15 Ways a Financial Advisor Can Assist a Nonprofit

Most people, wealthy or not, try to support a philanthropic cause, be it big or small. Whether that be through donations, volunteering time, or joining a charity’s board, it is important that the charities individuals choose to support are utilizing resources to make the most of what they are given. As a Board member, Director, or Manager of a nonprofit it is important to understand how to optimize your organization’s finances. A financial advisor can be a great resource to help you do that.

1. Cash Flow Forecast

Since nonprofits almost exclusively rely on donations, grants, and loans, they tend to run a higher risk of fluctuating cash flow or over-spending than for-profit businesses do. There is no guaranteed influx of funding, so creating a cash flow forecast can help your organization understand how long you can cover your expenses with your current cash load as well as aiding in your organization’s financial plan and budget creation.

A financial advisor can help you create a cash flow forecast for your organization based on previous cash flow data. They can further assist you by using that data to develop a spending plan/budget that covers expenses and starts building a backup reserve of cash.

2. Financial Compliance

Especially for government-funded grants, keeping your nonprofit organization compliant with all local and federal regulations is incredibly important. Financial advisors can provide guidelines and updates when compliance requirements change. They can also perform an audit of your current financial documents and policies to make sure they follow legal and ethical regulations.

For certain aspects of running a nonprofit, such as by-laws, your organization should seek the advice of a lawyer or other qualified professional to verify compliance requirements.

3. Strategic Planning

A financial advisor can help your organization create a strategic financial and risk management plan. This could include budgets, spending policies, fundraising plans, investment strategies, emergency funds, and more. That list may seem overwhelming, especially if you don’t have a financial planning background, which is why hiring an expert is worth it.

4. Understanding Your Audit and 990 Forms

Almost all nonprofit 501(c)(3) and 501(c)(4) organizations are required to undergo an annual financial audit, which is part of why recording and keeping track of all finance-related activities is so important. In addition to this audit, tax-exempt charitable organizations are required to submit a 990 form to the IRS each year.

A financial advisor can assist you with gathering the required financial information for the 990 form and understanding the differences between an audit and a 990 form. They can also help you review both items to make sure they are compliant and follow all requirements.

5. Fundraising Plan

As a nonprofit organization, you rely on donations, grants, and gifts for the operating expenses of your business. Because of this, every nonprofit needs a fundraising plan to be successful.

Your fundraising plan should include clearly defined roles and expectations for each Board member, the development director, and any staff involved. How involved is your Board going to be in the fundraising efforts? What are they expected to contribute or raise? Your plan should also include a fundraising goal for each quarter, and the year as a whole.

Once you know your goals, you can create specific fundraising steps to take to reach those goals. For example, you could include certain fundraising events as part of your fundraising plan, such as a gala, silent auction, performance, or raffle drawing.

A financial advisor can help you set realistic, specific, and achievable fundraising goals for your organization. They can also help define the roles of the Board and staff members in achieving those goals.

6. Investment Strategy

Nonprofit organizations sometimes receive stocks, bonds, or other assets instead of cash as a donation. Therefore, every nonprofit should have an investment strategy. This should include a detailed process for reviewing and adjusting how the assets are invested. Don’t forget to consider what types of investments are best for your organization’s mission and needs.

Financial advisors can help you create an investment strategy, research investing opportunities, recommend certain investments for your organization, and monitor your investment portfolio. Having an outside expert resource monitor your investments can reduce the stress, duties, and expectations of the Board members.

7. Monitoring Restricted Gifts

A critical part of a nonprofit’s compliance and audit is the monitoring and documentation of restricted gifts. Whether the restricted gift is cash, stocks, bonds, or other assets, make sure to keep a detailed record of every time the gift is used and what it is used for. For investments and non-cash assets, this means an accounting process that includes details of restricted assets as well as every expenditure that is attributed to those assets. A donor finding out that their restricted gift was not used for its intended purpose by your organization can be extremely detrimental and may even cause your company to close.

Financial advisors can help you establish your process for monitoring any restricted gifts you receive and perform regular audits of your records to ensure that those gifts are being used correctly and that their uses are recorded accurately.

8. Monthly Closes

Your organization should be comparing the predicted budget with actual revenues and expenses at the end of each month. Doing this on a monthly basis will make for an easier year-end close. It will also provide stakeholders with continual insights into what is working, what isn’t, and what adjustments might need to be made to the budget.

A financial advisor is a great resource for month and year-end financial close assistance. They can make sure all your receipts, records, and reports are accurate and detailed and can help with budget comparison and analysis.

