Many individuals start a nonprofit to solve a social problem. However, having passion for a cause is not enough to guarantee success. Building a prosperous nonprofit from the ground up is not for the faint of heart. While nonprofits often have an admirable goal at their core, they need to put in as much effort into running their organization as for-profit companies do. The following are some of the most prevalent budget mistakes nonprofits make when first starting out:
- Meager research and development. Not having a business plan is one of the most common errors nonprofits make when they first get started, and it can torpedo their success. Business plans should include an evaluation period to get a scope of the competition, pinpointing possible funding sources, generating a list of products and services the nonprofit could offer, identifying a client base, and an assessment of the nonprofit’s needs to remain operational. Failing to establish a business plan can lead to major budgetary blunders, primarily not understanding the costs involved to execute the nonprofit’s goals.
- Limited understanding about finances. It is not altogether surprising that many nonprofits struggle to weigh their financial situation appropriately. They are not starting the organization for money so they may not give it the correct degree of attention. This causes many nonprofits to underestimate how much it costs to run their operation. Insufficient funding can stymie a nonprofit almost as fast as a lack of a business plan can.
- Failing to identify viable sources of funding. Nonprofits rely on a variety of resources to remain operational. Individuals looking to start up a nonprofit may be unfamiliar with common methods of generating revenue. The most common include charging a fee for services, charitable contributions, and corporate philanthropy. Relying on one or two potential wellsprings of financing can result in falling short of budgetary needs.
- Not hiring the right people. Accounting may not seem as exciting as achieving a nonprofit’s aims, but it is a vital step to avoid breaking the budget. Many nonprofit opt to rely on untrained personnel to keep their books because hiring a professional accountant is expensive. Many nonprofits believe the expense is not worth the tradeoff, but this is false logic. Given enough time, untrained staff will make expensive errors that a professional would not—errors that have the potential to shut down the nonprofit. While not hiring a CPA saves money in the short term, it can cripple the organization in the end.
The above are a few of the most common financial obstacles nonprofit startups face. While hiring a chief financial officer (CFO) can help nonprofits develop a realistic budget and stick to it, that is only a starting point for ensuring financial security. If your nonprofit is struggling to manage its finances, SteelBridge can help. To learn more about protecting your nonprofit organization, contact us today.