Financial Reports to Share with Nonprofit Board

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Transparency and accountability are two of the most important factors in nonprofit accounting. Donors, the board of directors, and the public all want to know what your organization does with the funds it brings in. Being transparent in your nonprofit accounting helps build trust in your organization.

financial reports

But what financial reports are most important to build that trust through transparency with your board of directors? There are five main financial reports you may want to consider when presenting financial data to your board of directors, including:

  • Statement of Financial Position
  • Statement of Activities
  • Statement of Cash Flow
  • Budget vs. Actual Report
  • Fundraising and Development Report

1. Statement of Financial Position

Your statement of financial position is a financial report that provides an overview of the organization’s financials at a specific point in time. For-profit businesses also call the statement of financial position a balance sheet, and many nonprofits do the same.

Your balance sheet is a lot like a health chart for a medical patient–it shows the current overall financial health of your organization. Balance sheets show details on how much money and assets your organization has as well as what it owes to others. Your nonprofit balance sheet will typically have three main components:

  • Assets: What your organization owns
  • Liabilities: The amount your nonprofit owes
  • Net Assets: The value of your organization, or your assets minus your liabilities

Providing your board of directors with a statement of financial position can help them better understand the financial health, stability, and liquidity of your organization.

2. Statement of Activities

More commonly known as an income statement, the statement of activities report summarizes your organization’s revenues and expenses over a specific period. Generally, this report is provided monthly, quarterly, or annually. Organizations that have a high amount of revenue and expenses may want to provide multiple timeframes for their board of directors.

The statement of activities shows your board of directors how much revenue the organization has earned and the amount of expenses incurred over the specified time. The report also details whether your organization has generated a surplus or deficit during the period. Key components of the report include:

  • Revenue: Contributions, grants, program and service fees, and any other income
  • Expenses: Program expenses, payroll and staffing costs, fundraising events
  • Changes in Net Assets: Whether your organization has a surplus or deficit

An income statement report makes it easier for your board of directors to track revenue and expenses over time, which can help make long-term financial decisions.

3. Statement of Cash Flow

An organization’s statement of cash flow report tracks the inflow and outflow of cash over a set timeframe. The report is generally broken into three parts:

  • Operating Activities: Your day-to-day cash transactions including paying employee salaries
  • Investing Activities: Purchases and sales of an organization’s assets, such as buying new equipment
  • Financing Activities: Loans, grants, and donations to the organization

Proving your board with a statement of cash flow helps them better understand the ongoing cash flow management of the organization. You can the board can also use the report to look for opportunities to maximize cash flow and optimize cash flow management to make the organization more resilient to unexpected changes in the nonprofit’s finances.

4. Budget vs. Actual Report

A budget-to-actual report compares an organization’s actual financial performance with its budgeted figures. This report highlights the differences between budgeted and actual revenues and expenses.

Your board of directors can use this report to better assess the organization’s financial discipline and operational efficiency. Organizations with major variances between their budget and actual may need to adjust their cash flow and expense management practices.  Reviewing a budget vs an actual report also helps your organization identify discrepancies such as errors in accounting.

5. Fundraising and Development Report

A fundraising and development report focuses on the organization’s fundraising efforts and donor contributions. This report shows information on funds raised through various campaigns and events. It also generally includes data on donor acquisition and retention rates.

Your board of directors can use a fundraising and development report to evaluate the effectiveness of fundraising strategies. The report can also help show the organization’s financial sustainability through donor retention rates.

Fundraising and development reports are great tools for planning future fundraising ideas for the organization. You can use the report as a starting point to see what fundraising efforts your donors respond to best.

financial reports

Preparing Financial Reports for a Nonprofit Board

These five financial reports can provide your board of directors with an accurate picture of your organization’s financial health. Depending on your organization, some of your reports may be more or less in-depth, and some organizations may not need each report for every board meeting.

Working with an experienced nonprofit accounting firm, like the Charity CFO, is an easy way to ensure you’re providing the right reports for your board. The Charity CFO team specializes in nonprofit accounting and can help you navigate the complexities of financial reporting for your organization. We’ll help you create a nonprofit accounting system that uses technology to automate some aspects of reporting, saving time over manual processes.

