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- Your organization needs to increase net assets in order to grow programs and stay ahead of inflation.
- You need to align your Chart of Accounts with the IRS 990 (https://www.irs.gov/forms-pubs/about-form-990).
- You should use accrual accounting.
- You need to know the fixed and variable costs of your organization.
- You should indicate salaries, supplies, and space (rent/mortgage) in grant applications.
- You must track how much it costs to serve a constituent.
- Executive directors need to be able to answer the question, “How much cash on hand do we have?”
- Nonprofits should not write a 1-year budget.
- Trustees and board members need to assess the organizations financial position through automated assessments and dashboards
- Nonprofits must write a three- or five- year projection of income and expenses.
- Net Assets: Cash, invested income, and property minus debt (credit cards, loans, and bonds)
- Fixed costs: Constant expenses that do not fluctuate (salaries, utilities, rent/mortgage)
- Variable costs: Expenses that fluctuate in relation to the amount of services that you deliver (salaries, utilities, rent/mortgage)
- Liquid Assets: Money that you can access immediately (cash and bank and money market accounts
- Cash on hand: Reported in days, liquid assets divided by your budget. For example, if you have a budget of $1M and $500k, you have 182 days of cash on hand.
- Budget: an estimate of income and expenditure for a set period of time.
- Dashboard: An assessment of information that a business tracks visually
- Proforma: a three- or five- year projection of income and expenses
- Calculate your expenses first. This is different than budgeting in profit-making industries.
- Use the count of the number or people you served last year in relation to your variable expenses.
- Calculate your income second.
- Include in-kind donations.
- When applying for grants, include (1) the appropriate percentage of fixed costs to your list of expenses and (2) in-kind donations.
- The simplest way to create this is by using a moving average for subsequent years.
- For example, you want to create a proforma for the next three years. Look at the last three years of expenses. Use the variable costs of the last 3 years. Sum, and divide it by 3. Transfer the fixed costs. Calculate income and adjust to accommodate for anticipated increases/decreases in income. The calculated numbers represent the fourth year’s budget. Repeat for years 5 and 6.
- If you want to grow the organization, use the cost to serve a person as your basis for variable costs