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Business and economics

How to make your non-profit financially stable

Building financial resilience in non-profits through diverse strategic planning through economically tough times

In today's unpredictable economic climate, non-profits are increasingly facing financial challenges that threaten their sustainability and mission-driven goals. To navigate these turbulent times, organizations must adopt strategies that build financial resilience, says CPA Gordon Holley. 

Holley and his wife run Humanity Financial Management, a 32-person, social purpose CPA firm that works exclusively with charities, nonprofits and First Nations to build internal financial capacity, health, and sustainability. He identifies three broad categories of financial health in non-profits: those in financial crisis, those experiencing financial fragility, and those that are financially stable but seeking to improve their financial health and sustainability.  

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Many organizations are unable to focus on long-term financial health until they resolve immediate crises and establish effective financial systems, he believes. "Once these foundational elements are in place, leaders can then dedicate their attention to dreaming about mission achievement without the distraction and anxiety of ongoing financial challenges," says Holley. 

For non-profits that find themselves in the midst of a financial crisis, the first priority is to ensure a right-sized budget and sufficient short-term cash flow, along with functioning payroll, accounts payable and accounts receivable processes. In particular, Holley emphasizes the importance of timely, accurate financial reporting for making informed financial decisions. 

For organizations with inadequate internal financial controls or inefficient systems, Holley recommends identifying gaps between current practices and good practices. "Investments in people, processes and technology are crucial for long-term financial management, good governance and mission achievement," he says. 

Once they’ve achieved financial stability, non-profits can then focus on the long-term. This involves ensuring the right funding streams and sufficient unrestricted or own-source funding to cover operations, governance, capacity building and (once again) mission achievement. “Counterintuitively, spending less on current programs in order to enable investments in financial and fundraising capacity often results in better financial health and improved financial sustainability, which leads to greater long-term impact and enhances the organization’s capacity for mission achievement." he says.  

For Gretchen Daniels, the CFO at Toronto-based food bank Daily Bread, financial stability and the organization's mission are intrinsically linked. "Without careful long-term financial planning, Daily Bread will not be able to serve clients into the future," she says. “As we head into our fiscal 2025, we are anticipating 4.9 million client visits—six times our pre-pandemic numbers.  

“Food donations have not kept up with the growth in clients. As a result, we’ve had to drastically increase the amount of food we are purchasing to maintain service levels.“ 

Through regularly updating long-term financial projections with sensitivity analyses on key inputs such as growth in client visits and food inflation, and deploying resources judiciously, Daily Bread ensures people in need of food can continue to be served. 

“This spring, we implemented a new accounting system that will give internal decision makers even more detailed and timely financial reporting. We’re already realizing time efficiencies with the new system, in particular through more streamlined invoice approvals and reduced data entry,” says Daniels. 

Investing in the right financial software can help automate processes, improving overall accuracy, says Holley. "Accounting software that utilizes artificial intelligence and machine learning can assist with identifying unusual or suspect financial transactions, increasing the accuracy and completeness of financial reporting," he notes. 

Diversifying funding sources is also essential for financial resilience. Holley advises his clients against over-reliance on short-term grants, particularly government grants, which can be subject to modification or withdrawal. Instead, he recommends creating financial reserves and opening lines of credit to reduce financial risk and create short-term resilience. "Research and experience show that investments in building fundraising or fund development capacity often yield significant returns on investment," he says. 

Daniels shares that Daily Bread created a restricted Pandemic Fund at the start of COVID-19 to meet the expected growth in food bank visits. This proactive planning allowed the organization to maintain reliable service levels despite the dramatic increase in demand.  

She emphasizes the importance of making informed decisions based on solid data, and continuously assessing and thinking creatively about the best ways to deliver programming and advocate for clients.  

“Our clients are facing an unimaginable struggle,” she says. “Being equipped with solid data allows us to address the challenges of today, while bracing for the challenges of the future.”