5 Signs Your Nonprofit Could Be in Trouble
Posted on February 17, 2016
Nonprofits provide goods and services to the public but occasionally events may transpire that cause leadership to make tough financial decisions. A wrong decision could spell much trouble for a nonprofit.
What are the top 5 signs that a nonprofit is in trouble?
1. Administrative Expenses have dropped precipitously. If a nonprofit is in trouble often leadership tries to reduce administrative expenses in order to reduce payroll. Unfortunately, this reaction often leads to more problems since a nonprofit relies heavily on its administrative staff.
2. Increases to Accounts Payable. If a nonprofit has an increase in accounts payable it could mean that the nonprofit is not liquid and is struggling to find cash to pay its bills.
3. Losses in Fixed Assets. If a nonprofit is showing losses in fixed assets it could mean the nonprofit is liquidating assets at a discount. This can be a result of a fire sale to appease creditors or an attempt to stay afloat.
4. Receipt of a large contribution. Obtaining a large grant is the daydream of many Executive Directors. Much work and resources can go into attaining a large grant and it may very well pay off. However, without an assurance that the large grant is more than a single disbursement and/or other supplemental income streams exist, than it could cause a challenge for the budget the following year.
5. Losses in Annual Surplus. If the nonprofit has shown a constant stream of losses in annual surplus (or even low surpluses that do not keep pace with inflation) this is a cause for serious concern. Nonprofits have an expectation to stay in business, by having an annual surplus greater than inflation–known as building intergenerational equity. If no surplus exists the nonprofit risk not being able to continue providing services.
Regular planning and monitoring of nonprofit finances is integral to identifying a looming issue sooner rather than later.