The Importance of Managing Your Non Profit Financial Assets

Institutional Asset Management

 Plancorp Team By: Plancorp Team

Being involved with a non-profit organization likely means you're driven by a strong sense of passion and purpose. However, have you ever paused and considered that overseeing your non-profit's financial assets is equally vital to your success as the mission you advocate for?

Research indicates that non-profit organizations that use efficient asset management strategies have a higher probability of accomplishing their objectives and staying functional over the long-term. On top of this, these strategies ensure that you are doing your due diligence with funds that are donated; minimizing fees and taxes, and steering clear of expensive penalties due to self-management mistakes. This not only positively impacts your organization but also reassures your donors that their donations are being managed competently, ultimately cultivating trust and encouraging continued support. Overall, the more effective your strategies are when it comes to managing your assets, the higher your chances of improving and sustaining your organization’s mission and competitive advantage.

The more you learn about non-profit financial assets and how to apply effective techniques for managing them, the sooner you’ll find yourself able to concentrate on the most crucial aspect of running a non-profit organizationfocusing on your primary mission without feeling overwhelmed by the intricacies of financial management.

What Are Examples of Non-Profit Financial Assets?

As you delve further into non-profit asset management, it's crucial to familiarize yourself with the various financial assets that you will typically encounter as you manage your organization:

  • Cash and cash equivalents, such as checking and savings accounts, are liquid assets you can easily convert into cash. These assets serve as the financial backbone of any organization.

  • Investments, such as stocks, bonds, and mutual funds, constitute a vital component of non-profit financial management. These types of assets contribute to the long-term stability and growth of your organization by growing one-time donations, stretching their impact.

  • Endowments are funds given to your organization by donors or institutional investors, often earmarked for specific purposes to support your mission. For example, a non profit could serve the needs of under privileged children, and an individual, family, or institution might set up an endowment specifically to build a new facility or fund a specific program over several years. Take note that endowment asset management plays a critical role for non-profit organizations because of their size and the specifications of how they are spent, something that is usually monitored. If you're looking to be philanthropic, you might consider donating to an endowment to focus what it is spent on. Learn more in this blog on setting up your charitable giving plan. 

  • Non-profit organizations may also own property or real estate assets, often gifted. Property or real estate can can help generate income through rent or appreciate in value over time while being useful on a daily basis, both growing the assets or reach of your organization. That said, it's important to evaluate a donation of property with a financial professional. They can help you evaluate for things like whether you'll receive a clean title, whether there are liens on the property, or if there are other outstanding contracts or agreements. They can also help you assess whether the current and future value of the property outweighs the increase in tax and insurance costs. To accept property while minimizing possible negative impacts to the nonprofit, many set up a single-member LLC, preventing liabilities that come with the donated property from impacting the organization. You may end up deciding that selling the property is best if you won't be receiving ample value from it's usage in the meantime. Because this is so complex, it's advised that you work with professionals from finance, real estate, and law.

  • Fixed income assets include all other physical assets like buildings, vehicles, and equipment used to carry out the organization's mission. While these may not necessarily grow (and in some cases actively depreciate), they are critical to carrying out the mission of the organization and should be accounted for when evaluating assets, liabilities, and investments. 

  • Non-profits may also have receivables from pledges, grants, or contracts, which represent future income that can be used to support the organization's activities. While complex, it's important to account for these assets appropriately as other income or related to it's specific purpose to avoid penalties. While this type of income may be critical for your organization, working with a professional can help make sure it doesn't hurt you down the road. 

Important Things to Know About Non-Profit Asset Management

Understanding these diverse financial assets is important; however, the crux of non-profit asset management over the long-term rests in devising a customized strategy for investment asset allocation. This entails striking a balance between your organization's objectives, risk tolerance, and liquidity requirements. Just as you would adjust your personal investment risk tolerance as you approach retirement, you must balance risk tolerance as an organization to accomplish goals today and grow for the future. But who handles this?