Need help setting up a financial reporting process? Contact us today to find out how we can help!

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7 Keys to Nonprofit Financial Management

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Nonprofit financial management is one of the primary concerns for organizations.

Nonprofits are special types of organizations, in both their structure and their purpose. They live in the hearts of many as symbols of good in the world. This meaning is the driving force behind what nonprofit organizations do day in and day out. 

However, in the midst of all the support for nonprofits, it may be lost that nonprofits are still organizations that need to be run. The mission can only live on to serve its purpose by having backing from a successfully managed organization. This is why at The Charity CFO, we strive to provide relevant resources and support to ensure that your organization runs smoothly and efficiently. This week, we’ve rounded up 7 keys to nonprofit financial management. If you’d like to dive deeper into any of the topics, we’ve included relevant links to further your knowledge. 

In order to successfully manage the financial health of your nonprofit organization, here are 7 key concepts you should understand:

Compliance and Audit Requirements

Compliance is the act of ensuring the public that nonprofits are abiding by the rules that allow them to take advantage of tax exempt status and other financial incentives. Compliance requirements vary by state and funding sources. Confirming an organization’s compliance can include compliance checks and/or audit requirements, but maintaining compliance is the responsibility of the organization at all times. 

Accounting Standards

In the United States, all organizations must adhere to the Generally Accepted Accounting Principles (GAAP). For nonprofits, however, there is an additional and specific set of standards that organizations must follow, as set out by the FASB 117. This establishes core accounting standards for nonprofits which help with accountability and transparency. It is important that nonprofits understand the accounting standards they are required to adhere to and how these standards differ from for profit accounting. 

Financial Statements

Knowing what goes into and how to properly compile financial statements will greatly support the ability to make decisions, comply with regulations and audits, and provide insights and transparency to donors and supporters. Nonprofit financial statement requirements are a bit different than for profit. They include:

Understanding an organization’s financials is like unlocking a door to the health of an organization, and can help track progress and goals over time.

Budgeting 

Nothing says healthy financial management quite like a robust and well-thought out budget process. Creating, tracking, and adjusting a budget throughout the year can be the difference between achieving organizational goals or falling short. Budgets also support your efforts to complete the above requirements, like maintaining compliance and preparing financial statements. Intentional budgeting can empower employees, inform executives, and drive critical change. While it may seem time-consuming and overwhelming, it’s always worth the effort and you will continue to reap the benefits. 

Taxes

Yes, taxes. Even though nonprofits are regarded as tax-exempt organizations, it is still incredibly important for nonprofit leaders to have an understanding of what this status means and the requirements behind it. Understanding what tax and reporting requirements your organization may have is critical to maintaining that tax exempt status. While 501 organizations are tax-exempt, it does not mean they do not have to file taxes. Requirements may vary depending on the type of 501 organizational category you fall into:

  • 501(c)(3): Charitable, Religious, or Educational Organizations
  • 501(c)(4): Community social welfare organizations
  • 501(c)(6): Business leagues, professional associations, real estate boards, and board-of-trade organizations.

It’s imperative to stay on top of your tax filing and reporting in line with your organizational status.

Employees

While employees might not seem directly related to successful nonprofit financial management, they can have a huge unintended impact. When understanding how employees affect your financial health, consider:

  • Organizational chart – ensuring that you have the right people in the right positions can make an organization run smoothly. Utilize your employees’ skill sets and expertise to your advantage. This is especially true for your finance team, but also applies to teams with indirect impact on the  finances of the organization, such as the fundraising, donor, or grant teams. 
  • Filing and Forms – whether an organization finds themselves able to hire full time employees or relies on contractors, the filing requirements are important to understand. The types of people and the work they do for your nonprofit will determine whether you need to complete a W2 or 1099 come tax season.
  • Payroll Expense – In many organizations, nonprofit and for profit alike, salaries and payments to contractors make up the largest expense. Therefore, it tracks that you will want to understand the structure and the employees that make your organization run and take a look at how these expenses are falling.

