Financial Information for your Nonprofit Board

By Susan Rosati

What financial information should be given to your board each month? Let’s start with some basics. The board should receive an income statement showing the revenue and expenses. The Statement of Activities otherwise known as a P&L should be compared to the budget and to the prior year.  The board should also receive a comparative year over year balance sheet which shows the assets and liabilities.  At times, it is also recommended that the board receive a cash flow projection and forecast for the balance of the year.

I’ve also found one more report that is especially helpful with board reporting. This is the dashboard. The dashboard provides a summary of both the profit and loss and balance sheet along with other notable metrics that are helpful to the organization. By presenting data in an easy to understand format users can analyze key performance indicators. This allows your board to get a handle on the overall financial picture.

The information the board receives needs to be accurate and timely. Receiving financial statements that are over three months old can be costly to an organization. It leaves the organization vulnerable because the board has very little time to respond to critical matters. Also, the board needs to understand what bank funds are available for general use and what funds are restricted. If a large portion of the bank account is restricted this could mean serious cash flow problems for the organization. Board members need to understand the difference. The reports the board receives each month should be designed to communicate information in a clear and easy to understand format.

Does Your Development Department Get Along With Finance?

By: John Brooks, Senior Consultant

In large and small non-profits, there is sometimes a disconnect between different departments. You know – the “Silo Effect.” Everyone is so caught up in the day-to-day and what they have to accomplish that they sometimes overlook the fact that their work has a direct impact on other departments and vice versa.

Program officers need to make sure the communications team has what it needs to effectively inform donors, volunteers, and the media. Facilities need to let program know about repairs that may impact how program staff carry out their work and your volunteer manager needs to know if those repairs will impact the important work volunteers perform. Obvious? Maybe. But what about the communication between development and finance?

What happens when a major donor moves or has a life-changing event that could significantly impact their contribution? Does the finance office know when one of the organizations’ major donors has passed away or lost a spouse? How about when the family foundation is suddenly dissolved or there are significant changes to a donor advised fund (DAF) that negatively impact your organization? On the flip side, one of your donors tells you that their DAF or family foundation did really well last year and, as a result, they are doubling their gift this year. Of course, the development team is aware and perhaps the executive director knows but what about the finance officer?

I made it a point over the years as chief development officer to hold monthly meetings with the chief finance officer. We would discuss any situation that could have an impact on the annual budget that was not anticipated when the budget was finalized.

This ongoing communication was invaluable to the finance department. It helped our CFO anticipate cash-flow and, if adjustments were needed, the CFO could make them before there were any negative impacts to the overall budget. Often, unexpected losses of major gifts or large grants could be offset with unfilled staff vacancies. When we were notified of gifts, grants or bequests that would be larger than budgeted (or completely unexpected), this information was also shared with the finance office. If the increased contributions were unrestricted, the CFO would have the flexibility to shift revenue to those programs that may have been operating with a deficit, make purchases that had been put off or even fund an unfunded staff position.

Successfully running a non-profit organization – large or small – is a rewarding but extremely stressful undertaking. Ongoing communication between development and finance is essential to the fiscal health of your organization by helping to mitigate some of that stress. I was never afraid to get out in front of a potential deficit before it became a bigger problem. Often, we found solutions that helped us all sleep a little better.

Best wishes for a good night’s sleep as you continue to make a difference!

Springtime Brings Budget Planning for Non-Profits

By: Karen Greve Milton, Senior Consultant, Danosky & Associates

Spring is here and for non-profit organizations that means financial planning for the upcoming fiscal year should be well underway. Every non-profit organization, regardless of size, should develop and implement a financial plan — an operating budget — for each fiscal year. 

Financial planning is the key to a non-profit’s success and sustainability. A well-developed operating budget allows for future use of limited non-profit resources and focuses on the priority goals and objectives of the organization. Non-profit organizations functioning without an annual budget are operating in the dark and risk being unable to navigate a changing fiscal landscape. Annual budgets shed light on the organization’s financial picture and keep the organization focused on its programmatic purpose as the fiscal year progresses.

Developing the operating budget is a team effort involving board members, staff, volunteers and other stakeholders. If the non-profit organization has paid staff, the responsibility for developing a proposed annual budget for the upcoming fiscal year falls to the staff. Board members have responsibility for reviewing the proposed budget carefully and ultimately approving the budget for the next fiscal year. Where the non-profit entity relies solely on volunteers, the responsibility for developing the annual budget falls to the board’s finance committee members or other volunteer members of the organization.

A non-profit’s annual operating budget serves as a financial management tool for the organization.  It provides a guide to the organization’s financial functioning during the fiscal year. The approved budget allows the board and staff to gauge how the organization is operating during the current 12-month fiscal year and whether adjustments to any financial assumptions included in the budget need to be adjusted. 

In preparing an annual budget for your non-profit, it helps to use a step-by-step checklist of basic steps: 

1. Set the timeline for budget preparation, review and Board approval.
2. Agree on the non-profit’s budget goals for the new fiscal year.
3. Understand the current financial status of the organization.
4. Use the current and prior fiscal years to forecast financials for the next fiscal year.
5. Develop an income budget of anticipated revenue from all sources.
6. Develop an expense budget of all anticipated expenses.
7. Review the draft budget with the Board Finance Committee.
8. Obtain full Board approval of the budget.
9. Implement the budget at the beginning of the new fiscal year.
10. Monitor the budget throughout the fiscal year and adjust as necessary.

You can find checklists, templates and advice from various associations and entities, such as The National Council of Nonprofits (www.councilofnonprofits.org), and Propel Nonprofits (www.propel.org), among others.  

Good budgeting signals good fiscal health and represents a key component of financial sustainability. The annual operating budget is one of the fundamental building blocks of sound financial management.  Non-profits can use the annual budget as the basis for financial reports to donors, lenders, foundations and government agencies and the new Form 990. See https://www.councilofnonprofits.org/running-nonprofit/administration-and-financial-management/budgeting-nonprofits   

A few recommended tips for getting started: 

• Set a reasonable timeline several months before the start of the new fiscal year.
• Identify your income by categories (individual donors, institutional donors, foundations, events, programs, etc)
• Separate firm expenses (rent, insurance, etc.) from variable expenses
• Major events/programs and capital projects should have their own budgets
• Keep fiscal assumptions realistic and note them separately in the budget

Preparing the annual budget should be viewed as an opportunity to review financial priorities, assess the organization’s financial health and forecast for the future. Remember, the operating budget is not “etched in stone,” but constitutes your financial management guide for the fiscal year. It should be reviewed at each Board meeting during the fiscal year and adjusted as necessary.

The next question is whether the annual operating budget needs to be balanced. We’ll address that issue in our next article. Meanwhile, let’s get started on our spring-budgeting for your non-profit.