How to Spot Red Flags within Your Nonprofit

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We hear on the news consistently of businesses and nonprofits alike running low on cash, going bankrupt, and shutting down. It seems though, that there should be checks in place to prevent such fallout from happening. Were board members neglecting financial paperwork? Ignoring signs of diminishing cash flow? It’s hard to pinpoint what exactly leads to the bankruptcy of an organization, but there are ways to spot the red flags that lead to an organization to financial downfall.

According to Kate Barr in her article via the Chronicle of Philanthropy, the three main things to look for are diminishing cash, ballooning debts, and reoccurring deficits. 

Even with these checks in place though, board members may struggle with knowing what financial paperwork to scrutinize and look further into, so asking questions is another important factor in maintaining financial success in a nonprofit. One month of deficit isn’t a red flag, but multiple months is, so asking “why?” or “what can we do to reverse this?” are important questions to consider AS SOON AS POSSIBLE when looking at financial documents regarding your nonprofit. Don’t put off questions for later or avoid asking them. It’s more than likely you aren’t the only one wondering, and the longer you wait to ask, the more likely your nonprofit will be at risk for financial problems.

Other questions to consider:

  • “Can you help me understand what this means?”
  • “Is this is trend or pattern that we should talk about?”
  • “Is this unexpected?”

Don’t put off questions for later or avoid asking them. It’s more than likely you aren’t the only one wondering, and the longer you wait to ask, the more likely your nonprofit will be at risk for financial problems in the future.

About the Author: Elisabeth is an undergraduate in junior standing at the University of Iowa studying Journalism and Mass Communication while pursuing a certificate in fundraising and philanthropy communication. Her goals include becoming a reporter for E! News and starting a nonprofit clothing company in support of women’s rights. 

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