Interdepartmental Communication

The final key to successful nonprofit management is to understand your organization as a whole. Open communication can provide you with insights that might otherwise be missed. These can help drive the budget process, financial goals, and strategic decisions. Functions such as marketing or fundraising can show you where money is being spent, the expected results, and how they plan to implement changes to boost donations. 

They can also provide details of change drivers that the finance team may be unaware of. Keeping the lines of communication open across the organization and allowing for transparency, feedback, and support may be the most important key here. This also extends beyond the organization. Having a holistic view, open communication, and an open mind might be the key that unlocks the door to successful and efficient financial management. 

Partner for Streamlined Nonprofit Financial Management

Overall, there are many aspects that make an organization tick, and the financial management function is the engine driving it all. Taking the time to holistically look at your finances, understand the meaning behind them, make realistic adjustments, and maintain compliance can make all the difference in the success and longevity of your organization.

The Charity CFO specializes in helping nonprofits simplify their finances so they can be confident. Reach out to us here for a free consultation.

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How to Set Up Your Nonprofit Organizational Chart

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A nonprofit organizational chart is essential for the company’s success and growth. The internal structure or hierarchy of the organization must be organized and efficient to ensure that there are adequate resources and personnel in place to achieve its goals and mission.

A nonprofit organization chart, also known as an org chart or organogram chart, is a useful tool that is used to create a graphical representation of the structure of the organization and its various departments. It provides an effective way to organize, plan, and manage resources within the nonprofit structure.

Org charts are also used as a management tool to improve team performance, streamline processes, and reduce friction between departments. This can help with internal communication, problem-solving, conflict resolution, and growth acceleration.

With its organization-wide uses and benefits, it only makes sense to have a well-thought-out organogram for your nonprofit organization. So, what do you need to know and consider when setting up a nonprofit organizational chart?

Let’s find out.

What are Nonprofit Organizational Charts?

An organizational chart is a diagram that displays the internal structure of a nonprofit organization. It shows the relationships between different levels and positions in the nonprofit organization. These diagrams can include information about job titles, responsibilities, job roles, reporting relationships, and communication channels between different departments or divisions

Organizational charts can be used to illustrate various touchpoints in your nonprofit organization’s structure. They are usually used to make a statement, through design, on the organization’s culture, beliefs, values, and philosophies.

A well-designed org chart acts as a lifeline for new employees, helping them understand where they fit into the overall structure during onboarding. They can help to create a shared understanding of roles and responsibilities among teams, which in turn improves communication and collaboration between departments.

Organizational charts are also useful tools when it comes to developing strategies, setting goals, establishing policies, and making decisions. Every stakeholder should understand the structure of the organization and the goals it seeks to achieve. You don’t want any team member just skating by. 

Why do you need an organizational chart?

An up-to-date org chart serves several important functions for your nonprofit:

  • Helps the entire organization understand the chain of command
  • Helps potential donors, grantors and volunteers understand who is steering the ship
  • Helps new hires to know their colleagues and managers
  • Provides an overview of how tasks and projects are distributed throughout the organization
  • Ensures that each department understands its mission, roles, and responsibilities, hence strengthening and optimizing collaboration 
  • Helps the management or HR to anticipate skill and talent gaps, leadership needs, training needs, and future staffing needs
  • Helps increase organization-wide productivity and performance
  • Org charts give an eagle-eye view of the whole organization and juxtapose functions against each other, giving the management a clear picture of the expenses, overhead costs, and other operational issues.

We recommend building your nonprofit org chart based on functional areas such as administration, operations, programs, strategy, governance, fundraising, and development. Then further subdivide within each area, depending on the purpose and goals of your nonprofit. This will create a structure for your nonprofit that is flexible and allows for changes to be made as, and when needed.

Types of Organizational Charts

Most people are only aware of the classic hierarchical box-style org chart that shows a clear chain of command, with each position directly reporting to the one above it. But there are actually several different types of organizational charts. Depending on your nonprofit’s location, structure, and needs, you can choose among the following types:

  • The top-down chart

This is perhaps the easiest to understand, as it follows a traditional business model with an executive team at the top and all other positions directly reporting to them.

