Nonprofit Financial Growth Starter Kit: 4 Things You Need

Navigating nonprofit finances can feel like a minefield. Especially if your organization is new or just getting off the ground, you may not know where to put your foot next when it comes to managing and stewarding your finances. For instance, should you focus on building up your savings or diversifying your revenue?

Beyond finance basics like budgeting and effectively allocating your fundraising revenue, what exactly do you need to know? What can nonprofits do to put themselves in a good position for not just financial sustainability, but long-term financial growth?

Although it feels overwhelming, remember that plenty of organizations have walked this path before you. In this article, we’ll zero in on four of the most important things nonprofits should implement to grow their finances long-term. Let’s dive in!

1. Reserve Funds

First and foremost, your organization needs a dedicated reserve fund. Reserve funds are like a nonprofit’s version of a savings account—unrestricted funding set aside in a separate account to save for emergencies. This way, your organization can more easily weather unexpected changes and remain financially stable.

According to Infinite Giving, nonprofits should aim to keep about six to twelve months' worth of their operating costs in reserve. Essentially, your reserve funds should give you enough of a cushion to sustain your nonprofit for at least six months in the event of a crisis like a pandemic or major economic downturn.

If you don’t have a reserve fund yet, building one should be one of your top financial priorities.

Start with any surplus funding from the last fiscal year, then consider allocating a portion of a grant or unrestricted major gift to your reserves. Once you have some funds set aside, the next step is deciding where to keep them to maximize their coverage and potential for growth. That’s where a brokerage account comes in.

2. A Brokerage Account

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

If you keep your reserve funds in a brokerage account instead of a traditional savings account, you can give your reserves a chance to grow rather than watch them lose value over time due to inflation. Plus, some brokerage accounts come with sweep programs that significantly boost your access to essential FDIC coverage. 

The FDIC protects the funds in your account if your bank fails, but only up to a certain amount. They typically insure:

• Up to $250,000 for traditional savings accounts. This leads many organizations to divide their reserve funds into multiple separate bank accounts, complicating bookkeeping and financial management.
• Up to $5 million for some brokerage accounts with sweep programs. The right brokerage account will insure up to $5 million from one account, ensuring that you receive enough FDIC coverage to cover all your reserves easily.

Keep in mind that you will need your board members’ help and approval to open a brokerage account and start funding it. You’ll also need to thoroughly evaluate your options when deciding where to open your account, such as with a large bank or a nonprofit investment advisor. Consider factors like account fees and minimums, nonprofit expertise, and the speed of the application process.

3. Ways to Accept Non-Traditional Donations

We’re entering a new age of philanthropy where, along with feeling the effects of the Great Wealth Transfer, nonprofits are finding that both younger and long-standing wealthy donors want flexibility in how they give. Specifically, more and more donors are turning to vehicles like donor-advised funds (DAFs) and non-cash giving methods.

This means that your organization is closing itself off to potential major gifts and new high-capacity donors if you only accept traditional cash donations.

To diversity your revenue streams and open the door to new major giving opportunities, you need ways to accept non-traditional gifts like:

• Stock donations: Donors can transfer ownership of stock to your organization if you have a brokerage account, which you can either convert to cash or reinvest. 

• DAF grants: To award a grant from a donor-advised fund, the donor must speak to their DAF provider and request a payout to your nonprofit.

• Cryptocurrency: Accept popular cryptocurrencies like Bitcoin by opening a crypto wallet, promoting the donation method, and converting crypto gifts to cash right away.
• Matching gifts: 360MatchPro’s corporate matching gifts guide explains that “matching gifts are essentially free extra revenue nonprofits can access to improve their stability.” Donors just have to request the match from their employer after they donate.

Accepting matching gifts only requires you to educate your donors about the opportunity and encourage them to submit match requests (although you can speed up the process by using a matching gift search tool on your donation page!). For non-cash gifts, however, it can get complicated without the right resources.

The best way to simplify the non-cash giving process for both you and your donors is to use a donation platform or tool that facilitates stock, cryptocurrency, DAF grant, and endowment giving in addition to cash gifts. These tools will instantly connect donors to detailed instructions for giving, and some will even convert non-cash gifts to cash on receipt to simplify your bookkeeping.

4. Intentional Cash Management Strategies

Earn donors’ trust and show them the longevity of your organization by thoughtfully stewarding your reserve funds once you have them. 

Managing your nonprofit’s cash well typically means keeping it secure and giving it the potential for growth. You might use proactive cash management strategies like:

• Keeping your reserve funds in an FDIC-insured brokerage account. 
• Establishing governance and policies for financial oversight.
• Monitoring your organization’s cash flow regularly.
• Investing reserve funds in low-risk, highly liquid strategies like CDs or treasury bills.
• Working with a reputable financial advisor who has nonprofit experience.

Together, all of these strategies will help your organization manage and steward funds effectively, putting it in the best position for financial growth. If you’re unsure how to get started with any of these strategies, reach out to a nonprofit investment advisor to get personalized, expert advice on cash management.

Financial growth doesn’t just put your nonprofit’s staff at ease—improving your organization’s financial position can also help you engage donors, prove to potential funders that you manage your funds wisely, and so much more. With these tools in your nonprofit’s toolbox, you can start growing your finances in no time.