Having financial experts on your board helps to avoid financial governance issues. However, this is not a mandatory requirement. This is not to say that you can rest on your laurels. Better governance comes from having a basic understanding of how to read and interpret financial statements.
A clear strategic plan, sound policies and knowing how to funnel funds within a Non-profit stems from prudent leadership. This relies heavily on information found in management reports and financial statements. In a nutshell: running a Nonprofit like a for-profit.
Financial Information Checklist
- Reliable and Accurate: To resolve any question about the quality of recordkeeping or accounting.
- Available in a timely fashion: Information should be available to the board within a minimum of 2-3 months.
- Relevant: Information should be presented in relationship to the history, goals and programs of the organization.
Without financial reports, you won’t be able to ensure operational efficiency or provide assurance to funders, community partners and the public that funds are being used in the correct manner.
Strategic Leadership
Strategic leadership is a common skill that needs to be improved on Nonprofit boards. Due in large part to the fact that the majority of Nonprofit board members are volunteers with specialized expertise in different fields however many have a limited knowledge of governance and strategy.
Strategic leadership at a glance:
- Contribute to the development and approval of the organization’s strategic plan and goals.
- Provide input on key initiatives, decision making and long-term vision.
- Evaluating progress in achieving strategic objectives.
- Leveraging – and continuing to grow – personal networks in support of fundraising efforts.
- Reach audiences to ensure contribution to the organization’s funding.
- Select (and terminate) organization leadership.
- Provide guidance and support to the executive leadership team.
- As an ambassador advocate on behalf of the organization by raising awareness and driving positive change.
- Promote the organization through PR initiatives.
To learn more about the important role of a dedicated CFO and the help they can provide a Nonprofit organization, click here.
Nonprofit Governance
Governance is paramount to running a Nonprofit. It provides the much needed oversight and builds a system of strong checks and balances that ensures the organization’s long-term success.
This is done by establishing policies, procedures and guidelines that ensure the efficient running of the organization that complies with legal and regulatory requirements as well as ensuring that the organization maintains high ethical standards. Through active participation within the Nonprofit, board members can direct the organization in achieving its mission.
Board members are required to have a 4D approach to running the Nonprofit and should be alert to identify and manage any potential risks that could impact the organization’s operations, reputation and finances. As well as address any legal or ethical issues that may arise.
Failure to do so could result in a loss of faith in the organization. The effects of diminished trust would compromise the longevity of the institution.
Do you want to learn 5 benefits of why Nonprofits outsource their payroll department to help with governance? Click here.
Financial Statements
Financial statements are the primary resource for board members to make business decisions. Statements should be perused on a monthly, quarterly and annual basis. The following components of a statement should be understood to understand financial statements.
- Budget
- Income statements
- Balance sheets
- Profit and loss accounts
- Statement of functional expenses (if applicable)
- Cash flow statement
- Audit annual review
Do you want to learn how to optimize your Nonprofit financial management? Click here.
Comparing Budget vs. Actual Figures
The Nonprofits budget is a document detailing how the organization intends to spend its money. This is a planning tool that takes into consideration the organization’s programs, mission and strategic plan.
The approved budget serves as a guidepost for the organization’s financial activity over the coming year. The budget is not set in stone as various factors will impact spending.
It is imperative that every organization has an annual budget. The board needs to review the budget vs. actual for the current month as well as year-to-date (YTD). The annual budget of each department within an organization assists the board members in making decisions.
This information allows the board to make fiscal decisions regarding the organization. By reviewing data on a regular basis, the board will have its finger on the pulse of the organization. They would know where to funnel additional funds as well as where to make budget cuts should financial resources suddenly dry up. In order to do this efficiently board members would usually rely on cloud-based software to create the needed financial reports.
Do you want to learn more about the best practices for budgeting and forecasting in your Nonprofit organization? Click here.
Conclusion
Board members require a basic understanding of financial statements in order to govern effectively. This will allow them to read and interpret financial statements, cash flow statements as well as results.
Understanding this will allow them to fulfill their primary responsibility of implementing strategic plans and policies, and ensuring the organization has the funding required to remain viable.
Therefore reliable, timely and relevant financial data is essential for board members to fulfill their duties. This will lead to good governance of the organization through accountability and transparency.
This strategic leadership from board members will improve their ability to lead, fundraise, advocate on behalf of the organization and ensure the strategic alignment of the company whilst mitigating risk.
To bridge the skillset shortfall around financial management and governance many Nonprofits look to outsource their CFO role to expert companies like Lescault and Walderman.
At Lescault and Walderman we have a dedicated team of Nonprofit accounting experts to help your Nonprofit become a success and we have the knowledge to design and implement viable and easy-to-use software solutions to reduce the operational cost of your Nonprofit by using the power of Sage Software.
To learn more about our Nonprofit accounting services click here.
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