Using Auditor Techniques Can Help You Shape Your Future

Whether or not your nonprofit has an independent audit performed annually, you can utilize moves from an auditor’s playbook to gain a better view of your organization’s revenue picture. Useful techniques, such as pinpointing year-to-year trends and benchmarking to other nonprofits, can be critical tools to plan both your short- and long-term futures.

Look at Donor Trends

To a certain degree, the majority of nonprofits rely on contributions from supporters to balance their budgets. Comparing the dollars raised to previous years can reveal various trends. For instance, have individual contributions reached a plateau in recent years? What fundraising campaigns have been launched during that period?

Go beyond the total dollars and determine, for example, if the number of major contributors — say, those who give $1,000 or more a year — has been on the rise. If you’re able to add large donors to your roster of supporters, it will mean you’re getting more bang for your fundraising buck.

You can also estimate what portion of contributions is restricted by donors in terms of when the money can be used or for what purpose. You may need to reevaluate your gift acceptance policy if your organization has a large percentage of its donations tied up in restricted funds. Review your organization’s fundraising materials to ensure you’re pursuing contributions that give your organization the most fiscal flexibility.

Size Up Grant Funding

Grants include funding from corporate, foundation and government sources. They can vary greatly in terms of size and purpose, from grants that cover operational costs, to funds for launching a specific program, to payment for services to clients. For example, a state agency may pay you $500 for each low-income, unemployed individual who receives your job training.

Be sure to pay close attention to trends here as well. For instance, did a particular funder provide 50% of your total revenue in 2014, 75% in 2015, and 80% last year? Relying too much on a single funding source — an example of a “concentration” that increases risk — is a red flag to auditors and should be to you too. In this case, if the funding ceased, your organization may be forced to close its doors.

Consider Service Fees and Membership Dues

Fees from clients, nonprofits via a joint venture, or other third parties can be similar to fees that are earned by for-profit organizations. Fees are generally treated as exchange transactions, since the client receives a product or service of value in exchange for payment. Some not-for-profits charge fees on a sliding scale based on income or ability to pay. In other instances, fees (such as rent paid by low-income individuals) are subject to legal limitations set by government funding agencies.

Your nonprofit will continually need to assess if providing these services makes financial sense. For instance, fees rates set four years ago for a medical procedure may no longer sufficiently cover costs. Your organization could face a decision whether to raise fees or discontinue the services.

If your nonprofit is a membership organization, you most likely charge membership dues. You should look at whether membership has grown or declined in recent years, and how does this trend compare with similar groups?

Making informed predictions about the future of membership dues, especially if they are greatly relied upon on for revenue is vital. If you suspect that dues revenue will continue to decline, your organization might consider abandoning dues altogether and restructuring. If this is the case, examine other revenue sources for growth potential.

Apply the Knowledge

Once a deeper understanding of your revenue picture is gained, apply that knowledge to various aspects of managing your organization. Educating your management team and setting or revising goals is also very important.

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