INSIGHT

Nonprofit financial management: Building a sustainable future for your mission 

Shannon Winter, Daniel Figueredo • May 26, 2025

Industries: Nonprofit

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In the mission-driven world of nonprofit organizations, the focus naturally gravitates toward program delivery and fundraising. While these activities are vital to your impact, effective financial management serves as the backbone that enables your organization to fulfill its mission sustainably.  

As nonprofit professionals, you face unique challenges that traditional businesses don’t—from managing restricted funds to navigating complex compliance requirements—all while stretching limited resources to maximize community impact. 

At BPM, we understand these challenges and have helped countless nonprofit organizations develop financial management practices that support their missions. Let’s explore how you can strengthen your nonprofit’s financial health and create a foundation for lasting impact. 

Why your nonprofit needs robust financial management 

Before diving into specific strategies, it’s important to understand why financial management matters so much for your organization: 

• Mission sustainability: Strong financial practices ensure you can continue serving your community for years to come 
• Donor trust and transparency: Clear financial reporting builds confidence with supporters who want to see their contributions used effectively
• Regulatory compliance: Meeting IRS requirements and accounting standards is essential for maintaining your tax-exempt status 
• Strategic decision-making: Data-driven insights help you allocate resources where they’ll have the greatest impact 
• Risk management: Proactive financial planning helps you navigate unexpected challenges and economic fluctuations 

Unlike for-profit businesses that focus on maximizing profits, your nonprofit must balance financial stability with mission fulfillment. This requires a different approach to financial management—one that embraces both fiscal responsibility and mission-driven values. 

Key components of an effective nonprofit financial plan 

1. Understand your nonprofit’s funding model 

Before you can develop a strategic financial plan, you need a clear picture of where your money comes from. Most nonprofits rely on multiple revenue streams, which might include: 

• Individual donations 
• Grant funding 
• Program fees or service charges
• Membership dues 
• Corporate sponsorships 
• Earned income 
• Investment returns 

Identifying your primary funding sources helps you understand your organization’s financial vulnerabilities and opportunities. For example, if you rely heavily on grant funding, you’ll need strategies to manage the cyclical nature of grant cycles and reporting requirements. If individual donations drive your revenue, donor retention programs become critical to your financial health. 

2. Create and maintain comprehensive financial policies 

Strong financial management starts with clear policies that govern how your organization handles money. These policies build accountability, reduce risk, and ensure consistency even as leadership changes. Essential financial policies include: 

• Gift acceptance policy: Outlines what types of donations your organization can accept and under what conditions. This helps you gracefully decline inappropriate gifts while encouraging suitable contributions. 
• Conflict of interest policy: Establishes procedures for identifying and managing situations where board members or staff have competing interests that could affect financial decisions. 
• Expense reimbursement policy: Details which expenses qualify for reimbursement, required documentation, and timelines for submission and payment. 
• Staff compensation policy: Creates a framework for fair and competitive compensation, including both direct compensation like salaries and indirect benefits like healthcare and professional development. 

Compiling these policies into a comprehensive financial handbook provides guidance for your team and demonstrates good governance to external stakeholders. 

3. Implement proper accounting systems and practices 

As your nonprofit grows, managing financial data in spreadsheets becomes increasingly risky and time-consuming. Modern nonprofit accounting software like Sage Intacct offers specialized features designed specifically for the unique needs of mission-driven organizations. 

Sage Intacct helps nonprofits: 

• Track restricted and unrestricted funds with automatic tagging and allocation 
• Generate FASB-compliant financial statements with the click of a button 
• Create program-specific reporting to understand the true cost of each initiative
• Automate grant management processes for improved compliance 
• Provide real-time dashboards for board members and leadership 

With the right technology, your team spends less time on manual data entry and more time on strategic financial analysis that advances your mission. 

4. Develop and monitor budgets aligned with your mission 

Your budget is more than a financial document—it’s a strategic plan that reflects your organization’s priorities and goals. Effective nonprofit budgets: 

• Align with your strategic plan and mission objectives 
• Account for both restricted and unrestricted funding 
• Include realistic projections based on historical data 
• Incorporate contingency planning for unexpected events
• Break down expenses by program, administration, and fundraising
• Receive regular review and updates as conditions change 

By comparing actual performance against budget projections, you can identify variances early and make timely adjustments to keep your mission on track. 

5. Maintain transparency with comprehensive financial reporting 

Regular financial reporting builds trust with donors, board members, and other stakeholders while providing essential insights for decision-making. Key nonprofit financial statements include: 

• Statement of financial position: Shows your organization’s assets, liabilities, and net assets at a specific point in time (the nonprofit equivalent of a balance sheet).
• Statement of activities: Details revenue and expenses over a particular period, broken down by with and without donor restrictions (the nonprofit equivalent of an income statement). 
• Statement of functional expenses: Categorizes expenses by program, management, and fundraising to demonstrate your mission efficiency. 
• Statement of cash flows: Tracks cash moving in and out of your organization through operating, investing, and financing activities. 

