent among NGOs.

Ngo Financial Management Training

Firm checks are mandatory, for minimizing such illicitness and preventing abuse of resources. With complete financial planning, coordination and control, these issues can be easily addressed. Making productive decisions: With sound financial management, NGOs can make more productive decisions concerning resource allocation, fund raising, fund mobilizing and other undertakings. Good decision making skill enables right amount of funds to be invested at the right place. Funds are therefore efficiently and optimally utilized. Achieving objectives: Every NGO is guided by certain policies and procedures, which are related to its overall objectives. Each decision that is undertaken by the authority is driven towards successful achievement of its set goals and objectives.

Without organizing finance, it will be difficult for the organization and its employees to reach its aim and fulfill purpose of its existence. Enhancing credibility: Managing finance is a matter of skills and tactics that ideally changes from time to time.

With excellent finance management, NGOs enhance their image that enhances its value and making them more credible. By framing well defined financial plans and policies NGOs also earn good reputation within its community. They can also improve their current position and look forward to gain trust, faith and reliability. Strengthening fundraising efforts: Most of the NGOs solely survive on its funds. Well organized financial resources help in strengthening fundraising efforts by giving an overall idea about available finance and the amount of finance that needs to be accumulated. Thus, employees get a fair idea regarding the expected amount and plan their fundraising ventures accordingly.4.

Process for developing Financial Policy of an NGODeveloping a financial policy is a matter of time, effort and resources. Depending on the size of your NGO, the time required for developing a policy may vary and may take anything between ten days to few months. Once the first draft of the policy document is ready, it is it is reviewed and re-assessed to make it relevant to NGOs overall mission and vision statement.The policy is generally developed though a series of brainstorming sessions where board members, senior team members discuss and formulate the policy.Ideally, financial policies are developed in the following stages:. Assessing the need: The very first step in making a policy is to understand its purpose. NGOs need to address specific needs or objectives while making financial policies. Identifying the purpose will give a strong foundation and base to overall policy development. Therefore, it is the most significant stage in the policy making procedure.

Identifying key roles & responsibilities: Once you the purpose of the policy, it is time to define important roles and responsibilities according to expertise. At this stage, key members are designated in their respective positions.

Responsibilities are delegated to individuals, groups, sub-committees or working group, depending on organizational structure and functioning. Disseminating key roles also help in identifying important individuals/group, which shall be responsible for various aspects of financial management.

It also helps in categorizing scope of financial tasks and activities and the lead person behind it. Gathering Information: While developing the policy you will need information related to financial resources, assets and other available sources of financial data. All such data should be accumulated, analyzed and then be used for framing initial policy content. It is best to gather whatever information is available from the market and then classify. By doing so, it will give a reflection of environment, factors and other features which might affect or help in making financial policy for a Non-Governmental Organization. Drafting policy: While many NGOs do the initial draft in pen and papers, others prefer doing in word doc.

No matter which mode you opt, you need to be careful while choosing the words, language, length, complexity, style and tone. Words must be simple, without any jargons. Do not complicate the document that it is difficult to understand and implement its clauses.

For a policy to be fair, realistic and acceptable, it is important to have a structured approach. Consulting with appropriate stakeholders: Stakeholders play a major role in formulating financial policies of NGOs. After the first draft has been prepared, it is best to involve the stakeholders since they are the ones, mostly moved by policies.

Stakeholders can be anyone including individuals and organizations that might positively or negatively, directly or indirectly affect or be affected by the activities stated in the policy package. In ideal circumstances, stakeholders and policy-makers sit together and discuss about the potential implications of the financial policy. Based on whether the NGO decides to develop its internal governance or external policy positions, the appropriate stakeholders are consulted. Finalizing/Approving policy: After the stakeholder consultation, there may be certain changes in the policy document. After incorporating the changes in the policy, the Management Committee approves the policy. While approving the policy, the management committee discusses all the aspects of the policy with financial heads to ensure that the policy will be fruitful and productive in the view of achieving its objectives and meeting its purpose. Considering other procedures/measures: Whether for internal or external policies, essential procedures need to be developed for providing necessary support.

