A Treasury Built to Last

The treasury is the central nervous system of almost any organization. Whether you are for-profit or non-profit, public or private, a well-run treasury is key to success. Actively raising and spending funds in a methodical, compliant way sets the stage for a management approach that will power your mission for the long haul.  

Non-profit organizations face a unique set of challenges related to managing their treasuries.  Unlike for-profit entities, non-profits rely heavily on donations, grants, and fundraising efforts to finance their missions. As a consequence, they often lack consistent revenue streams and can suffer from a mismatch of cash flows.

Consider this example:

• A non-profit organization with five members typically raises $100,000 in Q1 of each year, split evenly between members. 

• The non-profit uses those funds to host an industry conference in Q2. They must pay $100,000 in expenses in Q2, but the conference generates a 15% return which they can realize in Q3. 

• This year, one of the members is facing financial turmoil. They need to delay payment of their dues from Q1 until Q3. 

• A well-run treasury would be able to make-up the difference and ensure the organization can realize the financial gain. But without a healthy cushion of working capital, the organization could be left scrambling to fill a $20,000 hole in their budget within three months.  

Now that we understand what is at stake for an organizational treasury, let’s review five tips that your non-profit can use to optimize treasury management.  

1. Get to know your budget

Creating a comprehensive budget is the cornerstone of long-term financial planning. Anyone responsible for the treasury should understand all the nooks and crannies. This involves:

• Assessing Revenue Streams: Identifying and evaluating the stability and diversity of your revenue sources, including donations, grants, membership fees, and investment income.

• Analyzing Expenses: Categorizing and scrutinizing both fixed and variable costs to understand your financial obligations.

• Financial Health Checks: Conducting regular financial health assessments, including reviewing balance sheets, income statements, and cash flow statements.

It is also important to ensure your budget is robust. A comprehensive budget is:

• Realistic and Detailed: Base your budget on realistic revenue projections and detailed expense forecasts. Use historical data and industry benchmarks to inform your estimates.

• Flexible: Allow for flexibility to accommodate unforeseen changes in funding or expenses. Building a contingency fund can help manage unexpected costs.

• Aligned with Strategic Goals: Ensure that your budget supports the strategic objectives of the organization, prioritizing programs and initiatives that further your mission.

• Aligned with Stakeholders: Involve stakeholders in the planning and decision-making processes. Their perspectives can help identify priorities and improve financial strategies.

2. Implement robust financial controls

To manage your budget effectively, implementing robust financial controls is essential. These controls include:

• Regular Monitoring and Reporting: Establish a schedule for regular financial reporting to track actual performance against the budget. Monthly or quarterly reviews are typical.

• Internal Audits: Conduct internal audits to ensure compliance with financial policies and procedures. This helps identify and address any discrepancies or inefficiencies.

• Segregation of Duties: If you have multiple staff members, divide financial responsibilities among them to reduce the risk of fraud and errors.

3. Consider the long-term

Long-term financial planning goes beyond annual budgeting. It involves:

• Scenario Planning: Develop multiple financial scenarios (best-case, worst-case, and most-likely) to prepare for various future outcomes. This helps in making informed decisions under different conditions.

• Reserves and Endowments: Build and maintain reserves and endowments to provide financial stability and support for future initiatives. A general rule of thumb is to have reserves covering three to six months of operating expenses.

• Investment Strategies: If your non-profit has significant assets, consider developing an investment strategy to grow these funds responsibly. Engage with financial advisors to ensure alignment with your risk tolerance and financial goals.

4. Diversify revenue streams

Relying too heavily on a single revenue source can be risky. Enhance revenue diversification by:

• Exploring New Funding Sources: Identify and pursue new funding opportunities, such as corporate sponsorships, crowdfunding campaigns, or social enterprise ventures.

• Strengthening Donor Relationships: Build strong relationships with donors to encourage repeat donations and larger gifts. Use donor management systems to track and engage supporters effectively.

• Grant Writing: Invest in grant writing expertise to secure funding from foundations, government agencies, and other grant-making entities.

5. Adapt to changing conditions 

Non-profits must remain agile and adaptable to changing conditions. This involves:

• Regular Reviews: Conduct periodic reviews of your financial strategy and budget to adjust to new circumstances, such as economic shifts or changes in funding landscapes.

• Adopt Technology: Stay on the cutting edge of financial technology to ensure your organization uses the best available tools and provides leading user experiences

• Continuous Learning: Stay informed about best practices in non-profit financial management through professional development, networking, and industry resources.