Your Board of Directors is ultimately responsible for your organization’s performance and short and long-term planning. As an Executive Director of a nonprofit organization, you are responsible for obtaining and presenting financial information to your Board/Finance Committee. The financial statements you present should be accurate, timely, relevant, and customized to your organization’s activities. In this blog, we’ll cover the critical elements of presenting financial statements to your Board/Finance Committee and provide tips on how to effectively communicate your organization’s financial information. Following these best practices will help ensure that your board has the necessary information to make informed decisions and drive the success of your organization.
To ensure that your board can effectively analyze and interpret your organization’s financial performance, you must ensure the financial statements you are presenting your board are:
Accurate: To ensure the credibility and usefulness of the financial information, it is crucial that the financial statements presented to your board are accurate, reasonable, and reliable. As an Executive Director, it is essential that you possess the basic knowledge to perform the necessary checks to ensure the accuracy of your organization’s financial statements. This includes confirming that the Balance Sheet is balanced and that the cash balances accurately reflect your organization’s bank account balances.
Timely: The financial information must be provided to you in a timely manner. You should ensure that your accountant provides you with the necessary financial information several days before you meet with your board, to allow for sufficient time to review and ask questions about the presented information.
Relevant: The financial information you receive must be relevant, which means it should be compared to prior years or periods. This allows you to provide context for the current period results and derive insights into your organization’s performance. By comparing the financial information with prior periods, you can identify trends and patterns in your organization’s financial performance, which will enable you effectively share the story behind your organizations financial position and make informed decisions about the future.
Customized: Customization is key when presenting financial statements to your board. Every organization has unique activities, operations, and programs which require customized financial statements tailored to their specific activities. This ensures that the presentation is clear and understandable, making it easier for the board to analyze and interpret the financial information presented.
Now that we have covered the key elements that must be in place regarding your financial statements, which financial statements should you present to your board?
In general, there are 4 financial statement your board see:
- Statement of Activities: The Statement of Activities is a financial report that shows how a nonprofit organization has performed over a specific period, like the income statement in for-profit organizations. This statement summarizes the organization’s revenue, expenses, gains, and losses, resulting in the net increase or decrease in assets.
- Statement of Financial Position: The Statement of Financial Position, also known as the Balance Sheet, provides a snapshot of an organization’s financial position at a specific point in time. This statement displays the assets, liabilities, and equity of an organization, which can help the board and stakeholders understand the financial health of the organization.
- Statement of Functional Expenses: The Statement of Functional Expenses presents revenue and expenses over a specific period for the organization, including individual programs. It provides information on how resources are allocated among different programs, enabling your board to evaluate the performance and effectiveness of each program.
- Budget vs. Actual: The Budget vs. Actual statement displays a comparison between the actual financial performance of an organization and the budgeted financial performance. This statement is useful in evaluating how well an organization is adhering to its budget and identifying areas where adjustments may be needed.
Oftentimes additional reports may be needed at your Board of Directors/Finance Committee meetings, such as:
Annual Audit: Review and discuss the main audit report in a board meeting after the audit has been completed.
Cash Flow Projections: Cash Flow Projections should be presented when the organization is experiencing cash flow issues or when trying to meet certain growth targets.
Below, we will share some tips on how to best present the financial information to your board along with other key items to keep in mind.
First and foremost, it is important to ensure you understand your financial statements and be clear on the story your financial statements are telling.
Present Information in Engaging Ways.
When presenting financial reports, it is essential to ensure the information is clear and concise. To achieve this, you can use visually appealing tools like graphs or charts to display ratios rather than long lists of numbers in Excel or PowerPoint. A financial summary dashboard or simplified spreadsheet presentation can also be effective. The main goal is to enhance readability and clarity for the audience. By presenting financial data in an easy-to-understand format, you can ensure that the board members and stakeholders can make informed decisions based on the information presented.
Nonprofit Summary Dashboards.
After identifying what information will engage your board, the next step is to present it in a meaningful way. Nonprofit leaders have emphasized storytelling as a fundraising tool, but have you considered it as a financial presentation tool? Standard financial statements are often skimmed over thus creating a challenge in presenting financial in an interesting and engaging manner. Dashboards, used by for-profit companies for decades, provide broad overview snapshots, revealing the big picture information in a consumable manner. Visual reports from accounting software or Excel can assist with dashboard presentation.
Know your audience.
When presenting financial information to the Treasurer, it is necessary to provide a significant amount of detail, often equivalent to the level of detail reviewed by the CFO and CEO/Executive Director. The Treasurer must understand the organization’s entire financial status to make recommendations to the Finance Committee.
The Finance Committee requires more detail than the Executive Summary provided to the Board, but less detail than what is provided to the Treasurer. The Finance Committee will make recommendations to the Board of Directors.
An Executive Summary should be prepared with clear, concise, and easily understandable financial information that Board members can review to obtain the most relevant data. The Board members need to comprehend the organization’s financial health and any financial obstacles that must be overcome but should not be overwhelmed with unnecessary details. After all, the Board has hired the CEO/Executive Director to handle the day-to-day operations of the nonprofit and carry out the mission.
Ensure you are prepared to discuss your organizational strategy and related action points based on your organization’s financial performance. Be sure to consider whether any fundraising will be needed to support your organization’s operations and be sure to be cognizant of the expenses that correlate with fundraising activities.
Be prepared to answer frequently asked questions:
Anticipate the same questions during finance discussions from certain board members by preparing ahead of time. Take note of the most frequently asked questions from the last three board meetings and write down the corresponding answers. This way, you can quickly address these FAQs and have more time for other topics.
To take it a step further, create a 1-pager attachment or slide in your financial report that clearly states the answers to these common questions. During the meeting, refer the board members to this resource as you provide the answers. Over time, this will train them to rely on this resource and avoid repeatedly asking the same questions.
Respond to financial concerns before your next board meeting:
Successful nonprofit executives understand that avoiding surprises is crucial for a successful board meeting, especially when discussing finances and addressing board concerns. To ensure that all board members are on the same page, it is important to schedule phone calls or meetings with key board members before the meeting. This provides an opportunity to plan responses to concerns before the meeting, avoiding scrambling for answers to tough questions. While it may require additional effort and staff time, proactive management will result in a less stressful meeting and a more effective finance discussion with the governing team.
Financial reporting is crucial for nonprofit organizations to operate transparently and successfully. At Goldin Group CPA, we understand the importance of accurate data, efficient processes, and meaningful reports to help nonprofits achieve their mission. We provide expert nonprofit accounting, CFO services, and consulting to ensure that your organization meets its financial goals. Contact us for a free consultation or reach out to Ariel Goldin CPA (firstname.lastname@example.org) to learn more about our services.