These procedures are established after considering the need for clear guidance towards implementing the policy and the responsible people behind the execution. All the procedure-related decisions, which will further affect the implementation of the policies, are taken at this stage. Implementing: Once steps have been taken the clauses of the policy are communicated with the target audience.

Proper training and guidance is provided to the staff and volunteers to support and enhance the quality of policy execution. Multi-national NGOs often conduct conference to spread awareness about their financial policy. Monitoring & Reviewing: In order to ensure that policy gets implemented in the best possible way, constant monitoring, reviewing and revision are done. It is seen that monitoring systems and reporting modules are accessible and responsive. By establishing suitable reviewing systems, policy heads can keep a firm check on overall execution of policy and be sure about its proper functionality. In case it is seen that the policy has loopholes in certain sections, the same is amended and fine-tuned for best results.

Monitoring and reviewing gives an overall assessment about the ultimate benefits of framing the policy.5. Important questions to ask, before developing a Financial Policy for NGOSince preparing, drafting and making a financial policy consumes lot of time, policy-deciders must consider the most significant and relevant factors, before getting into actual discussion about the policy. Of all these factors, budget processes and systems within an NGO have maximum effect on financial policies. Therefore, financial policy strategists ask potential questions to have clear understanding about the overall organization and more importantly, its financial aspects.After jotting the answers to all questions, financial policy strategists can consider it as a primary data to proceed into further discussions about develop financial policy.Q1: Does the organization have a board-approved budget at the beginning of fiscal year?Budgets are one of the most important things to consider, while drafting financial policy.

It is the budget that determines organizational expenditures and helps in planning those expenditures throughout the year. When NGOs have board-approved budgets before or at the start of fiscal year, goals and objectives become clearer and stakeholders are guided to their actions.Q2: Are the financial goals set before the beginning of budget development process?Financial policy development is dependent on budget development and these policies must adhere to the overall budget plan. Therefore, it is best for NGOs to have financial goals in addition to their overall objectives, as a part of their annual planning process.Q3: Does the budget development process include revenue budget and expenses by program/function?NGO budgets must be ideally constructed by a program/function, thereby giving proper insights and clear understanding about the actual costs that needs to be incurred for conducting different activities. Policies contain specific sections that are dedicated to planning revenue budgets and spending. Therefore the budget development process affects these section plans.Q4: Does the budget process include strategy development for funding overhead costs?If budgets don’t define strategic development of overhead costs funding, then it is the financial policy that needs to address it. NGOs are often faced with challenges such as securing funds for its administrative costs, raising unrestricted funds and developing earned income streams.

These challenges must ideally get a solution either through budget or through financial policy.Q5: Does the organization have year-end predictions at regular intervals throughout the year?A clear understanding about where the organization is likely to finish the year, gives an overall direction about financial policies. It also allows proper financial management and measuring the intended results, both of which can be guided through the policy. Often NGOs draft their policy, at par with the budget to address such predictions throughout the year.Q6: Does the organization have a process for evaluating funding avenues before applying?When organizations have funding opportunity evaluation process, policies must clearly define strategies for doing so and must support these processes. In case, such processes are not practiced, policies have a dual role: to define the objectives and goals behind funding avenues and strategizing it for better understanding.Q7: At what intervals does the organization produce reports to the management committee?Financial reports are submitted to the senior management, either on quarterly basis or on monthly basis. While drafting a financial policy, this interval must be considered as the policy contains information that will guide the management committee and help them in assessing if the overall performance and progress of the organization.Q8: Does the organization use dashboards to highlight key indicator performance?Dashboards are nothing but visual representation of selected KPIs (Key Performance Indicators) through which decision-makers are briefed about the current standing of the organization, against its set goals and objectives.

If the organization is not taking KPIs, then financial policies must address to such important needs and state it under their evaluation and monitoring procedure.Q9: When does the organization forecast year-end financial result?Financial policies must be prepared through potential assumption of where the organization is likely to end, from a financial perspective. Policy-makers can sit with finance heads and hear their views on this aspect.

