Karen Houghton
August 25, 2024
Finance

Navigating the financial landscape of a nonprofit can feel overwhelming, especially if your organization is new or just getting started. You might find yourself wondering where to focus your efforts—should you prioritize building up your savings, or should you diversify your revenue streams? Beyond the basics like budgeting and managing fundraising revenue, what do you really need to know to ensure not just financial stability, but also long-term financial growth?

It may seem daunting, but remember, many organizations have successfully navigated this journey before. Here are four crucial strategies nonprofits should adopt to foster long-term financial growth.

1. Build a Reserve Fund

One of the most critical financial moves your organization can make is establishing a reserve fund. Think of this as a nonprofit’s savings account—unrestricted funds set aside in a separate account for emergencies. Having a reserve fund ensures your organization can weather unexpected challenges and maintain financial stability.

According to Infinite Giving, nonprofits should aim to have reserves covering six to twelve months of operating expenses. This cushion provides a safety net, allowing your nonprofit to sustain itself during crises like economic downturns or pandemics.

If your organization hasn’t yet established a reserve fund, make it a top priority. Start by setting aside any surplus from the last fiscal year, and consider allocating portions of grants or unrestricted major gifts to this fund. Once you’ve set aside some reserves, the next step is to determine the best place to store them to maximize growth and protection. That’s where a brokerage account comes into play.

2. Open a Brokerage Account

A brokerage account is an investment account that allows your nonprofit to grow its reserve funds and accept gifts of stocks, bonds, and other securities from donors.

Storing your reserve funds in a brokerage account, rather than a traditional savings account, offers the potential for growth, helping to counteract the effects of inflation. Additionally, some brokerage accounts offer sweep programs that significantly enhance your FDIC coverage.

The FDIC insures:

  • Up to $250,000 for traditional savings accounts, often leading organizations to spread their reserve funds across multiple accounts, complicating financial management.
  • Up to $5 million for certain brokerage accounts with sweep programs, allowing you to insure all your reserves in one account and streamline your financial operations.

To open a brokerage account, you’ll need your board’s approval, and it’s essential to carefully evaluate your options—whether with a large bank or a nonprofit investment advisor. Consider factors like fees, nonprofit expertise, and the application process when making your choice.

3. Embrace Non-Traditional Donations

As the landscape of philanthropy evolves, more donors—especially younger generations and those involved in the Great Wealth Transfer—are seeking flexible ways to give. This shift means that if your organization only accepts traditional cash donations, you might be missing out on significant opportunities.

To diversify your revenue streams and attract new major donors, your nonprofit needs to accept non-traditional gifts such as:

  • Stock donations: Donors can transfer ownership of stock to your organization through a brokerage account, which you can either cash out or reinvest.
  • DAF grants: Donor-advised funds (DAFs) allow donors to request a payout to your nonprofit, providing a new avenue for major gifts.
  • Cryptocurrency: By opening a crypto wallet, your organization can accept donations in popular cryptocurrencies like Bitcoin, which can be converted to cash immediately.
  • Matching gifts: As 360MatchPro’s corporate matching gifts guide explains, matching gifts are “essentially free extra revenue nonprofits can access to improve their stability.” Educate your donors about this opportunity and encourage them to request matches from their employers.

For non-cash gifts, using a donation platform or tool that facilitates stock, cryptocurrency, DAF grants, and other forms of giving can simplify the process for both you and your donors. These platforms often provide detailed instructions and convert non-cash gifts to cash, streamlining your bookkeeping.

4. Implement Intentional Cash Management Strategies

Once you’ve established reserve funds, managing them thoughtfully is key to gaining donors’ trust and demonstrating your organization’s longevity.

Effective cash management typically involves keeping funds secure while also seeking growth opportunities. Consider these proactive strategies:

  • Storing reserve funds in an FDIC-insured brokerage account.
  • Establishing strong governance and financial oversight policies.
  • Regularly monitoring cash flow.
  • Investing in low-risk, highly liquid options like certificates of deposit (CDs) or treasury bills.
  • Collaborating with a financial advisor who has experience with nonprofits.

These strategies will help you manage and grow your funds effectively, positioning your nonprofit for long-term financial success. If you’re unsure where to start, consider consulting a nonprofit investment advisor for expert guidance on cash management.

Summary

Improving your organization’s financial position not only brings peace of mind to your staff but also strengthens donor relationships and demonstrates your financial stewardship to potential funders. By implementing these tools, your nonprofit can begin to grow its finances and thrive in the years to come. We can help.

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