Entrepreneurial growth companies, nonprofit agencies, and governmental organizations are all becoming alike in one way – they are seeking capital to carry forward their mission; however, they also compete for the same pool of high net worth individuals, venture capitalists, and private investors.
From this evolution comes the new challenge for each American – to step up and grasp their responsibility in this new world. To take responsibility, we all must accept the impact of this change: no longer can social and business issues can be addressed separately when funding involves the same pool of resources.
Entrepreneurial growth companies are led by individuals who have left the corporate environment to start a new venture, in part to do good for the community. They are social-minded, routinely volunteer or get involved in nonprofits one way or another. Generally, these entrepreneurs are seeking capital to push forward and provide the product or service they are selling.
On the flip side, nonprofit organizations are beginning to realize that they have to perform as social entrepreneurs, seeking funds from donors as if they were investors. Historically they have sought funds from governmental entities through grants; however, this avenue is becoming increasingly difficult to pursue, as the governmental entities do not have enough money to fund the nonprofits. Governments struggle to hire and maintain employees and provide services to the community so elected officials can remain in good favor and get reelected. The constraint of human and monetary resources leads to a direct hit to the nonprofit world.
For example, nonprofits struggle when they have multiple grant managers within the same governmental organization with a different interpretation of the impact of the grant guidelines. The result is that nonprofits find themselves funding services they expected to be reimbursed from the government, only to learn that they must raise the funds from donors to maintain sustainability because of misinterpretation of the rules.
In both the nonprofit and the entrepreneurial growth companies one of the major funding sources – the high net worth individuals and donors – are more insistent on monitoring outcomes for promised results from their investments. Both types of organizations must have the right infrastructure and process to capture metrics that support the promised result.
If you are a for-profit business professional reading this post, consider serving on a nonprofit Board or Finance committee. Learn more about the differences between for-profit and non-profit financials by participating in my free webinar, Financial Stress or Success, Which is your Nonprofit? then with your new-found knowledge, go out and volunteer.
Nonprofit leaders often make decisions about adding structure, enhancing staff expertise, or conducting advanced planning in response to a risk situation, or, as an afterthought. Savvy leaders recognize the need to make periodic adjustments to processes, staff and technology resources if they want to stay on the path to financial brilliance.
Donors have many tools to assist with decision-making. GuideStar is a tool most sophisticated donors use. GuideStar is a public charity that collects, organizes, and presents the information in a neutral format. GuideStar publishes your 990, providing potential donors with full access to the information. Do you know what your GuideStar rating is? The process of adding the appropriate information to receive a Gold (the highest level) rating takes less than an hour and the return on that investment is providing transparency and financial clarity for sophisticated donors.
Take this quiz to see if you are on the right path to financial brilliance, or if it’s time for one of those adjustments, then tally up your score to see where you stand:
- Do you have a financial professional on staff? How often do you forego infrastructure development to save money? When you engage the expertise of a CPA on your team, the next six characteristics can become reality.
- Do you have an annual budget? Navigating the fiscal year without a budget is like driving down the interstate blindfolded. By reviewing past revenue and expense flows to forecast future income and expenses, you can create a budget to see where you are going.
- If yes, do you monitor actual vs. budget? The annual budget is a dynamic document, meant to be part of your monthly financial review process – planned versus actual expenses. It’s OK to make periodic adjustments, a process that helps you know if the company goals are on track.
- Is your G/L infrastructure meeting the need? If your monthly financial reporting: (a) is either non-existent, or (b) is not helping you run your business, consider a review and restructuring of your GL. Make it work for you – not the other way around.
- Do you have an endowment fund? If yes, ensure accountability with a documented Endowment Fund Management Policy and related procedures.
- Do you have restricted funds for operations? With the help of your financial professional, meet the obligations to record, report, and effectively manage restricted funds by understanding the requirements. Document how your company meets these obligations in your fund management policy and follow the practice in day-to-day activities.
- Do you have grants and loans with covenants? As with restrictions, part of monthly reporting should be key indicators on how the business is complying with covenants.
- Do you know the core financial data contained on your organization’s 990 and its GuideStar rating? Knowing the answers to the questions before potential donors is a must to maintain credibility and be in the best position to make the “ask”!
How many “Yes’s” did you score on the Financial Brilliance Meter?
0 – 3 – Financial Dunce
3 – 5 – Financial Aptitude
6 or more – You are on the road to Financial Brilliance!
Whether it’s creating your first budget, enhancing your general ledger infrastructure or reviewing and tightening up financial reporting, successful leaders ensure these characteristics are part of their culture. This financial clarity helps ensure stability to carry out your mission.
Raise your Financial Brilliance score, let Mindy Barker & Associates show you how. We can help you gain the financial brilliance that empowers you with the tools and financial information to improve company value, profitability, and cash flow. Contact me here.