Accordingly, policies should be made to ensure that its outcome aligns with organizational goals, at the ultimate stage.Q10: Does the finance staff have proper understanding about job descriptions?One of the most significant points to be addressed in the finance policy is defining the roles and responsibilities of all financial positions. Policies must consider recent up gradations in work and match pace with current trends that are being practiced in other NGOs.

Financial policy must clearly define designations along with the bunch of duties and responsibilities.Q11: Does the finance staff receive proper training and guidance?Financial policies must address the need for proper training and guidance of its financial staff. It must formulate strategies that will help in conducting training programs and sessions so that financial staff gets more educated and are informed about their scope of work.Q12: Are the finance staff aware about the organizational goals and objectives?Since financial policies mostly cater to financial aspects with the organization, often the big picture gets ignored. Therefore, such policies should ideally be prepared in a manner that will clearly communicate the organizational aims and objectives along with financial goals so that the financial staff can have clarity in understanding overall objectives and how these policies are related to these objectives.Q13: Does the finance office maintain an annual calendar of important events and activities?NGOs have a continuous list of ongoing events, activities and ventures, round the year. Financial policies must address the needs and requirements for carrying out planned activities, successfully. If events have already been planned, policies must provide guidelines to govern and execute the destined activities.Q14: Does the organization have fiscal workflow processes?Fiscal workflow processes are designed to minimize manual data entry, reliance on paper and duplicative work. Policies must define suitable technologies according to the fiscal workflow process of the organization with a view to increase efficiency and reliability of operations.After finding the most relevant answers to the above questions, policy-makers then start thinking about all sections to be covered in the policy, specific sections that require more emphasis and new things to be incorporated, if any. Accordingly, they proceed towards planning and drafting the financial policy of the organization.

Structure of Financial Management PolicyAll financial decisions, activities and plans are done in accordance to a set of procedures that form the basis of the financial policy. Once the financial objectives are confirmed, the next move is to frame policies to guide its further proceedings. Financial management policy of an NGO is a manual that covers all the accounting policies, procedures and systems of the organization. Primarily, there are two purposes for framing a financial policy. To look into proper governing of the financial transactions taking place in the concern so that the staff can abide by the set procedures and. To fulfill requirements of local statutory bodies and establish strong management practices, as adopted by the NGO.6.1 Principle of Financial Policy: While developing a financial policy it is a good practice to incorporate the following seven principles suggested by experts.

These principles lay the foundation of an effective financial policy which would ultimately result into a healthy organization. Consistency: The financial policy should be consistent, which simply means that it should not allow manipulation of processes and systems. All the staff members should consistently adhere to the financial policy and there should not offer much flexibility. A consistent policy will ensure better accountability, transparency, better information dissemination and timely reporting. Accountability: The financial systems should be such that it makes the organization more accountable to its stakeholders.

As an NGO all you should account for all the resources and its expenses. For this the policy should clearly indicate the procedures for reporting and publication of financial data. Transparency: An organization should disclose all its operation and provide necessary information to stakeholders. This means that the NGO should provide accurate and timely information to donors, beneficiaries and all relevant stakeholders. Viability: For an NGO to be viable in the long run, the policy should set in place a mechanism that would maintain a balance between its expenditure and income. For any organization to be viable it is important that team leaders are able to generate sufficient funds to continue the functioning of the NGO. Integrity: All team members should follow all rules set by the financial policy.

As a founding member you should set precedence in following and adhering to all rules. Oversight: The policy should also provide oversight into the future and should accordingly suggest measures to cope with future challenges. This would include risk assessment; strategic planning etc. Accounting standards: The policy should be such that it incorporates valid national standards and protocols. The accounting systems should meet national and international standards of financial accounting and recordkeeping this would facilitate easy transactions between diverse funding strategies.6.2 Scope of Policy & Procedures: Financial management policy throws light on the procedures, systems and accounting policies that are prevalent in the organization. The policy contains information about input, output, processing, control and distribution of financial data. The accounting policies and procedures are set out to:.

