WSJ x Finance: Applying Financial Expertise to the Nonprofit Sector
Written by Iman Ilias; Edited by Nina Rawal
Consulting. Investment Banking. Private Equity. The culture at Wharton often makes it appear as if these are the only possible career paths for business students to pursue. We live in a community where financial jargon is used as part of everyday language ,our peers regularly discuss going to superdays, and submitting weekly for the top consulting and IB firms is the norm.
The pressure to pursue these standard careers in finance is intense, but if you’re like me and have felt these fields aren’t for you and have wanted to use your education to advance a social cause that matters to you, you’re in luck. Nonprofit organizations do some of the most commendable philanthropic work in society, and they are always searching for financial analysts to help them manage their financial concerns. A wide variety of financial expertise can be useful in the nonprofit sector, and working in these areas can allow you to use your knowledge to accomplish important humanitarian work. Here’s a bit of insight into what options there are for students in finance to be of service in the nonprofit sector:
Cash Flow Forecasting: A number of nonprofits need help with cash flow forecasting, as heavy reliance on donations, grants, and loans for funding puts them at a high risk of uncertain cash flow and over-spending. Financial advisors are needed to help create cash flow forecasts for nonprofit organizations based on previous funding data. This allows organizations to create more detailed financial plans and know which expenses they can cover, given their cash flow.
Financial Compliance: Another area in which nonprofits need guidance is financial compliance. There are a host of local and federal regulations that nonprofits are required to abide by, especially with regard to government-funded grants. It can be difficult for managers at nonprofits to navigate these regulations alone, which is where the expertise of a financial advisor comes in. Financial advisors can perform audits of a nonprofit’s current financial documents and policies to ensure they are compliant with regulations, as well as provide updates when compliance requirements change.
Calculating Financial Ratios: A third crucial type of financial analysis for nonprofits is the assessment of financial ratios. Financial ratios are utilized to determine the financial performance of an organization by comparing two or more financial data points. The financial ratios that are typically of most interest include efficiency ratios, solvency ratios, liquidity ratios,and profitability ratios. Financial analysts are able to calculate these ratios for nonprofit organizations and thereby allow them to assess their financial health and make well-informed decisions.
In sum, with the financial expertise you’ll attain as a Wharton student, you can be of use to any nonprofit organization whose work speaks to you. Nonprofits do commendable work ranging from promoting environmental sustainability to alleviating poverty and social injustices. If you think it’s for you, you can help advance the causes of these organizations by helping them in a capacity that much guidance is needed in.