3 Essential Nonprofit Accounting Reports Every Leader Must Review Monthly

If you're a nonprofit leader wondering whether you're seeing the right financial information or looking to improve your organization's financial reporting, you're not alone. Many nonprofit executives struggle with knowing which reports to prioritize in their monthly reviews.

The truth is, while there are numerous reports you could be looking at, there are three essential nonprofit accounting reports that should be at the top of your monthly review list. These reports will help you make data-driven decisions, maintain grant compliance, and keep your organization financially healthy.

Let's dive into these three crucial reports that can transform how you manage your nonprofit's finances.

Budget to Actuals by Grant - Your Grant Management Lifeline

The first of these essential nonprofit accounting reports is your budget to actuals report, specifically broken down by individual grants. This report is absolutely critical for nonprofit grant reporting and compliance.

Why This Report Matters

When you receive grant funding, those funds often come with strict restrictions and very specific budget requirements. You need to know exactly where you can spend money and how much you've already allocated to each category.

By reviewing this report monthly, you can:

• Track your spending against approved grant budgets

• Identify potential overspending before it becomes a problem

• Make informed decisions about future expenditures

• Maintain compliance with funder requirements

What to Look For

While your accounting software might not automatically generate this exact format, you can export your data and create a clear presentation that shows:

• Budgeted amounts for each grant category

• Actual expenditures month by month

• Remaining balances in each category

• Variance between planned and actual spending

For example, if your grant allocated $10,000 for a specific category and your report shows you've already spent $20,000, you'll immediately see you're over budget by $10,000. This bird's eye view allows you to make course corrections before small issues become major compliance problems.

Statement of Functional Expenses - Understanding Your Financial Balance

The second essential report is your Statement of Functional Expenses. This report is crucial because you're required to report functional expenses on your Form 990, and many funders have specific requirements about how much can be allocated to administrative costs.

The Three Main Categories

Your functional expenses typically fall into three main categories:

1. Program expenses - Direct costs related to your mission work

2. Administrative expenses - General operating costs

3. Fundraising expenses - Costs associated with raising funds

Some organizations may have subcategories under programs if they run multiple distinct programs, which can be helpful for management reporting purposes.

Monthly Monitoring Benefits

By reviewing this report monthly rather than waiting until year-end, you can:

• Ensure you're not overly leveraged in any one functional area

• Verify you're meeting funder requirements for administrative cost limits

• Make adjustments throughout the year rather than scrambling at the end

• Present clear financial pictures to your board

Remember, if you wait until the end of the year to review these numbers, you've lost the opportunity to make meaningful adjustments for the current year.

Cash Flow Projections - Your Financial Crystal Ball

The third report, and perhaps the most important for day-to-day operations, is your cash flow projections. This report is crucial because nonprofits often spend money before receiving grant reimbursements.

Planning for Financial Health

Your cash flow projection should help you identify:

• Potential shortfalls in upcoming months

• Months with anticipated large expenditures or income

• Seasonal patterns in your funding and spending

• The impact of proposed changes or new programs

Using Projections for Scenario Planning

This report becomes a powerful tool for scenario planning. You can plug in different numbers to see how various decisions might affect your cash position. For instance, if you're considering hiring additional staff or launching a new program, you can model those expenses to see their impact on your cash flow.

Comparing Forecast to Reality

A comprehensive cash flow report should include:

• Your original budget

• Actual expenses and income to date

• Forecasted amounts for remaining months

• Variance analysis between budget and projected totals

This comparison helps you spot trends and make informed decisions. For example, if you budgeted $60,000 for communications and marketing but have spent very little, you need to ask whether that budget line is realistic or if there are planned expenses you haven't implemented yet.

Key Takeaway: Essential Nonprofit Accounting Reports Enable Data-Driven Leadership

These three essential nonprofit accounting reports - budget to actuals by grant, statement of functional expenses, and cash flow projections - provide the foundation for making informed financial decisions in your nonprofit.

Join the Accounting for Good Membership Community: If you are a new or first-time nonprofit Executive Director, you need to be equipped with the tools to build a financially ​sustainable and compliant organization. Our community is bridging that gap.

Join Accounting For Good Community