  • Flat chart

This chart structure has fewer layers and a limited hierarchy. It’s useful for small organizations that need to be agile and make decisions quickly. The day-to-day decision-making is made by individual staff members running their own functions and reporting to the board of directors. This type of organizational chart can be useful in terms of accountability, cost savings, and internal communication.

  • Functional org chart

A functional chart shows the relationship between the departments and their managers and organizes them according to their duties and responsibilities. It starts with the management, followed by department/team leaders, followed by other staff members.

  • Cross-functional org chart

If you have small teams spread through various departments, you can use a cross-functional org chart. This structure focuses on how various roles and tasks are related, instead of showing who reports to whom. It’s useful for collaborative projects, as it makes it easier to understand how teams are organized and who is responsible for what.

  • The matrix chart

The matrix organizational structure is a cross-functional structure that allows you to create two or more reporting relationships for each employee. The matrix chart is created by linking the different departments of your organization on a chart. It’s often used when an organization has multiple products, services, or projects that need to be managed. By linking these departments on a chart, you can easily see how each department interacts with the others. This helps to create an efficient and effective workflow for your nonprofit organization.

How to Set Up Your Nonprofit Organizational Chart

Once you’ve chosen the type of organizational chart that best suits your nonprofit, it’s time to set it up.

1.    Understand your structure

The first step is to gain a clear understanding of how your nonprofit operates and the roles and responsibilities of each team. This will help you create an organizational chart that reflects your current structure and makes it easier to identify areas for improvement.

Here are several things you’ll need:

  • A comprehensive list of the executive, employees, and volunteers
  • Recent pictures of each individual
  • A detailed rundown of the roles and responsibilities of each position
  • A solid understanding of the organizational structure and chain of command

2.    Design the chart

Use tools such as Photoshop, Indesign, Canva, Airtable, or Microsoft Office to idealize and create your chart. Or you could use an online template from websites like Lucidchart, Creately, or Gliffy to drag and drop elements and create a professional org chart.

3.    Add employees and volunteers

Once you’ve created the chart, it’s time to add all your employees, volunteers, and executive members. Include their name, position, department, and recent pictures to make the chart more engaging and easier to read. Some must-have roles to include are CEO, board of directors, executive team members, departmental heads such as Chief Finance Officer (CFO), and administrative staff.

After you’ve added all the members, double-check to make sure that everyone is in the right place and their roles are accurately represented.

4.    Make it visible and accessible

Once the organizational chart is complete, make sure to display it in the work area or the lobby of your organization. This will help everyone quickly grasp the structure, roles, and responsibilities of each department, and who reports to whom. It’s also a great way to introduce new members and volunteers to the organizational structure.

Need a CFO for Your Organization?

Organizational charts are an essential tool for nonprofits. They can help create a clear understanding of the roles and responsibilities within an organization, and give stakeholders a better idea of how decisions are made.

Obviously, most nonprofits will have the executive team all set up and forget or struggle to fill important positions such as the program officer, director of events and projects, grant writer, and chief financial officer (CFO). This complicates the organization chart and makes it harder to visualize the chain of command.

Finding a qualified and experienced CFO can be particularly difficult, expensive and out of reach for small nonprofits with limited resources. Fortunately, there are organizations such as The Charity CFO which specializes in providing industry-leading accounting and bookkeeping solutions, specifically for nonprofits.

If you’re looking for a CFO to help manage financial operations and fill the vital role of Chief Financial Officer on your org chart, we are the perfect choice for your organization.

We provide a comprehensive, affordable, and audit-ready financial management system to nonprofit organizations just like yours. Our team consists of experienced CFOs, CPAs, bookkeepers, and financial advisors who understand the complexities of running a nonprofit— so you won’t need to hire a full-time CFO for your organization. Contact us today to learn how our services can help you achieve your financial goal and deliver impactful results. 

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Understanding the Job of a Nonprofit Operations Manager

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There are more than 1.54 million nonprofits globally. To ensure that a nonprofit runs efficiently, several people work behind the scenes to make things much easier, and one of those people is the operations manager.

The operations manager might be the secret weapon of the most successful nonprofits we know. By taking charge of getting things done, an operations manager helps executive directors focus their energy on the strategic big-picture that will move their mission forward.

