A nonprofit organization’s board of directors might include accountants, bankers, or investment managers. It also might consist of business or community leaders with expertise in your nonprofit’s niche or fundraising, marketing, and publicity. How can you best share your financial results with those board members who aren’t necessarily financial experts? We answer some common questions.

What are our primary information sources?

Generally, a nonprofit’s financial situation is represented in two documents: a statement of financial position (balance sheet) and a statement of activities (income statement). However, providing long lists of numbers can dizzy readers. Remember, how you present the numbers to the board is just as important as the numbers themselves.

Instead of using a numerical format, employ graphs and pie charts to relay information. Whether through a bar graph, ratio, or other means, there are effective ways to present financial data to nonfinancial board members.

What about the statement of financial position?

A statement of financial position shows an organization’s:

• Assets (cash, accounts receivable, and property and equipment)
• Liabilities (accounts payable and long-term debt)
• Net assets (with and without donor restrictions on resources)

You can use a pie chart to depict assets so board members can easily understand what portion of total assets can quickly be converted to cash (such as cash equivalents and investments) vs. the portion that can’t be rapidly converted (including property and equipment).

How should we present income statement information?

A statement of activities (or income statement) generally starts with total revenues and support. Then, program management general expenses and fundraising costs are deducted to determine the overall change in net assets. A bar chart is a good way to present this information. It can compare current revenues and expenses with those of previous periods in a single image. By adjusting the bar graphs on, say, a monthly basis, nonfinancial board members can regularly compare revenues and expenses to the budget.

For example, you can create a bar chart showing how your annual event was funded last year with money from attendees, sponsors, and general funds. This tool can help a board make quicker and better-informed decisions — in this case, about setting or readjusting funding expectations for this year’s annual event.

What if revenues have decreased?

Your annual budget assumes a particular level of revenues and support. If you don’t obtain specific grants or take in less for program services than anticipated, your board will need to revisit anticipated expenses and adjust figures accordingly. A graphic image is one way to call a “heads-up” quickly.

Even though COVID-19 is mainly in the rearview mirror, the economy is still recovering from some of its effects. You may experience cuts in grants due to the lingering effects of COVID and other factors. Comparing ratios for the current year to the prior year can reveal whether these costs have been cut effectively. You can also compare total support and revenues to management and general expenses, program services, and fundraising expenses.

These ratios allow your board to see if your organization’s costs and revenues are in line with its expectations, as expressed, for example, in your budget. Suppose your management and general expenses are $100,000 for the coming year, and your organization’s total support and revenue is $1 million. That’s a highly impressive (though not typical) ratio of 1:10 — 10% of every dollar earned is spent on administrative costs, with the remaining 90% available to fund programs.

What else?

To help your board with financial literacy, try bringing in outside speakers, such as investment advisors, bankers, and accountants. Or, if you have financial professionals on your board, you might ask them to share tips and answer other board members’ questions as they arise. If your board could use more financial expertise, contact us for potential recommendations.

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