After spending close to 25 years working with Nonprofits (government, churches, and everything in between), I’ve seen a lot of nonprofits struggle. Why do they struggle? It’s not because they are lazy or lack passion or are ignorant. Why is it then? Here are the top six mistakes I see nonprofits making with their finances.
#6 – No Plan for Savings
The rain falls on the Just and Unjust. Just because you are committed to making our world a better place doesn’t mean that you are insulated from bad events. The stock market still crashes which means donors may be less able to contribute. The roof still ages and eventually needs to be replaced. These things happen. A nonprofit should have Savings (aka Reserves) to protect operations AND capital investments. That is to say, when it rains, you still need to be able to make payroll AND stop the roof from leaking.
#5 – Living with Debt
The vast majority of churches and nonprofits struggle to just raise enough money to meet the budget for the current year. Choosing to stay in debt is choosing to make this even more difficult. This is like deciding to run a 10k while wearing a backpack with 30 pounds of extra weight. You have just made something that is challenging already so hard that you might not be able to finish. Debt is a ministry killer.
#4 – Failing at Budgeting
Adopting a budget can be a challenge if you take it seriously. Your budget should help outline your plan for the year. “If bring in $xxx, and spend it according to the budget, we will be set up for success.” It’s easy to budget basically the same as last year.
The next big challenge is operating subject to the budget. Budgets are often adopted and then never looked at again until next year. What use is it to set a plan and then forget about it immediately?
#3 – Not Making your Case to Donors
In the church world, I would often work with pastors and church leaders to teach and preach about giving and money. I tried to stress how important the work of the church is. It is amazing how many churches and nonprofits neglect this. They are doing important work, but they don’t invite people to join in the work through their giving.
#2 – No One Focuses on Finances
Most nonprofits just don’t have enough staff to focus on cultivating giving and overseeing the budget. Part of the issue is that nonprofits are taking on huge challenges making it seem like focusing no finances is taking away from the mission. That’s like never taking the time to eat. You might be slightly more productive for a day or maybe even a few days, but that is not a long-term strategy. Not taking the time to focus on finances will eventually starve your ministry.
#1 – Leaders Not Invested
I often see passionate employees, but the board is not invested. Anyone serving on the board should be giving and/or serving appropriately. Giving and serving does something inside a person. It changes them from a spectator or armchair quarterback to being a teammate.
The plan is to make this into a series. I would like to dive in deeper into each one of these six over the coming weeks.
Useful Links
- My YouTube Channel: https://www.youtube.com/@JeffPospisil