If you’re looking to enter the world of nonprofit organizations with a background in operations management, you might be wondering how your skills can help you. Or, if you’re a nonprofit founder or an executive director, you might be wondering how an operations manager can help make your organization ruthlessly efficient and highly effective.

Read on now to find out what the job description of a nonprofit operations manager might look like.

What does an operations manager do?

A nonprofit operations manager, or director of operations for a nonprofit, is responsible for the day-to-day operations of the organization. 

They oversee the administrative staff and make sure that the office runs smoothly. They also develop and implement operational procedures and systems and manage budgets and financial reports. In short, they ensure that the nonprofit runs like a well-oiled machine!

Now, if that sounds like they do a bit of everything, it’s because that’s true!

An operations manager, by definition, is a manager. They don’t necessarily need to be an expert at any one thing. Still, they need to be able to be proficient enough at many things to manage a highly productive team to get results for their organization.

Here’s how Krysta Grangeno described her day-to-day tasks in operations for a nonprofit organization:

Who reports to the operations manager?
And who do they report to?

It depends on the organization, but generally, any department is responsible for the day-to-day operations of the entity. That may include

  • Finance Department
  • Fundraising Department
  • Program directors
  • Human Resources
  • Information Technology
  • And more!

You can see that, depending on the size and structure of your organization, the ops manager will have to oversee a large number of departments.

In turn, your operations manager will either report to the Director of Operations, the Chief Operating Officer (COO), or directly to the CEO or Executive Director. They may also have some direct interaction with the Board of Directors, although the board isn’t technically their supervisor.

operations-manager-nonprofit-roles

What are the job responsibilities of a nonprofit operations manager?

As mentioned above, their primary role is to supervise and organize the efforts of the departments under their responsibility. Here’s a breakdown of what duties a nonprofit operations manager will be expected to handle:

Ensure the Office Runs Smoothly

The administrative staff is responsible for keeping the office organized and running smoothly on a day-to-day basis. The operations manager will make sure that they have everything they need to do their job effectively and that they are meeting all deadlines.

An operations manager must be exceptionally well organized, as they’ll be responsible for creating systems and processes that ensure every department is meeting its expectations. Often, they’ll also need to be aware of all legal or reporting requirements that the organization may have in executing their programs.

nonprofit-operations-manager-budgeting

Implement Budgets and Oversee Financial Strategy

The operations manager will be responsible for spearheading the budgeting process for the organization and ensuring that the accounting department delivers timely and accurate financial statements for the board of directors or other stakeholders. You’ll also need to be intimately familiar with these statements as well and review them proactively to identify potential issues before they become problems.

As the operations manager, part of your role is to ensure that the financial department runs effectively. This includes ensuring that checks and balances are in place and that employees in the financial department are adequately trained to do their jobs.

The operations manager must also be acutely in-tune with the organization’s budget. Because their role is so wide-reaching, they need to be aware of how shortfalls in one area (like fundraising) may impact the ability to execute in others (like executing programs or meeting payroll).

That doesn’t mean that the operations manager needs to be an accountant. Generally, they’ll oversee the accounting team or work as a liaison with an outsourced accounting firm. But ultimately, they are responsible for ensuring that the accounting work is done correctly and on time.

Supervise Human Resources 

Ideally, the operations manager’s role in human resources is limited to supervision, but that’s not always the case. In some smaller nonprofits, HR may get put completely onto the ops manager’s plate, but we’d recommend against it.

Human resources is a specialized field that requires experience and specific knowledge. You need to comply with employment law, collect the correct information, withhold taxes appropriately, and onboard and train new employees.

A knowledgeable HR professional should establish the policies and procedures for the human resources department, but many nonprofits can’t afford a full-time HR coordinator. That’s why many nonprofits choose to outsource their HR to external firms as well.

Even if you’re working with an external firm, the operations manager will probably need to be involved in many day-to-day items related to HR—like searching for employees to hire, interviewing, training, counseling, and terminating employees.

nonprofit-operations-manager-technology

Manage Technology Integration 

Technology is a massive part of the work that nonprofits do. Almost every person in your organization depends on technology. And the networks and systems that keep those people aligned take organization, security, and maintenance.

