How to Read and Explain Financial Statements to Nonprofit Board Members

A few months ago, I sat in on a board meeting where everything seemed to be going smoothly — until it suddenly wasn’t. Programs were strong, fundraising was ahead of pace, and the team was preparing to launch a new initiative. But halfway through the financial review, a board member asked:

“Do we really only have two months of cash left?”

The room shifted instantly. Staff looked tense. Board members exchanged worried glances.

Fortunately, the panic was unnecessary. The issue wasn’t cash — it was interpretation. The report mixed restricted and unrestricted dollars, making the financial picture look much worse than it actually was.

Moments like this happen in nonprofits all the time. It’s not that the numbers are wrong — it’s that the board hasn’t been given nonprofit financial statements explained in a clear, practical way. This guide will help you change that.

Why Board Financial Literacy Matters

Board members don’t need an accounting degree, but they do need to understand the basics of what they’re reviewing each month. Their fiduciary responsibilities depend on it.

Yet most board packets are written for auditors, not humans.

Boards often receive:

• Overly technical financial packets

• Dozens of pages of raw data

• No context

• No explanation of what matters this month

  
  

When this happens, one of two things occurs:

1. Board members quietly disengage, or

2. They fixate on a number that looks alarming but isn’t.

   
   

When you build real nonprofit board member financial literacy, your board stops reacting and starts leading. Meetings shift from dissecting spreadsheets to discussing programs, risk, staffing, and strategy.

The Three Core Statements Every Board Member Should Understand

Every nonprofit generates the same core financial statements, but few boards truly understand how to read them. Here’s how to explain each one simply and accurately — including what actually matters to a board member.

1. The Statement of Financial Position (Balance Sheet)

Think of the balance sheet as a snapshot of your organization’s financial health on a single day. It shows:

• Assets: what you own

• Liabilities: what you owe

• Net Assets: whats left

  
  

For boards, the most important insights are:

• Actual unrestricted cash on hand

• Restricted vs unrestricted net assets

• Short-term obligations

• Runway (calculated from unrestricted cash only)

  
  

This is where misunderstandings occur most often. Total cash might look strong, but if it’s mostly restricted, your ability to operate freely may be far more limited.

Mini-Case: A youth development nonprofit believed it had nearly $500,000 available. After separating restricted funds, they discovered only $80,000 was truly spendable. Their hiring plan changed the same day.

2. Budget vs. Actual Report -The Statement of Activities

A Statement of Activities (P&L) report is not particularly helpful on it’s own.  It shows you whats come in and whats gone out, but how are you supposed to know if those numbers are good or bad?  That’s where the budget vs. actuals report comes in.  This is your statement of activity compared against your budget.  

That’s where the story lives.

A Budget vs Actual report shows:

• What you expected to happen

• What actually happened

• Where you’re off track

• Why those differences matter

  
  

This is where you should focus the board’s attention:

• Those line items that represent a large % of the total. Even small variances here can impact the bottom line. 

• Variances over ±10%

• Revenue and expense timing, are some large income or expenses hitting the reports at an unexpected time

• Program vs administrative expenses

• Year-to-date trends

  
  

The phrase board members should hear every month is: “Here’s what changed — and why.”

When the Statement of Activities is presented without the budget comparison, it’s like showing someone a map without a destination. There’s no context, and no way to measure progress.

3. The Statement of Cash Flows — Only When Cashflow Is a Known Issue

This is the most misunderstood report in every board packet.

And here’s the truth:

Most boards don’t need to look at the Statement of Cash Flows every month.

If:

• your balance sheet shows healthy unrestricted cash, and

• you are tracking normally to budget,

then the Statement of Cash Flows adds very little value.

However, it becomes critical in one scenario:

When cashflow is expected to be tight.

If your annual budget shows:

• seasonal fundraising,

• delayed grant reimbursements,

• heavy early-year spending, or

• historically thin reserves,

then cashflow becomes a real risk. In that case, you need two things:

1. The Statement of Cash Flows (historical)

To understand how cash moved during the month.

2. A Cashflow Forecast (forward-looking)

A separate report projecting cash 3–6 months ahead.

This is the difference between looking in the rear-view mirror and looking out the windshield.

Mini-Case: One board celebrated a surplus on the Budget vs Actual — until someone reviewed the cashflow forecast. It showed they would run out of unrestricted cash in six weeks due to delayed grant payments. Because they saw it early, they secured a bridge donation and avoided layoffs.

Turning Numbers Into Strategic Board Questions

Understanding the reports is only half the battle. The real power comes when board members know how to interpret and question the numbers.

Here are the best questions to teach them:

Balance Sheet Questions

• How many months of unrestricted cash do we have?

• Are liabilities increasing?

• Are receivables growing? Should we collect faster?

  
  

Budget vs Actual (Statement of Activities) Questions

• Are we tracking according to budget?

• If not, where and why?

• What are the biggest drivers of our variances?

• Are program expenses aligned with mission priorities?

  
  

Cash Flow Questions (when relevant)

• Do we expect any months with negative cashflow?

• How does our cash runway compare to last quarter?

• Is revenue seasonal, and are we prepared for low-cash periods?

  
  

Encourage board members to monitor KPIs such as:

• Operating reserve (months)

• Program expense ratio

• Donor retention

• Restricted vs unrestricted mix

  
  

This helps them move from passive reviewing to actively interpreting understanding nonprofit financial reports board insights.

How to Explain Financials Simply (Even If Your Board Isn’t Finance-Savvy)

Clear financial communication is not about oversimplifying — it’s about translating numbers into mission-based meaning.

Use visuals, not spreadsheets

Show:

• Cash runway bar chart

• Revenue vs budget line graph

• Expense vs budget graph

• Restricted vs unrestricted assets pie chart

Visuals reduce confusion instantly.

Use everyday language

Replace jargon with clarity:

• “Net assets without donor restrictions” → “Funds we can spend freely.”

• “Deferred revenue” → “Money we received early but haven’t earned yet.”

  
  

Use a one-page summary at the front

Include:

• Operating reserve (months)

• High-level Budget vs Actual view

• What changed this month

• Why it changed

• What decisions the board must make

This keeps everyone anchored on the big picture.

Use relatable examples

“Right now, we have 2.7 months of unrestricted cash. That means if revenue stopped today, we could operate through mid-May.”

This makes the numbers real and understandable for nonprofit financial statements for non-financial board members.

Monthly Reporting Workflow + Next Steps

To keep your reporting predictable and board-friendly:

1. Close the books

Reconcile accounts and update restricted funds.

2. Refresh dashboards & KPIs

Runway, fundraising progress, variances.

3. Write the executive summary

One page. Story-driven. Action-focused.

4. Send the packet early

Board members need 3–5 days to prepare.

5. Facilitate a strategic discussion

Start with the summary, not the spreadsheets.

These steps reinforce what board members need to know about nonprofit accounting — the story, not the data dump.

Ready to Help Your Board Understand the Numbers?

If you want your board to feel confident and financially literate, you don’t have to take it on alone. MightyNonprofits helps organizations build clean reporting systems and train board members to read financials with clarity and confidence.

Want help redesigning your board packet or establishing a clearer monthly reporting process?

Book a free discovery call today and let’s build a reporting system your board will finally understand — and use.