The most successful nonprofit organizations I know share a common trait.
I realized this as I drove home from a board meeting the other night, and reflected on management’s good report.
The organization had navigated the bleak economic environment of 2009 with remarkable success. While revenue growth lagged behind demands for services, at least there was some growth. A few staff positions were eliminated – all through attrition – but this enabled the organization to redeploy resources to high-impact programs that had enhanced both its reach and its reputation.
What was their secret? Excellent financial management. In my experience, the most successful nonprofits are the best-managed financially.
Today’s difficult economy magnifies the importance of financial management for nonprofits. Donors gravitate to well-managed organizations – that know how to use their resources to achieve their goals. When times are hard, donor scrutiny is heightened. Successful organizations tend to receive an even bigger share of contributed funds; struggling organizations struggle all the more.
You may wonder whether I’m confusing efficiency with effectiveness. Just because an organization has good financial practices doesn’t mean that it’s meeting the most important needs in the community. In fact, sometimes organizations lose their focus as they add layers of bureaucracy in the name of good management.
That’s all true. But it’s also true that efficiency and effectiveness tend to go together. All good leaders want to assure that the organization’s resources are being used for the purpose intended, and are not being wasted through poor practices. To make this good intention a reality requires a systematic approach, and the discipline to manage systematically. Well-designed information system enable managers to gauge both efficiency and effectiveness.
There are two critical dimensions to good financial management: 1) the ability to budget and plan effectively, and 2) an effective system of controls over resources. In the next two days we’ll examine these two dimensions more closely.
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