9. Document Retention

According to the Montgomery McCracken Attorneys at Law, “Sarbanes-Oxley prohibits the destruction of documents that may be material to a federal investigation. This provision applies to nonprofit as well as for-profit organizations.

The revised Form 990 asks whether the organization has a document retention policy... Some statutes require certain types of records to be kept for a stated period. For the most part, however, the periods for which documents are to be retained are based on the statute of limitations for a lawsuit.

For example, because the Internal Revenue Service (IRS) has six years after the filing of an action to bring a claim for taxes if there has been an underreporting of income by 25 percent or more, most policies require retention of tax returns for seven years” (https://bit.ly/37F9RI4).

Keeping your documents for the reasons mentioned in the above quote, as well as for your own records is incredibly important, and a financial advisor can help you keep those records organized and easily accessible.

10. Compensation Plan and Guidelines

The 990 form asks nonprofits whether they are using a procedure for setting compensation and what the details of that procedure are. The Board should use comparable compensation data to determine reasonable compensation levels for officers and key employees of the organization.

The form also asks if the determination of reasonable compensation is put into writing contemporaneously. These questions are taken from the regulations that “…provide 501(c)(3) public charities and 501(c)(4) organizations with a rebuttable presumption that compensation paid to an insider is reasonable or that amounts paid to purchase property from an insider does not exceed market value…” (https://bit.ly/37F9RI4).

11. Developing an Annual Budget

Alongside annual cashflow forecasting, every nonprofit needs an annual budget. What are your overhead operations costs? This includes equipment and facility maintenance, rent or mortgage, staff compensation (if applicable), event costs, utilities, etc. A detailed account of all operating expenses should be included on your annual budget.

In addition to operating costs, you should also add any planned or predicted expenditures your organization intends to make. This could be renting a venue for an event, gifts for your volunteers and/or staff, catering for an event, and more. The more detailed your annual budget is, the easier it will be to compare to what you actually spent and received over any given year.

A financial advisor can help you develop and track your annual budget as well as compare your actual revenues and expenses against what you predicted in the budget. They can also provide reporting tools for you to see your organization’s financial trends over time.

12. Annual IRS and State Reports

Almost all nonprofit 501(c)(3) and 501(c)(4) organizations are required to file Form 990 with the IRS, as mentioned previously. Aside from Form 990, state governments may have additional forms or requirements for nonprofits.

You can utilize the expertise of a financial advisor when filling out and filing these annual reports. A financial advisor can help you find any additional requirements in your state as well as make sure all your reports and paperwork are in order prior to filing.

13. Preparing Financial Statements for Board Review or Audit

The Board of Directors of any nonprofit should be reviewing financial statements, budgets, reports, and plans regularly (at least once per quarter). In many organizations, the Board is also heavily involved in the creation and approval of financial plans and budgets.

Many financial advisors have some type of dashboard system where you can easily see your organization’s financial data, trends, reports, and forecasting. Utilizing a dashboard system can be an easy way to present financial statuses to your Board.

14. Insurance Policies and Acquisition

If your organization needs insurance policies of any kind, whether that’s health insurance for employees, property insurance, mortgage insurance, or another type, your Board of Directors should be involved in the acquisition and upkeep of all insurance policies.

A financial advisor can assist by recommending insurance policies that fit your organization’s specific needs as well as guiding you through the insurance acquisition process.

15. Overall Financial Health and Visibility

Having a non-biased financial expert, like a financial advisor, that you can trust to be on top of your organization’s finances and financial health will relieve your executive staff and Board members of some of that responsibility and stress. Financial advisors are also great at providing comprehensive reporting options so that all stakeholders have the visibility they need into the financial situation of the nonprofit.

Hire a Financial Advisor Today

A financial advisor can assist a non-profit with all things financial planning and budgeting. This includes everything from creating a plan to managing current finances and investments. Non-profit organizations are often underfunded which can lead to money problems and lack of resources.

A financial advisor can help them get their finances in order so that they have enough funds to continue providing services to their clients. They can aid in selecting the right type of investments for a non-profit or an individual based on their risk tolerance and goals and so much more.

Contact us today to find out how a financial advisor can help your organization grow and thrive.

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About the Author

Jack Brkich III, is the president and founder of JMB Financial Managers. A CERTIFIED FINANCIAL PLANNER ^TM, Jack is a trusted advisor and resource for business owners, individuals, and families. His advice about wealth creation and preservation techniques have appeared in publications including The Los Angeles Times, NASDAQ, Investopedia, and The Wall Street Journal. To learn more visit https://www.jmbfinmgrs.com/.

Connect with Jack on LinkedIn or follow him on Twitter.