According to the Council of Nonprofits, “Board members are fiduciaries who steer the organization towards a sustainable future by adopting sound, ethical, and legal governance and financial management policies, as well as by making sure the nonprofit has adequate resources to advance its mission.” On a consistent basis, the board of directors should be meeting with leadership to discuss the performance of the organization, its goals, and progress towards those goals. An important part of these periodic meetings is reviewing the financials and data to make future decisions.
So what kind of reports should the board be looking at?
At a high level, the board should be looking at the financial statements which consist of the statement of financial position, statement of activities, and statement of cash flows. These statements provide a high level picture of the organization’s financial health. For a deeper dive, the board should also be looking at management reports. These reports should be used to govern the organization on a day-to-day basis. At a minimum, the board should be reviewing there three management reports:
Budget vs. actual spending at the organization level, by program, and department
Every organization should have an annual budget. The annual budget is the foundation for sound financial management and should govern future decisions made by the organization during the year. The leadership and staff are normally tasked with creating the budget however, the board should approve the budget and review on a consistent basis.
Once the annual budget is set, creating budget to actual reports provides insight to changes in the organization’s financial position. Depending on the frequency of board meetings, the budget to actual report should be reviewed for the current month and on a year-to-date basis. The board and leadership should then be drilling down to review budget to actuals for programs and departments to help determine efficiencies and highlight any areas of concern. By doing so, you can identify differences and whether changes to the budget need to be made.
Cash flow forecast to predict the flow of cash and indicate potential issues
It’s no secret that cash management is a big deal among nonprofit organizations. The financial issues that plague the nonprofit industry is largely due to the way the organizations are funded and the restrictions placed on the use of those funds.
Understanding the ebbs and flows of your organization is crucial to managing your cash. By reviewing the cash flow forecast, the board can assist with decisions regarding funding, paying vendors, and overall understanding when money is expected to come in and go out. The frequency at which you prepare the forecast should be dependent on whether your organization is in a dire cash position or not. However, at the very least it should be done monthly.
Most importantly, by reviewing your nonprofit’s cash position consistently, you can predict cash shortages and better plan for how you will address such issues. As well as be made aware of the timing of such cash needs. By having such data on a consistent basis, the board can assist leadership with making strategic and data-driven decisions.
Customized KPI Dashboard
As technology continues to evolve in the accounting space, there are many avenues for nonprofit organizations to gain access to data. By having a customized dashboard for your organization, it can highlight whether the organization is performing in line with industry standards, monitor success, and indicate areas of improvement.
Furthermore, dashboards are a great way to organize large volumes of data. Examples include financial metrics, number of people served, progress towards goals set by the board and leadership, etc. The usefulness of the dashboard is dependent on what’s important to the organization and its ability to make decisions. As with creating a budget, management and the board should determine the metrics that are most important to the organization and use those to build out the dashboard.
The key takeaway here is that it is not enough to review financial statements. Leadership and the board have to take it a step further, create, and review management reports that give a deeper level to what’s happening in the organization on a day-to-day basis.
If you’re ready to level up your financial reporting and go beyond basic bookkeeping, we provide our clients with management reports to make data-driven decisions easier and to present to the board of directors. To learn more about how we can help you, schedule a free consult here.