The best way to improve financial performance for a nonprofit is to set a realistic budget, and the to report the financial results each month accurately and clearly. Its hard to believe that just reporting on financial performance will improve the results, but this has been proven over and over again. And the simple explanation is that - in most cases - reviewing past performance leads to changes in behaviour going forward.
Imagine you are the CEO and your Board has approved a budget which includes $6000 for the year on Printing and Stationery. If the financial report for September - three months into the financial year - shows spending on stationery of $954 for the month, and year-to-date expenditure of $2,701 one of three things will happen.
You will do nothing, in which case our advice is to quit your job at this nonprofit and get a nice job in a park, or
You will change the behaviour of the organisation: STOP SPENDING ON STATIONERY will become the topic of a couple of memos, and even direct conversations with people, or
You will change the budget. By allocating from other underspent expenditure items, or by accepting an overall increase in expected expenditure, you can increase the budget for Printing and Stationery so that it is a more realistic forecast for what needs to be spent on this item. If by increasing the budgeted expenditure, the organisation goes into or increases its planned deficit, then a board conversation should follow with the board sanctioning this decision.
Financial performance will definitely improve if it is measured, and the reporting is accurate, readable and timely. It is why spending time and resources on financial reports which are meaningful is the best way to achieve success in your organisation.
CEO at Accounting for Good