Weak financial management can hinder even high-performing nonprofits, including afterschool organizations. This study, the first of two, examines the early part of a Wallace Foundation project to help build the financial muscles of 26 leading afterschool providers in Chicago. Participating organizations received financial management training and peer networking opportunities, using one of two models that differed in intensity and the balance of individual vs. group-based training and support. The report also identifies three practices essential to a nonprofit organization’s financial strength and effectiveness: an understanding of the true cost of all programs; ongoing monitoring of the financial status of both individual programs and the organization as a whole; and meeting expenses in a timely manner. Successful implementation of these key practices, the authors state, requires strong financial management resources, procedures for generating key indicators of an organization’s financial status, and systems to communicate financial information to staff members. The participating organizations initially faced significant challenges in each of these areas. However, the study found that participants already showed signs of progress, particularly in their use of cash flow projection methods and program managers’ ability to develop and understand budgets and financial reports.

 Points of Interest

  • The desire to keep the overhead costs of a nonprofit low can lead to a vicious cycle in which funders underestimate necessary expenses, putting pressure on organizations to underreport their overhead and reinforcing funders’ inaccurate assumptions about the amount of money needed.
    Vicious cycle: #Nonprofit funders underestimate overhead, forcing underreporting and reinforcing the faulty premise.
  • Although nonprofits should have cash reserves covering at least three months of standard operating expenses, studies have found the majority do not meet this benchmark.
    Studies show most #nonprofits lack cash reserves to cover the necessary minimum of 3 months of standard operating expenses.
  • Thanks to financial management training, only 8 percent of nonprofits studied reported failing to perform cash flow projections, down from 20 percent originally.
    After financial mgmt. training, 8% of #nonprofits reported missing cash flow projections vs. 20% originally.