To do its job of guiding the organization, a Board of Directors needs to have accurate and timely financial information. If the organization is short of funds, the Board will need to approve a plan to get it back on a sound financial footing. If the organization doesn’t have any surplus, trouble looms. So what does the Board need:
1. A balance sheet, otherwise known as a Statement of Financial Condition. The report lists assets and liabilities, as well as unrestricted and restricted net assets. This helps the Board understand how much money the organization has and for what purposes it can be used.
2. An income statement, otherwise known as a Profit and Loss statement. This helps the Board understand how much money came in and how much went out, and where it went.
3. The Board also needs to know where the money came from. If you rely mostly on state funding, your immediate future is not looking good.
We have often seen financial statements that only cover the period since the last Board meeting. This isn’t enough information. To be truly helpful financial statements must also give a year to date summary and a year over year comparison.
The Board needs to see trends if it is going to make decisions that help the organization. Organizations have fallen down because the Board may have seen that there was money in the bank, but the cash flow was trending in the wrong direction. As one example, Hull House Foundation closed after 100 years of service in Chicago in part because the Board didn’t understand that the organization depended too much on state funding for its operations.
You may be tempted to rely on an Excel spreadsheet to gather financial information for the Board. We don’t recommend it. The organization needs to get a good NFP accounting program to generate these reports. A good program will have these reports built in so that staff can easily produce the important reports for any time period.
We also recommend that you have an accountant who understands nonprofit accounting. It is very different from the typical for-profit accounting. If you need a referral we have several firms we can recommend in the North and Northwest suburbs.
If you have any questions about financial reports we can provide some assistance, but we recommend an experienced accountant. Call if you need assistance.