Depending on your mission, you may even be dealing with highly sensitive personal information that you have a legal responsibility to protect, even in digital form. As the operations manager, you’ve got to make sure the appropriate technology systems and controls are implemented throughout the business.

Not utilizing the proper systems could mean the loss of crucial data needed in the future. Or it could mean a crumbling IT infrastructure that can’t support the business model being implemented.

Nonprofits often don’t need, or can’t afford, an internal IT department. And relying on someone’s husband or nephew to fix problems isn’t an acceptable solution. Instead, many organizations outsource their IT department to a service provider. In this case, it’s the operations manager’s job to liaison with the IT provider to ensure the office gets the support it requires.

Ensure Compliance and Organization

Records need to be kept in order within any business. There are several reasons for this, but compliance is an important one for many nonprofits.

Your organization needs to comply with accounting regulations, legal restrictions, employment rules, and other industry-specific regulations. And the operations manager is ultimately responsible for ensuring that the company is prepared to prove its compliance when audited.

Not only does record organization help when something needs to be located, but it also speeds up business efficiency. Instead of wasting time hunting for something, it will be easy to access the record database. All you’ve got to do is type in some information and locate the data needed.

How to evaluate performance and further development

Whether you’re building the leadership team to include an operations roles, or you’re currently in an operational leadership role — it’s important to regularly evaluate performance as well as work on developing to further improve your work.

If you’re evaluating your ideal candidate, after they’ve been in the position for a certain period (a year, for example), it’s important to compare their achievements to the job description. For self-evaluations, read resources (like this one) to find usable knowledge to help improve your performance. 

Key areas to concentrate your efforts include:

  • Purposeful communication: In operations, too much communication is nearly as problematic as not enough. What you say, how you say it, must be as useful as possible. That’s where developing purposeful communication tactics come in handy.
  • Organizational processes: As someone who ensures compliance and handles intricate areas of a nonprofit, the ability to develop processes takes precedence over nearly every other aspect of your role.
  • Continuing certifications: There are a number of nonprofit certificate programs available for leadership teams. Those instructing the programs often have robust experience in the sector. Taking these programs helps you find the additional knowledge to improve your performance.

A Note on Outsourcing Professional Services:

We’ve mentioned outsourcing a few times here, related explicitly to bookkeeping/accounting, human resources, and information technology. That’s because this is an emerging trend we see gaining steam in the industry.

Traditionally, many nonprofits had a scrappy, do-it-all mentality when it came to these areas. So, an operations manager or financial director frequently ended up having responsibility for everything— from making bank deposits and firing employees to troubleshooting network issues.

But this approach causes more problems than it solves. Having trained professionals handling complex tasks that are outside their area of expertise is hugely inefficient. And it’s just asking for mistakes.

Yet most organizations can’t afford a full-time accountant, HR coordinator, and IT professional. And that’s where the operations manager comes in.

When organizations outsource these 3 functions and have the operations manager work directly with each team, they can get the full professional support of each team without paying a full-time salary. Often, these teams are more talented and efficient than an internal team member would be.

We believe this is the operational business model of the future for successful mid-sized nonprofits in the $1M to $15M/year range. If you’d like to talk to us about outsourcing your bookkeeping and accounting to The Charity CFO, send us a message to set up a free consultation.

What Qualities Make a Good Operations Manager?

Let’s turn to Krysta again, to offer a first-hand perspective on what skills an operations manager needs:

What A Nonprofit Operations Manager Does: A Recap

A nonprofit operations manager has many responsibilities, but their primary role is to coordinate all the various departments to ensure that business runs smoothly.

The operations manager will oversee the finance department, human resources, information technology, programs, fundraising, and more. And they must grasp how each department impacts the other to ensure that the entire organization runs harmoniously.

By doing their job well and assuming responsibility, they free up each department to focus on what they do best, rather than overlapping tasks or getting tied up in work that’s unrelated to their department. They also help free up the directors to focus on strategy rather than the day-to-day minutiae of each department.

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The Finance Committee and Nonprofit Financial Leadership

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Your finance committee spends the most time analyzing and studying your nonprofit’s numbers, yet your entire board of directors is responsible for financial oversight.

