We have discussed in the past that a nonprofit Board needs financial information to help them make informed decisions. But what kind of information do they need? We have seen a number of practices some of which we do not recommend.
Here are some common practices of which we do not approve:
1. Excel spreadsheet. While an Excel spreadsheet may be an inexpensive way to list financial information is it does not group items by categories and therefore it cannot give a complete picture of the organization’s finances. You don’t generally see liabilities for example. In addition, a simple listing on an Excel spreadsheet will not help prepare a form 990, if one is required. You will need to categorize income and expenses.
2. Bank statements. We have seen executives bring the bank statement as their financial information to a board meeting. While cash in and cash out is important, it also does not provide a complete picture. It will not list the balance of a liability or restricted account, for example. The bank statement won’t remind the board how much is restricted.
3. Quicken and other personal finance programs. We have also seen organizations use Quicken and other personal finance programs. While these are very useful for household finances they aren’t appropriate for reporting an organization’s finances. You will find it cumbersome to put together a balance sheet or income statement if you have any volume of transactions.
We believe that an organization needs to invest in accounting software to give the Board appropriate information. While it is more expensive, it will in the long run save time. Do you want to spend more time than necessary on administrative tasks?
You need to present the following items to the board on a regular basis:
Statement of assets and liabilities, also known as the balance sheet. This statement is designed to list cash in the bank as well as other assets the organization may own as well as liabilities. It would also list restricted funds such as the estate gift I previously described.
Income statement. You need you need to present income and expenses not only for the current month but also year to date and if possible a year-over-year comparisons. The board needs to see where income is coming from where it’s going to and what trends may be relevant to the organization’s future. If income is declining or expenses are increasing the board needs to know this in order to chart future direction.
Sources and uses of cash. Some transactions show up on a balance sheet or the income statement. For example, if you distribute from a restricted fund, it will be on the balance sheet.
Any good accounting program will have all three of these statements. They can be easily produced once a program is set up with a an appropriate list of categories, called chart of accounts. We can recommend accountants who have experience in the nonprofit area. We can also assist smaller organizations with these activities. The future of your organization will be stronger with appropriate financial information.