Make certain that the books of accounts of the NGO are carefully prepared to confirm its accounting principles and practices. Enable NGO’s authority and management heads to procure timely and accurate financial reports on every month. This also fosters stable financial management. Ensure that funds and other resources are being used in an accountable and correct manner. Also, make sure that financial approach is in line with accounting principles and best practices in reporting organization’s requirements.This document is not just necessary for you to manage your finances and accounts, but this would also help you in complying with legal protocols.

The policy will cover the flow of financial data within the organization that would ensure that the health of your NGO in terms of finances remains good. Stock & Inventory Management: Since NGOs receive good amount of funding, execute various activities and expand their organization, they need to purchase goods and service. NGOs always organize their purchase plans and incorporate the same in its financial management policy. Stock & Inventory Management: Maintaining a proper Stock and Inventory list prevents excess purchase and reduces wastage. One should keep a register to keep a tab on Stock. Additionally for large organizations following the 5S principles can be of extreme help.

The five steps of 5S, in Japanese, are Seiri, Seiton, Seiso, Seiketsu, and Shitsuke, which are translated into English as Sort, Straighten, Shine, Standardize, and Sustain. The implementation of these principles reduces inefficiency, abnormality, waste or unsafe condition in your office. The activities performed in these steps, in short, are described as follows: Marking of re-inventory level for stock can help in timely replenishment to prevent brake in work. The Stock and Inventory registers should be audited and monitored periodically, preferable every fortnight. Purchasing: It includes identifying prospective needs for goods and services, identifying costs to cover needs for those products, identifying potential suppliers and procuring at least three estimates and finally getting into negotiation about trading terms and conditions. After mutual agreement on payment terms, orders are placed.

Goods/services that had been ordered are received and paid. After complete payment, accountings and archiving expenditures are prepared. Identifying the supplier: The most potential suppliers are identified by their credibility to supply the requisites on time, cost-effectiveness of the commodities and quality of goods supplied. Local and well known suppliers are more reliable to work with. While selecting a supplier, past performance, reputation and availability are more emphasized. Also, it is ensured that the supplier must comply with the rules and regulations, as stated by the Government. It is advisable to take quotes from 3 to 4 suppliers before finalizing one based on quote and reliability.

Maintaining Stock Register: Stock Register keeps record of all goods that are purchased and stored. Usually, an enclosed format is maintained while entering details in the stock register. The stock register is preserved at the office where the goods are purchased or stored centrally. With arrival of fresh stock, the register needs to be updated with accurate quantity and other data. All requisitions taking place in the NGO must be numbered in duplicate. Two copies are to be maintained: one for the central and the duplicate for the accounts. The records are entered on FIFO (first in first out) basis.

The stock registrar is designated for managing all stock records and its aligned functions. Financial Management Staff & ResponsibilitiesFinancial Management in NGO is undertaken by its governing body, board members and finance staff.Governing Body: The body comprises of members from different committees of the organization such as finance, public relations and project. Being the ultimate authority in any Non-Governmental Organization, the governing body plays a lead role in financial department. According to the nature and state of the concern, it is also known as Council or Board of Trustees or Board of Directors or Governing/Executive Board.Board of Members: The governing body’s plans and policies give a proper direction to the board members. In an NGO, board members are at times volunteers (non-salary people) who are ultimately responsible for the financial aspects of the organization. Although they might not control accounting methods or prepare financial reports by themselves, however they must ensure that everything is undertaken in proper order.

They cannot refrain from their duties, during their association with the NGO and can only do so by resigning from the government body. The board comprise of honorary officers, who are appointed or elected to certain positions on the board.

The main responsibility is to supervise implementations of all board decisions and sign legal undertakings. It will be advisable to take individuals who have experience in Financial Management such as Ex-Bankers, Accountants, Finance Managers among others on board.Financial Manager: The finance manager is the head of the finance committee in an NGO. Apart from supervisory functions and monitoring responsibilities, the finance manager exercises the following duties:. Ensuring that all transactions are properly accounted for and the financial systems are maintained, under all procedures and controls. Managing bank accounts and overseeing money transfers between head-offices, country offices and field offices. Signing cheques, authorizing payrolls and other payments.

