Nonprofit financial reports are documents that provide information about the financial activities of nonprofit organizations. These reports typically include a balance sheet, income statement, statement of cash flows, and other financial information necessary to assess the organization’s financial health. Various stakeholders, such as donors, grantmakers, board members, and management, use nonprofit financial reports to make informed decisions about the organization’s operations and ensure transparency and accountability in using funds. Nonprofit organizations must prepare accurate and timely financial reports to maintain their stakeholders’ trust and meet legal and regulatory requirements. In today’s podcast, Stephen King from GrowthForce and Stephen Halasnik from Financing Solutions discuss the top seven financial reports executive directors need to run their nonprofits.
The Top 7 Financial Reports Executive Directors Need To Run Their Nonprofits
As an executive director of a nonprofit, it is crucial to understand your organizational financial health clearly. This is because your ability to make informed and actionable decisions about budgeting, fundraising, and resource allocation is essential for a nonprofit’s success, and it’s hugely based on your understanding of your nonprofit financial outlook. With this in mind, you must study your financial reports to gain insight into your organization’s financial status.
This article examines the top seven financial statements that executive directors need to run their nonprofits.
Top Seven Financial Reports Nonprofits Executives Need
The nonprofit scorecard is designed for the most important decision within the nonprofit. It gives detailed information about the critical aspects of the organization that the management team, leadership, and the nonprofit board should focus their time. In other words, it directs attention to those areas that bring revenue and people or deal with a cost.
The nonprofit scorecard helps nonprofits know the program they should start, stop or continue. As a nonprofit, you can’t serve everybody who shows up in front of your door hence, you have to make that data-driven decisions to further their mission the most and also rank your program based on their effectiveness.
Budget performance refers to the degree to which an organization’s actual financial results align with its planned or projected budget. It entails comparing actual financial results with the budgeted figures, analyzing the variances, and taking corrective actions to improve future performance. In other words, budget performance measures how well an organization manages its financial resources according to its planned budget, and it provides insight into the organization’s financial health, efficiency, and effectiveness.
Effective budget performance management is essential for the long-term success of an organization, as it helps to ensure that the organization is using its resources in the most efficient and effective fashion
Statement of Financial Position
A nonprofit statement of financial position is a financial report that presents the organizational financial status in a concise manner. It assesses the nonprofit’s assets, liabilities, and net assets. Therefore, a statement of financial position for a nonprofit typically consists of three parts:
- Assets (items owned by the nonprofit)
- Liabilities (amounts owed by the nonprofit)
- Net assets (the nonprofit’s equity)
The statement of financial position offers essential information about the nonprofit’s financial outlook and helps you know how flexible you’re in financing additional expenses for growth.
Statement of Activities
The statement of activities is a crucial financial document that nonprofit organizations must prepare. It serves to detail the amount of financial resources available to the organization, as well as how these resources are allocated. The focus of the statement of activities is on the organization’s overall financial picture, and it typically includes three key components.
The first component is revenues, which encompasses the various forms of money the organization receives. This can include contributions, program fees, grants, membership dues, investment income, and funds released from restriction.
Another component is expenses, which provides a breakdown of the organization’s spending. This can include money spent on community programs, fundraising efforts, and day-to-day operations.
A nonprofit donor report is a document that provides information about the donations received by a nonprofit organization. Donor reports are typically created on a regular basis, such as annually or quarterly, which inform donors about how nonprofits utilized their contributions to further the organization’s mission.
Donor reports can include information about the amount of money raised, how the money was used, and the impact the donations have had on the organization’s programs and services. They can also include testimonials from clients, volunteers, and staff members, as well as photographs and other visual elements that help to illustrate the organization’s work.
Donor reports are essential for nonprofit organizations to communicate and build relationships with donors. By keeping donors informed about the impact of their contributions, nonprofit organizations can foster a sense of trust and transparency, leading to increased donations and long-term support for the organization’s mission.
Running a nonprofit like a business in terms of profit-making is possible and necessary for long-term success and sustainability. A nonprofit should be run like a for-profit organization however, the only difference is that you should re-invest your profit to further your program. The development scorecard focuses on seeing your return on investment on your marketing spend.
Cash Flow Forecast
A nonprofit cash flow forecast is a financial report that helps a nonprofit organization project its expected cash inflows and outflows over a specific period. It is a forward-looking tool enabling a nonprofit to anticipate and plan for its cash needs, including managing cash surpluses and deficits.
A nonprofit cash flow forecast typically includes estimates of the organization’s cash receipts, such as donations, grants, membership dues, and cash disbursements, such as salaries, rent, utilities, and other expenses. By comparing the estimated cash inflows and outflows, a nonprofit can determine whether it will have a cash surplus or a cash deficit at the end of the forecast period.
The audit report is an independent auditor’s formal examination of the organization’s financial reports. It provides assurance that the financial statements are accurate and free from material misstatement. The audit report is important because it helps executive directors ensure that the organization is operating within the law and identify areas where it can improve its financial management practices.
In conclusion, financial reports are essential for executive directors of nonprofit organizations to make informed decisions about the organization’s financial health. The balance sheet, income statement, cash flow statement, budget report, donor report, program report, and audit report are the top seven financial reports that executive directors need to run their nonprofits. By regularly reviewing these reports, executive directors can ensure that their nonprofit organizations are on track to achieve their financial goals and fulfill their mission.
Learn About Guest
Stephen has a passion for helping businesses and nonprofits reach their growth potential. Regarded as a top accounting industry thought leader and founder of the first company to deliver accounting over the Internet, he now serves as Founder & CEO of GrowthForce. His ability to visualize the future of accounting and assemble a highly qualified and motivated team has led GrowthForce to become one of the nation’s largest cloud-based bookkeeping, accounting, and controller services.
Learn About Stephen Halasnik
Stephen Halasnik is the host of the popular Nonprofit MBA Podcast. The Nonprofit MBA podcast aims to help nonprofit leaders and their teams. Stephen is the Co-founder and Managing Partner of Financing Solutions, a leading provider of loans for nonprofits in the form of a Line of Credit. Stephen is a best-selling Amazon author and a leading authority on building great, purpose-driven businesses.
Stephen lives in New Jersey, and his top life mission is to raise his two sons, Michael and Maxwell, to be good men.