So, as the executive director or financial manager of a nonprofit, it’s up to you to ensure you prepare both the finance committee and the entire board to understand their roles and what you expect of them. Doing so helps you ensure your team truly understands your finances and can help you do your job more effectively.

Here are some quick ways to ensure that your organization has the financial support it needs to carry out its mission:

Recruit board members with financial and accounting expertise

All board members are responsible for the financial health of a nonprofit organization. However, you will need some board members that can do more of the heavy lifting in the nonprofit financial management space. 

The degree to which your nonprofit needs financial expertise depends on the size and complexity of your organization. For example, if your organization has complex investments, you may want to add board members with investing expertise. 

And if you can find qualified candidates with nonprofit finance or accounting experience, even better. Nonprofits have specific accounting needs that differ from for-profit companies, so there will be a learning curve even for experienced financial professionals arriving from the for-profit business sector.

nonprofit_financial_onboarding

Include nonprofit financial training component in board orientation

Many board members lack confidence in the financial oversight role. And as discussed above, even experienced financial pros may be new to the specific details of nonprofit financials.

A lack of confidence reduces the questions and conversations about the organization’s financial performance in board meetings. 

Time after time, we see the board delegating the responsibility of financial management to solely the finance committee, leaving the remaining board members in the dark about the finances. 

Nonprofits can conduct a crash course training session to bring new members up to speed. 

Your financial training for board members should include at least these basic elements:

  1. An overview of the principal sources of revenue (earned revenue from programs, key fundraising events, and other significant sources of funds),
  2. An overview of the major expenses (explaining which expenses are largely fixed, such as salary and others that are variable/discretionary).
  3. A basic understanding of the organization’s assets and liabilities, such as cash reserves, liquidity of assets, and the details of oustanding long-term and short-term liabilities.
  4. A copy of the latest financial statements and an overview of the critical assumptions and the KPIs that matter most to your organization. A written summary of the financial performance accompanying the financial statements will help non-financial individuals better understand key points. 

In addition to an initial financial training at orientation, you might consider adding a financial training component to your annual board retreat to keep your entire board actively engaged with your finances.

Activate the Finance Committee

A strong finance committee is one of the keys to effective financial oversight. 

Finance committee members typically have the most experience in accounting and finance. Therefore, they can help your nonprofit establish policies, develop robust budgets, and improve internal processes. 

PRO TIP: To get even more capacity from your finance committee, include them in your strategic plan!

Every nonprofit should periodically develop a strategic plan. As part of the strategic plan, your organization should set goals for financial oversight and the overall accounting function. Then, charge your finance committee and financial management team with executing the financial elements of the strategic plan. 

If financial oversight is not currently part of your strategic plan, consider including it. Your finance committee will be more effective if they are tasked with achieving specific goals within a designated time frame. 

nonprofit_board_meeting_finances

Discuss Financial Statements As a Team 

Each nonprofit should have regular board meetings. And your board should review and discuss the most recent financial statements at every board meeting. 

Don’t leave the financial statement review to a consent agenda, given how significant financial oversight is to the overall board members’ job description.

Nonprofit financial statements will vary from organization to organization, based on the size and complexity. Consider developing a financial reporting package or financial dashboard that is both meaningful and easily understood by staff, leadership, and the board. 

Your financial statement review should include at least these 3 reports:

Some organizations will even develop projections and cash flow forecasts to help anticipate financial challenges and drive conversations around how to overcome them.

Beyond the finance committee…

Business finances can easily overwhelm a nonprofit team. Building a solid finance committee can help you get the support you need.

But financial responsibility doesn’t start and end with the finance committee. To increase your chances of success, you should charge your entire board and management team with understanding and engaging with your financials.

If you want to carry out your mission successfully, you need to be sure you have the financial strength to get you there. And that means running your nonprofit like a business.

You can read financial statements like a CPA 

If you or your team need help to understand your financial reports, check out this free guide we created to help directors and boad members read and understand nonprofit financial statements.

We’ll let you know what a CPA is looking for when they review your balance sheet and income statement, so you can read your reports with an expert’s eye.

 

Download the annotated guide to nonprofit financial statements