There are all kinds of measures and metrics for the financial health of nonprofits, and there are some golden rules to practice in order to ensure stability, flexibility, and sustainability in operations. We believe in this so much that we’ve identified the 12 Characteristics of Financially Healthy Nonprofits.
But the real way of knowing how you’re doing lives somewhere other than the report or the intellect. Don’t get me wrong: Financial health and integrity is all about planning, execution, and transparency. But the real indicator of how things are going is in the body and the gut.
You know that you need to pay close attention to budgeting, and keep the numbers realistic and well considered. That’s very important, but does your stomach clench up when you look at your budget variances?
You’re working on spreading financial literacy throughout the organization, asking questions, and getting everyone trained and engaged who touches your nonprofit’s financial picture. But do management team discussions of the monthly financial report turn hostile, leaving you on the verge of tears?
You’ve been doing a lot of thinking about long-term financial questions and changes on the horizon with your funding sources. But are you going into board meetings in mid-panic attack, feeling like the weight of the world is on your shoulders alone?
You’re beginning to use management tools to supervise and monitor cash flow. But do you lie awake at night worrying about making payroll and next month’s rent payment?
This is the human side of nonprofit management, the metrics that many of us ignore but which are as important as any other. As with so many other parts of life, we need to listen to what our bodies are telling us—and anxiety is a symptom that something is out of balance.
All of these human and physical symptoms are indicators of the health of a nonprofit. If your executive director and finance director are spending a lot of time distracted and worried, without the headspace to properly do their jobs, that’s a major problem.
The indicators and measures of nonprofit financial health sound great, and they’ve been developed over time by many nonprofits and those who assist them. But they’re about even more than the health of the individual organization—they’re also about the health of the people who run them, and it’s a two-way street.
When an opportunity or a problem arises, you need to have a pretty clear view of your options instead of feeling panic. Budgeting, good information, and reports and forecasts of long- and short-term plans give you that calm vantage point.
Accurate and timely information on finances is more that a good practice—it’s personally liberating for the people involved in being responsible for those numbers. Even if the information isn’t good, it’s empowering to know the details of what’s ahead. And for leaders, it’s a matter of being able to truly get everyone involved in a meaningful way and to share responsibility.
Because nothing causes more stress than avoiding the truth.
There are actions you can take to address those physical feelings of unease that are signaling something needs to be done—the same way a far off warning or a fear of the unknown kept our ancestors up late at night long before there was even such a thing as a nonprofit (or a profit, for that matter).
You might say: The truth is, it would help if we had another $100K in cash. And of course I would never argue with that. But instead, you can do a cash flow projection, and those fears of the unknown will become problems of the known. You can act on that.
Instead of worrying and wondering, sitting down with a detailed financial assessment defuses that anxiety enough to make you more effective in doing what you need to do. That information is like your blood pressure or baseline blood sugar: the stuff you need to know to take action for your health. You can act on that, too.
You might still need a swig of Pepto Bismol on a hard day, but detailed and truthful information will do you just as much good (granted, you might need a little bit of both).
The rules of transparency, planning, and realistic financial assessment will help settle those nerves, help your executive director sleep at night, and keep those headaches at bay. Because you have a big job ahead of you, and you need to be at your best.