Another board meeting is upon you and once again you are hoping that someone outside of the finance committee will take an interest in the financials. Yes, all board members have a fiduciary responsibility but not every board member is clear on what that means. As talked about in the Q&A with nonprofit CPAs blog post, board members need to understand the numbers so they can understand how to be of assistance. You have to do your part in making the numbers accessible.
Provide standard reports each month.
Every month you should provide a profit and loss statement (sometimes referred to as the statement of financial activities) and balance sheet (sometimes referred to as a statement of financial position). The balance sheet shows not only what a nonprofit owns but also what it owes as of a specific date regardless of the fiscal year.
One number worth reflecting on with the board is net asset, which shows all revenue and expenses for the entire history of the organization and speaks to whether the organization is on solid footing over time. Another stat that the board needs to keep an eye on is the cash your organization has on hand as this talks to liquidity. Having liquid funds enables an organization to manage for unexpected program expenses or opportunities. Just like in personal finances, it’s important to balance cash-on-hand and short-term investments with longer-term investments that have higher returns.
The Nonprofit Assistance Fund has a sheet that shows how to derive additional measures from the balance sheet that can help board members understand the short- and long-term financial viability of an organization.
Report on monthly cash flow.
The monthly financial picture can be just as important as the fiscal year or multi-year perspective. This is especially critical if you’re dealing with reimbursement grants where the organization is fronting the cost of the service. The board needs to know if you have the cash flow to withstand the outlay of cash up front and the right kind of unrestricted income to manage associated expenses. Cash flow is also important in terms of the timing of grants and donations. If you only look at a single year-end forecasted revenue you may not have enough cash on hand to meet current expenses (another reason liquidity is important!).
Use a dashboard that speaks to your mission in financial terms.
Dashboards don’t just have to be red, yellow, green or an A-F rating system. They should include key metrics that show the health of the organization and what that means practically speaking, such as:
- The cost of providing a single unit of service. The Junior League of Austin has attached a dollar amount to what a backpack for their Food in Tummies program costs.
- The amount invested in a specific program. Austin Parks Foundation not only quantifies how much money they invest in a project but also volunteer hours.
Elaborate with a narrative.
Board members should receive financials ahead of the meeting. Include a written narrative of what you think needs to be addressed or explain any numbers that might draw their attention. Pre-empt explaining why a dollar amount looks better (or worse) than expected, or why there’s a big change in year-over-year or month-over-month numbers. Be sure to discuss what the balance sheet means for the organization’s financial health in terms of your calendar, events, grant opportunities, etc. It will save some time in the meeting and also provide context for board members.
With all of this, you’ll be able to tell a more complete story about your organization’s financial wellbeing. Nonprofit Elements can work with you on both ends of the reporting equation. We can help train your board members to better understand their responsibilities and ask helpful questions from a fiduciary standpoint; and we can help your staff develop proper reporting that paints a more complete financial picture for the board beyond the financial statements.