3 Ways to Create Efficiencies in Your Nonprofit’s Monthly Finance Workflow

I love the saying: Where your attention goes, energy flows.

We want to put our energy into the right things to get maximum results with minimal wasted time or resources. And yet, I don’t know a single nonprofit leader who’s not juggling 15 balls: trying to keep fundraising up, their team happy, and programs running smoothly to create the impact they intended. With your energy—and attention—going to so many tasks, it’s easy to feel like nothing is getting the attention it needs.

This is why it’s critically important to have a solid monthly finance routine that you do without having to think about it. If you are like many organizations, your month-end closing can feel like you’re reinventing the wheel every month and you don’t actually gain any insight into your organization’s financial health and future.

It’s easy to get sidetracked with so many responsibilities, so proper planning and workflows are vital to keep your organization running smoothly. That way, when a surprise happens, such a funder unexpectedly not renewing their funding or your roof starts leaking, you aren’t forced to scramble.

Creating a monthly finance routine is about so much more than bank reconciliations and journal entries. A solid monthly finance routine will create efficiencies, allow you to slow down and understand the story your numbers are telling. You can make strategic decisions to help propel your organization’s impact and income forward.

Here are three monthly habits that you can start practicing today.

Do Your Bookkeeping

This means coding all your revenue and expenses accurately, reconciling your bank accounts, posting journal entries, reconciling your donor database and accounting system, and reviewing your restricted fund balances. Every organization’s bookkeeping process looks a little different, so to eliminate that feeling of constantly reinventing the wheel each month—Did I remember to post that journal entry? Do we calculate depreciation monthly or quarterly?— create a checklist. Include every single activity you do as part of your bookkeeping and accounting processes and indicate whether they’re monthly, quarterly, or annual actions. Share the checklist with your team to help eliminate overwhelm and confusion each month to allow you to focus on the strategic elements of the monthly close process.

Review Your Financial Statements

Most finance leaders review their financial statements every single month, but refreshing your finance routine is a great way to reassess the reports you’re looking at and the information you’re gleaning. I recommend reviewing a comparative income statement, comparative balance sheet, and budget vs. actual at a minimum. The comparative reports give you a benchmark for performance, comparing your results to last month or last year. You may also consider adding an income statement by program, A/P or A/R aging reports, or a statement of cash flows, depending on your organization’s needs.

While reviewing the financial statements, it’s important to calculate a few key metrics to better understand your financial health. It’s not enough to glance over the income statement then file it away into a folder on your hard drive. The metrics that are most important to every organization may vary, but if you’re looking for a place to start, I like choosing a metric to help analyze revenue, expenses, and cash flow. For example, revenue diversity helps measure how much of your revenue comes from each source, burn rate measures your average monthly expenses, and months of cash on hand measures how many months of cash you have in the bank.

Update Your Forecast

First, do you have a forecast? Having a detailed monthly forecast is one thing I often see leaders forgetting as part of their finance workflow.

A forecast is different from a budget in a few ways. You create your annual budget at the beginning of the year and use that as your benchmark over the next 12 months. But often things change. We don’t want to update the budget every single month, so that’s where a forecast comes in. This gives you a clearer vision of how the year will actually pan out, both in terms of revenue and expenses. The format is similar to a budget where you have all your revenue and expenses (and cash flow) laid out in a spreadsheet, month by month, and a critical part of your monthly finance routine is to update this forecast.

Being able to see into the future of your revenue and expenses is a critical function of a nonprofit finance leader. I was once given the advice that a good CFO “sees around the corner” and that’s exactly the insight that updating your forecast monthly can give you, so you can avoid low revenue months or cash crunches before they occur.

Direct Your Energy Toward Impact

Leading a nonprofit can be a challenging task, full of ups and downs, and never-ending to-do lists. Creating a monthly finance routine is critical. Achieving the impact on those we serve is mission number one and we know that can only happen with a strong financial foundation.

Like the saying goes, if we want more impact and income, we need to direct our energy to what will get us there. And that’s our monthly finances. So, while we’re being pulled in a million different directions, creating a monthly finance routine around doing your bookkeeping, analyzing your financial reports, and updating your forecast allows you to focus on what’s most important: understanding your financial data so you can make the best decisions to grow your organization’s impact and income.

Ready to learn how to create more efficiencies in your nonprofit accounting? Check out our webinar, Five Workflow Master Practices for Your Nonprofit Finance Office.