Long story short, the board of directors is responsible for both the day-to-day operations as well as managing long-term financial investments. The board of directors has a fiduciary responsibility to do what is in the best interest of the organization to further it's mission. To do this they essentially have two options: they may manage responsibility for the nonprofit's daily operations and investments directly, or they can delegate investment/financial management to a committee or outside professional, while retaining oversight. The latter is often appealing to organizations who have sights set on growth, unless member(s) of the board are well-versed in financial planning. 

One critical tool in understanding of your organization's financial goals and risk tolerance is having a well-crafted investment policy statement (IPS). This will help you make informed decisions when allocating assets among different investment options, which can help minimize the depreciation of your organization’s assets. Furthermore, the IPS offers direction for continuous monitoring and modifications, ensuring that your non-profit fund management approach remains in sync with your organization's purpose and requirements. The board may want to partner with a financial planning firm who has specialized in nonprofits to craft an IPS to support future growth.

Tip for those looking to DIY: As you start to learn more about how non-profits should invest, bear in mind that possessing a 501c3 brokerage account can also help grant you access to an array of investment choices, which can support a well-rounded non-profit wealth management plan. 

How to Successfully Manage Your Non-Profit Investable Assets

Effectively handling your non-profit assets requires a combination of strategic planning, diversification, and teamwork with financial experts. Here are some practical strategies you can implement as you oversee your non-profit organization:

  • Develop a comprehensive high net worth financial plan that revolves around your organization's goals, risk tolerance, and investment objectives. Regularly reviewing and updating this plan also helps ensure that your non-profit fund management strategy stays in line with your mission and evolving needs.

  • Diversify your investments across various types of assets to minimize the overall risk to your organization and maximize potential returns. The best way to do this is to determine the optimal mix of stocks, bonds, and other investments that align with your organization's objectives and risk tolerance.

  • Seek the expertise of financial professionals who specialize in non-profit organizations. They can provide valuable guidance on asset allocation, endowment asset management, and investment opportunities available through a 501c3 brokerage account.

  • Develop and sustain an investment policy statement (IPS) that acts as a guide for your organization's investment approach. The IPS should detail your investment strategies, goals, risk appetite, and time frame, as well as offer direction for continuous monitoring and modifications.

  • Routinely monitor, evaluate, and modify your investment plan and investment portfolio to accommodate evolving situations, guaranteeing that your organization's financial well-being stays a primary concern.

  • Create an investment committee that can help oversee your organization's cash flow and liquidity requirements to make sure you have adequate resources to support day-to-day operations and mission-centric endeavors.

Finding Help Managing Your Financial Assets

Seeking professional advice is another important, although often neglected, aspect of non-profit asset management. Engaging with experts in the field can provide valuable insights and recommendations on portfolio management, asset allocation, endowment asset management, and investment options available through a 501c3 brokerage account.

A crucial advantage of working with professional financial advisors is that they can also help you navigate opportunities that arise from tax or legislation changes like the recent recovery rebate, ensuring that your organization benefits from all available resources. By leveraging their knowledge and experience, you can make informed decisions that ultimately support your non-profit's mission and enhance your organization's financial health. Remember, a well-rounded approach to non-profit asset management helps create a strong foundation for your organization's long-term success.

The Power of a CEFEX-Certified Advisor

CEFEX stands for the Centre for Fiduciary Excellence. In short, they set and audit to standards that help bring power to the term fiduciary. When it comes to non-profit asset management, collaborating with a CEFEX-certified advisor can be helpful in two critical ways. First, they help ensure that everything from your daily operations and cash flow to your longer-term investment strategy align with doing what is truly best for the mission of the organization. Second, this validation increases confidence among donors that their dollars are being spent wisely, which can bolster support, particularly from larger donors. 

Stable non-profit asset management is essential for your organization's enduring success and growth. Interested in discovering the advantages of partnering with a financial advisor for your non-profit? Learn more about our dedicated Institutional Asset Management division here.DOWNLOAD eBOOK


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