Assisting and guiding the board by providing relevant financial information during budgeting, accounts to donors and other decision-making activities. The manager does so, as and when requested.Financial Assistant: The finance manager is guided and assisted by the financial assistant. The main responsibility is to report to the manager and implement work, as and when directed.

The assistant role should be preparing books of account, preparing cash memos, cheques and bills. He is the in putter for the transactions for the finance manager and first level of financial control and management.Admin Manager: Where finance manager and assistant have specific duties, the admin manager has three-fold responsibilities: Finance aspects, HR and administration and logistics. The Admin has to take overview and control of the hiring, inventories, stocks, and all other non specific activities. Since it is a senior position it is advisable to have an experienced person on the job.Admin/Cash Assistant: The admin manager is assisted by the admin/cash assistant. The cash assistant to admin manager is similar to that of finance assistant to finance manager, only that the functionalities are different. The job of finance assistants majorly surrounds around financial resources, aspects and matters, whereas the job of admin assistant spreads across various spectrum of duties, finance being one.In large NGOs, all the above posts are exercised by different persons.

In small and medium NGOs, the financial managers and assistants take the overall responsibility. In this case, the role of finance manager also includes that of admin manager.

In a similar manner, the job of financial assistant also includes that of admin assistant. Irrespective of its size, there is a governing body and board across all NGOs.Conclusion: To sum up, financial management is one of the most significant functions of any organization, including NGOs. Financial control is at the heart of financial management. A well planned and competent financial control ensures proper use of money, financially protected members and safe assets.

Financial decisions also effect on overall management and activities of NGOs. With proficient and tactical finance strategies with changing time and circumstances, Non-Governmental Organizations can successfully manage their financial resources and ensure steady growth and development within the concern.

With sound financial planning, organizing, coordinating, executing and finally reviewing; these organizations can skyrocket their funds and achieve its objectives in the near future.

All About Financial Management in NonprofitsGuidelines for nonprofit financial management are included in the book.© Copyright.Applies to nonprofits unless otherwise noted.New nonprofit leaders and managers have to develop at leastbasic skills in financial management. Expecting others in theorganization to manage finances is clearly asking for trouble.Basic skills in financial management start in the critical areasof cash management and bookkeeping, which should be done accordingto certain financial controls to ensure integrity in the bookkeepingprocess.

New leaders and managers should soon go on to learn howto generate financial statements (from bookkeeping journals) andanalyze those statements to really understand the financial conditionof the business. Financial analysis shows the 'reality'of the situation of a business - seen as such, financial managementis one of the most important practices in management. This topicwill help you understand basic practices in financial management,and build the basic systems and practices needed in a healthybusiness. Sections in This Topic IncludeThe following links are to sections included further belowin this Web page. Basics and Getting Started-Activities in the Yearly Accounting Cycle Planning and Cash ManagementFinancial Statements, Analysis and Reporting-Special Topics-Also considerBASICS AND GETTING STARTED Basics of Financial ManagementReviewing the Basics of Nonprofit Financial ManagementTo manage your finances as effectively as possible, you should at least havean understanding of the basic accounting process. To get an overall sense forthe recurring financial activities in the typical nonprofit, carefully readthe following article.Other sites that you might benefit from are:Use Fiscal Sponsorship?In some cases, you might want to pursue finding a fiscal sponsor.For example, if you're not sure you want to start a nonprofit,or if your nonprofit may not need to exist for long, then a fiscalsponsor may be useful for you.

A fiscal sponsor might overseeyour financial management activities until your organization ismore developed or terminated. SeeWhat Type of Bookkeeping SystemShould You Use?Small organizations might use a single-entry bookkeeping system,although some might choose to use a double-entry.Also, see the cash-basis or accrual-basis inYour Board Treasurer and BoardFinance Committee - Critical Resources to Help You Get StartedAn active board treasurer can be the most important resourcein the long-term financial health of your nonprofit. As a newnonprofit organization, you must get accounting expertise somehow,if you don't have strong skills in this area yourself.