These reports not only fulfill compliance requirements but also tell the story of how your financial resources support your community impact. 

5 best practices for sustainable nonprofit financial management 

1. Diversify revenue streams 

Relying too heavily on a single funding source creates significant risk for your organization. If that source unexpectedly declines—whether due to economic downturns, shifting funder priorities, or other factors—your entire mission could be jeopardized. 

Creating a diversified funding portfolio provides stability and flexibility. Consider developing a mix of: 

• Individual giving programs (monthly donors, major gifts) 
• Foundation and government grants 
• Corporate partnerships and sponsorships 
• Earned income opportunities aligned with your mission 
• Events and campaigns 
• Planned giving and endowments 

This diversification acts as financial insurance, protecting your organization from the inevitable fluctuations in any single revenue source. 

2. Balance program and overhead expenses 

While the pressure to minimize overhead is real, an exclusive focus on reducing administrative costs can actually undermine your long-term effectiveness. Strategic investments in infrastructure, technology, and talent enable your organization to deliver programs more efficiently and scale your impact. 

Rather than adhering strictly to arbitrary ratios, focus on: 

• Ensuring overhead expenses directly support program delivery 
• Investing in systems that improve operational efficiency 
• Being transparent with donors about the true cost of your mission
• Measuring outcomes alongside financial metrics 

Remember that your goal isn’t to minimize spending—it’s to maximize impact relative to the resources invested. 

3. Build operating reserves 

Every nonprofit should maintain an operating reserve—funds set aside to cover unexpected expenses or revenue shortfalls. These reserves provide a financial cushion that can help your organization weather challenges without disrupting essential programs. 

Financial advisors typically recommend maintaining reserves equivalent to 3-6 months of operating expenses, though the appropriate amount varies based on your organization’s size, funding model, and risk profile. 

Building reserves requires intentional planning and discipline. Consider: 

• Setting specific reserve goals in your annual budget 
• Designating a portion of unrestricted donations for reserves 
• Creating board policies for when and how reserves can be used 
• Gradually building reserves over time rather than all at once 

With adequate reserves, your nonprofit gains the stability and flexibility to pursue long-term strategic goals rather than just managing day-to-day survival. 

4. Implement risk management strategies 

Financial risks come in many forms, from external economic factors to internal control weaknesses. Developing a comprehensive risk management approach helps protect your organization’s assets and reputation. 

Key risk management strategies include: 

• Conducting regular financial audits or reviews 
• Maintaining appropriate insurance coverage 
• Implementing strong internal controls with segregation of duties 
• Creating contingency plans for revenue shortfalls 
• Monitoring compliance with funder requirements and regulations

By proactively identifying and addressing potential risks, you can prevent many financial challenges before they occur. 

5. Leverage technology for greater efficiency 

Modern financial management technology like Sage Intacct can transform how nonprofits handle their finances. By automating routine tasks and providing powerful reporting capabilities, the right technology allows your team to focus on strategic priorities rather than administrative burdens. 

Look for technology solutions that offer: 

• Cloud-based access for remote work flexibility 
• Role-based permissions to maintain proper controls
• Automated workflows for approval processes 
• Real-time reporting and dashboards 
• Integration with other systems (CRM, payroll, etc.) 
• Specialized nonprofit features like fund accounting 

With Sage Intacct’s nonprofit-specific functionality, you can streamline operations while gaining deeper insights into your financial performance, ultimately helping you make more informed decisions about resource allocation. 

Bringing it all together: From financial stability to mission impact 

Effective financial management isn’t separate from your mission—it’s an essential enabler of your impact. When your organization achieves financial stability, you gain the freedom to focus on what matters most: serving your community and advancing your cause. 

The journey to financial excellence is ongoing. It requires commitment, adaptability, and a willingness to invest in the right people, processes, and technologies. But the rewards are immense: greater mission impact, stronger donor relationships, and the ability to weather challenges that might otherwise derail your important work. 

As you implement these financial management strategies, remember that you don’t have to navigate these waters alone. BPM’s nonprofit specialists bring decades of experience helping mission-driven organizations like yours develop financial practices that support sustainable growth and impact. 

Ready to strengthen your nonprofit’s financial foundation? 

Contact BPM today to learn how our nonprofit specialists can help you implement these strategies and leverage powerful tools like Sage Intacct to transform your financial management. Our team understands the unique challenges nonprofits face and can provide customized solutions that align with your mission and goals. Let’s work together to build a financially sustainable future for your organization and the communities you serve.