Managing Finances: Managing Your Money
Learn how good money management is largely a matter of making good decisions and setting up reliable systems to manage your financial operation.
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WHY DOES YOUR ORGANIZATION NEED A MONEY MANAGEMENT PLAN?
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WHAT DOES THE EVERYDAY MANAGEMENT OF YOUR MONEY INCLUDE?
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HOW DO YOU CREATE A MONEY MANAGEMENT PLAN?
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WHAT ISSUES ARE INVOLVED IN BEING TAX-EXEMPT?
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HOW DO YOU HANDLE CASH FLOW?
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WHAT ARE SOME DAY-TO-DAY MONEY MANAGEMENT ISSUES?
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WHAT ARE SOME INVESTMENT ISSUES?
Families need to keep control of their finances to make life flow smoothly. The same is true in spades for organizations.
In order to manage money properly, you need:
- A budget that's realistic and accurate, so that you can start with a good idea of what you have available to spend, where that money will come from, and what you want to spend it on
- A variety of ways of gaining access to cash so it can be used (a checkbook, credit cards, an ATM card, etc.)
- A way to keep track of cash so you don't overdraw your account or spend more than you have
- A system for paying your bills on time, and for making sure that you have enough money to do that
- A steady stream of income so you can afford the things you need
- Good relationships with the people who pay you for the work you do, and whom you pay for the things you need, so that you can make arrangements with them for advances, loans, or more time in emergencies or difficult situations
WHY DOES YOUR ORGANIZATION NEED A MONEY MANAGEMENT PLAN?
If your organization is tiny, and its finances come from bake sales and occasional ten-dollar contributions - in other words, if your income and expenses are only one or two thousand dollars a year - you may not need a money management plan beyond keeping your checkbook balanced and paying your bills on time. But if there's any complexity at all to your financial situation, a money management plan is necessary for several reasons.
- It will enable you to continue to fulfill your purpose - i.e. make sure that there's enough money to provide services, keep your initiative going... whatever it is your organization was founded to do.
- It will help to ensure that you get the most out of your money. Good money management will stretch your dollars by helping you use them as effectively as possible.
- It will make it possible to keep control of your finances, and particularly of your cash flow.
- It will help you maintain good relationships with your landlord, your suppliers, and anyone else whom you pay for goods and services. Life is much easier when people and organizations pay their bills on time. Landlords and others are much more likely to make repairs, fill special orders, and generally be friendly to those who make their lives easier.
- It will establish your credibility in the community. Your organization will get the reputation of one that takes care of business, and is serious about its financial commitments as well as its mission. This kind of reputation can add greatly to your fundraising success, since people want to put their money where they know it will be well-managed to do the most good.
- It will save you time in dealing with money. You'll spend far less time trying to track down a missing receipt, or redoing something because you didn't do it right the first time, or engaging in other forms of waste motion.
- It will save you a great deal of worry, because you'll know exactly how much money you have and how it's being spent.
- It will give you more time to devote to the actual purposes of your organization. Money is a means for you to reach your goals. The more effectively your money is managed, the more effectively you'll be able to use it.
WHAT DOES THE EVERYDAY MANAGEMENT OF YOUR MONEY INCLUDE?
Many directors of organizations, especially in such areas as human services, health, or education, find money management boring, or even frightening. They see it as all about math, and worry constantly about whether they understand algebra well enough to handle finances, or whether a simple error in addition will push their organizations over the edge. But good money management is actually about systems and decisions. The systems are the ones you set up to keep track of and actually handle your money. The decisions are those you make about where to get and what to do with your money. Whether and how well you set up those systems, and the information and assumptions you use in order to make your decisions - not your background as a theoretical mathematician - will determine how well your money gets managed.
If you really find handling money difficult, it may be possible to delegate the money management part of the organization to someone who has the desire and the skills to take it over. Large corporations almost always have a CFO (Chief Financial Officer) who deals with the financial side of the operation. If your organization has a large enough budget, or can find a volunteer who is both competent and reliable, you may be able to do the same. A word of caution, however: even in an organization where there is a CFO or other person who manages the money, it's important that the director at least have a clear understanding of what's going on, and know what questions to ask in order to be sure that money is being used properly.
This kind of financial help can come from within the organization, in the form of a Board treasurer or a Board member or volunteer who is an accountant. It can also be found through other organizations, such as SCORE (Service Corps of Retired Executives), whose members volunteer their professional services to non-profits and others in need.
Some systems you might want to put in place:
- An accounting or bookkeeping system, that will enable you to get whatever financial information you need quickly and easily, and that will make any required reporting as easy and accurate as possible.
- A banking system that affords the organization as much flexibility and as little cost as possible through the use of one or more accounts in one or more banks,
- A money-handling system that clarifies who in the organization has the physical responsibility for various money-related tasks - making deposits and withdrawals, writing checks, paying bills, etc.
- A petty cash system that makes it possible for staff to gain access to small amounts of money for purchasing everyday items: stamps, coffee, etc.
- A payroll system that assures that everyone gets timely and accurate paychecks, with the proper fringe benefits, deductions, etc. included.
- A payables and receivables system that defines the procedures you use to pay bills and to bill for the goods and services you provide.
- A grants management system that allows you to keep track of the finances of each grant or contract separately, and to spend funders' money in the ways you've agreed to.
- A system for handling cash flow issues
"Cash flow" is a term you'll see many times in this section. It refers to the actual flow of money through the organization, as opposed to what's on paper. If you're owed $500.00 by your friend, but he hasn't paid you yet, and you only have $5.00 in the bank, that's a cash flow issue. You can't pay your electric bill with the fact that your friend owes you money. Organizations deal with this issue all the time. Money from grants and contracts often flows slowly, and fundraising is unpredictable. Bills, on the other hand, come regularly, and salaries have to be paid. How well your organization manages cash flow can make a tremendous difference in its health, financial and otherwise.
Some examples of decisions you need to make:
- What kind of accounting system will you use, and will you computerize your accounting?
- What types of bank accounts and banking are best for your organization?
- Who has the authority to make day-to-day money decisions and to sign checks?
- What constitutes full-time employment and what constitutes part-time? Who gets what kinds of benefits?
- Will you use purchase orders for your ordering and buying? Which suppliers - for phone, office and program supplies, equipment, etc. - will you use?
- Will you set up a separate bank account for each major grant? How will you handle reporting to funders?
- Which bills and obligations will you settle first if you're short of cash? How long will you wait before you borrow money?
- What will you actually spend your money on?
Most organizations will find that if they think carefully about the decisions they make, and set up - and continually fine-tune, if necessary - systems that work for them, the math will usually take care of itself.
Another important aspect of money management lies in the attitude that goes into it. It is possible to be too concerned with money, and too careful about it. This kind of over-cautious attitude may lead to an unwillingness to take risks or to change, an attitude that can stultify an organization. By the same token, a too-casual attitude can lead to financial and even legal difficulties for the organization. It's important to understand just how important money is to what you do, and also to realize that it's not the only thing that's important. Keeping a clear perspective is key to managing money rationally.
- What does tax-exempt status have to do with money management?
- How do you handle cash flow issues?
- What are the day-to-day decisions and concerns you'll face in carrying out a money management plan?
- Investing extra money?
HOW DO YOU CREATE A MONEY MANAGEMENT PLAN?
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