You (or,ideally your board chair) should get someone on your board withaccounting skills to be your treasurer. SeeGetting an Accountant, If NeededYou might choose to do the basic bookkeeping activities yourself.You should get an accountant initially to help you set up yourbookkeeping system, generate financial statements and do somebasic financial analysis.Buy a Software Package to AutomateYour Financial Management?There are a number of very useful software packages that willhelp you automate bookkeeping, generation of financial statementand their analysis. SeeGetting a Bank and BankerYou'll need to start a checking account. Probably the bestway to find a good bank is to ask for advice and references fromother nonprofits, especially other nonprofits that are of thesize and nature of yours.

If you're just starting out, you probablydon't have much money. You may be able to get buy with a non-interest-bearingchecking out that has no, or minimal, fees.The following linkmay be usefulUnderstanding and Setting Up Your Nonprofit Bookkeeping andAccountingNow that you have a sense for the overall, recurring activitiesin nonprofit financial management. Let's take a closer look atwhat happens in nonprofit accounting. Accounting is identifying,organizing and reporting financial transactions.

It's useful tounderstand the basics of accounting before reading the next majorsection on financial planning - that planning requires some understandingof the accounting process. One of the biggest challenges is knowinghow to enter each type of transaction in the journal and ledger.The following links are very useful for this challenge. Beforereading them, do read Quick Overviews of Bookkeeping / AccountingBookkeeping and accounting is all about identifying, organizingand reporting your financial transactions.

Scan this informationto further clarify your understanding of bookkeeping and accounting.Setting Up Your Chart of AccountsDeciding to Use Cash Basis or Accrual Basis for AccountingDeciding Which Expenses Are Direct and Indirect (Overhead)Cost Analysis to Determine Costs of ActivitiesThe following series gives you a well-structured overview ofhow to analyze the financial data, especially to associate costswith the activities in your organization. That information isextremely important if you ever need to cut costs.Deciding How Much to Allocate to Fringe Benefits in PayrollExpensesDeciding How Much to Document as DepreciationAddressing Financial Controls and Risk ManagementThere are certain practices that you should consistently followto ensure that financial transactions are consistently recordedin an accurate fashion. These controls also help to minimize risk,including employee theft.Also considerACTIVITIES IN YEARLY ACCOUNTING CYCLE: Budgeting (FinancialForecasting) and Cash Management Financial PlanningFinancial planning works from the strategic and business plansto identify what financial resources are needed to obtain anddevelop the resources to achieve the goals in the two types ofplans.

Typically, financial planning results in very relevantand realistic budgets - budgets are addressed later on in thistopic. So be sure to consider business planning for each of yourproducts and services.Budgeting and Managing BudgetsA budget depicts what you expect to spend (expenses) and earn(revenue) over a time period. They are useful for projectinghow much money you'll need for a major initiative, for example,buying a facility, hiring a new employee, etc. They also helptrack whether you're on plan or not.

There are yearly (or annualor operating) budgets, cash budgets, capital budgets (for majorassets, such as equipment, buildings, etc.) and proposal budgets(for fundraising), etc. The following links are about annual budgets.Managing Program FinancesUsually, there are two major types of costs to consider: indirectcosts and direct costs.

Indirect costs are what we sometimes call'administrative' or 'overhead' costs, forexample, costs to run the central facility. Direct costs are thosethat fund resources which directly produce services to clients,for example, supplies and materials for books provided to clients.Usually, the lower your administrative costs, the more it lookslike your resources are going directly to services to clients.In addition, you may have restricted grants (that is, grants thatare dedicated for certain programs), which require you to reportmonies spent on overhead and directly on the program. Therefore,it's wise to track carefully how much money each of your programsrequires to operate and how much revenue it generates, as well.A major challenge is to analyze how much of the indirect costsare associated with each program.Also see.Managing Cash FlowAs a new or small nonprofit, your biggest challenge is likelyto be managing your cash flow - probably the most important financialstatement for a new business is the cash flow statement.

