By Dave Archer
Donors and grant administrators are often faced with difficult decisions when selecting the local and/or smaller nonprofit(s) to which they’ll donate; they all seem to have worthwhile causes. One helpful selection criterion is to find out how well the nonprofit is managed and if the board and staff are “running it like a business.” While nonprofits ARE different from traditional for-profit businesses, the good news is that many of them have adopted some or all of the following tools that help businesses succeed.
Overall Budget. In its simplest form, a budget may be just a list of where they’ll receive their money (donors, program revenue, grants, etc.) and where they’ll spend it (salaries, supplies, utilities, etc.)
If they prepare an overall budget at the beginning of the year, they can revisit it monthly to see if their revenue and expenses match your projections, thus ensuring that they have funding to see their programs to completion. When they create a list of their actual income compared to their actual expenses, that report is called a Profit & Loss report (P&L).
Event and Program Budgets. Each of a nonprofits’ programs also requires its own budget, and subsequently, its own P&L report. By looking at how much money they’re bringing in versus how much they’re spending – showing their “profit” or “loss” – you can decide if each program is worth the money you donate, the time required and the results and impact of the program.
The budget for each program should also include an estimated count of people that will benefit from the program activities. You may find that a program requiring endless staff hours barely covers its costs, or that one requiring dozens of volunteers hardly warrants the time invested because it touches such few lives and results in very little impact or changes.
Reports. Having separate P&L reports for each of their events and programs is relatively easy to create in accounting software. Besides having “accounts” for different types of revenue, such as “grants” and “ticket sales,” and expenses, such as “rent” and “supplies,” some software offers tracking which creates a separate category for each event and program. For example, when you write a donation check, the account (“donation”) is recorded and connected to respective purpose or category (“annual golf tournament”). A P&L is especially helpful for a first-time program as it allows the nonprofit to spot any unexpected problem before it’s too late.
Meeting Minutes. Most nonprofits have organized meetings with their Board members and staff. These “meeting minutes” should be an accurate reflection of how and why they’ve made key decisions. If you’re a prospective donor, you may be interested in reviewing their minutes to better understand how they operate.
Dave Archer is President /CEO of NCET, a member-supported nonprofit that produces educational and networking events to help people explore business and technology.