Understanding Nonprofit Financials

Nonprofit Board responsibilities encompass many areas, including financial oversight to fulfill the stewardship role known as “Fiduciary Responsibility.” Understanding fiduciary responsibility is critically important because nonprofits collect and spend other people’s donated money. Failing to act with due care in the best interest of the nonprofit has serious consequences, such as loss of public trust. Lost trust equals lost donations.

One fiduciary activity is monitoring the nonprofit’s financial performance to ensure that funding requirements are met to support the mission. Board members, usually those serving on the Finance Committee, must receive complete periodic financial statements to oversee financial performance in relation to the budget, financial ratios, etc. 

Even if the Finance Committee is made up of experienced financial professionals, they may not have experience with reading nonprofit financials, which are presented differently than “regular” financials. Getting all committee members up to speed on reading nonprofit financials is no small task. Many nonprofits need help. 

Well, I have some good news for Nonprofit Boards to fulfill their fiduciary responsibility – two options for help with Understanding Nonprofit Financials:

  1. The Arlington Chamber of Commerce is hosting a virtual event, Nonprofit Forum: Understanding Your Nonprofit Organization’s Financial Health on Tuesday, July 20, from 11:00 a.m. to12:30 p.m. This educational event includes a dive deep into the details of financial statements, such as statements of financial position and cash flows to help nonprofit Boards understand and place value in these financial reports. Follow this link for details and registration – https://web.arlingtonchamber.org/events/Nonprofit-Forum-Understanding-Your-Nonprofit-Organizations-Financial-Health-3623/details
  1. BoardSource is an organization that provides resources for nonprofit governance and management, including financial oversight. Some resources are free, and others require paid membership. Check out their resources for Nonprofit Boards at https://boardsource.org/board-support/, including a free white paper describing how Boards can identify “yellow” and “red” flags in their financial statements. https://boardsource.org/financial-statement-flags/ 

Nonprofit Board responsibilities include financial oversight and fulfilling fiduciary responsibility. Understanding nonprofit financials, which are presented differently than “normal” financials, is critically important to making appropriate financial decisions and ensuring donated funds are used in support of the mission. Even experienced financial professionals serving on nonprofit Boards need help. Good news for them that BoardSource and the Arlington Chamber of Commerce have resources to help them understand their nonprofit financials.