The overallpurpose of managing your cash flow is to make sure that you haveenough cash to pay current bills. Nonprofits can manage cash flowby examining a cash flow statement and cash flow projection. Basically,the cash flow statement includes total cash received minus totalcash spent. Cash management looks primarily at actual cash transactions.(Note that nonprofits must file a financial statement called CashFlow Statements or Statements of Cash Flow - this statement isnot the same as a cash flow budget.) Basics of Cash Flow Management - article specific to nonprofitsMore Basics of Cash ManagementNote that cash management activities, whether nonprofit orfor-profits, are essentially the same. Basics of Cash ManagementPreparing a Cash Flow StatementPreparing Cash Flow Projections and ForecastsManaging Your Bank AccountFor a new nonprofit, your check register very likely will beyour primary means to record and track cash. Whether yours isa new nonprofit or an established nonprofit, you'll need to knowhow to manage your bank account. SeeCredit and CollectionsMatters of credit and collections are similar between for-profitand nonprofit organizations, other than that nonprofits obviouslygrant free services much more than for-profit organizations.

Consequently,nonprofits are not nearly as likely to utilize credit and collectionsprocedures.Budget Deviation AnalysisYou learned above that a budget depicts what you expect tospend (expenses) and earn (revenue) over a time period. Budgetdeviation analysis regularly compares what you expected, or planned,to earn and spend with what you actually spent and earned. Thebudget deviation analysis can help greatly when detecting howwell you're tracking your plans, how much to accurately budgetin the future, where there may be upcoming problems in spending,etc.

A budget deviation analysis report might include columnswith titles:Planned for MonthActual for MonthDifference(planned minus actual)% Deviation(Difference x 100)ACTIVITIES IN YEARLY ACCOUNTING CYCLE: Financial Statementsand Analysis Financial StatementsIn order to know how your nonprofit is doing, you'll do someongoing financial planning and analysis. In this planning andanalysis, you'll likely use your bookkeeping information to producevarious financial statements, including a cash flow statement,statement of activities and a statement of financial position.Statement of Activities (Income Statements)These statements include much money you've earned (your revenue)and subtracts how much you've spent (your expenses), resultingin the total of your unrestricted net assets.

The statement ofactivities includes how much money you've earned (your revenue)and subtracts how much you've spent (your expenses), resultingin how much you've made money (your profits) or lost money (yourdeficits). Basically, the statement includes total sales minustotal expenses. It presents the nature of your overall profitand loss over a period of time.

Therefore, the Income Statementgives you a sense for how well the nonprofit is operating.Statement of Financial Position (Balance Sheets)Whereas the statement of activities depicts the overall statusof your profits (or deficits) by looking at income and expensesover a period of time, the balance sheet depicts the overall statusof your finances at a fixed point in time. It totals your allyour assets and subtracts all your liabilities to compute youroverall net worth (or net loss). This statement are referencedparticularly when applying for funding.Financial Analysis (individual statements, ratios, break-evenanalysis, etc.)Financial analysis can tell you a lot about how your nonprofitis doing.

Without this analysis, you may end up staring at a bunchof numbers on budgets, cash flow projections and financial statements.You should set aside at least a few hours every month to do financialanalysis. Analysis includes cash flow analysis and budget deviationanalysis mentioned above. Analysis also includes balance sheetanalysis and state of activities analysis.

There are some techniquesand tools to help in financial analysis, for example, profit analysis(yes, these can be used even in nonprofits), break-even analysisand ratios analysis that can substantially help to simplify andstreamline financial analysis. How you carry out the analysisdepends on the nature and needs of you and your business. Thefollowing links will help you get a sense for the 'territory'of financial analysis.General InformationFinancial Planning and Analysis - RatiosThere are a variety of ratios that can be used to help determinethe current and future condition of a nonprofit.