What financial reports do board members need to see and what they don't
This article provides a simple overview and template for presenting financials to your nonprofit board of directors.
We have prepared financials for hundreds of nonprofit boards. We’ve also seen how these nonprofits had previously presented their financials to the board. Some board packets include dozens of obscure reports, while others don’t include any financials at all. In sum, we’ve seen a lot of variations. So, what should you present to your board?
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It’s helpful to start by looking at the goal. The board needs to understand the finances. They are the legal fiduciaries of the organization and therefore must understand the overall financial picture. This may seem obvious, but the problem is most board members never have a firm grasp on what’s going on.
Three most common mistakes
The reports are not accurate
There are too many reports and the board loses sight of the big picture
The board cannot interpret the financials they are presented with
Accurate Financial reports
If you do not have competent bookkeepers who understand nonprofit accounting standards, then you should remedy the situation immediately. Without accurate financials nobody can make decisions. Furthermore, you may put your funding at risk with inaccurate grant reporting, or even worse, fail audits or file incorrect tax returns.
Too Many Reports
Some financial board reports have grown in complexity and size over the years from specific board member requests. Every board member comes with a unique experience and background and may want to see some obscure report because it’s what they’re used to seeing. These reports get added to the board packet and before you know there are 12 different excel files. When this happens, some board members may stop looking at the reports. Their eyes glaze over when they look at the excel file with 12 tabs, and they hope that at least someone else on the board is reading them.
The other thing that often happens is board members get hyper-focused on details that are immaterial, and outside the scope of board oversight.
For example, a board may spend 20 minutes discussing how to save money on office expenses because they were presented with a detailed expense report listing out each Staples expense. Simpler, big picture reports help keep the board out of the weeds.
They can’t interpret the financials
Board members do the best they can with what they have, but it should be the job of the Executive Director or the Finance Director to make sure the board understands.
Not every board member comes with the knowledge of how to interpret nonprofit finances.
The financials should be presented in a way that makes them legible for every board member regardless of their financial background. This is why we always use a financial narrative as page one of the board reports.
How to Present Financials to Your Nonprofit Board
One of the best ways to present your nonprofit financials to the board is by using these three reports:
Statement of Financial Position (or Balance Sheet).
With only these three documents, every board member should have a clear and cohesive understanding of where the organization is at, how they’re doing, and where they’re headed. Follow the links above to learn more about each report and why they're important.
Simple, Big Picture, Accessible
By using the three reports listed, your board will be able to understand the information regardless of their background. In the narrative, you will guide them to the important pieces and make sure they don't get lost in the weeds.
Since your actuals are compared to a budget, your board members will have a reference to know if you're on track or not. On the narrative, you will have pointed out the big ticket items.
You're keeping it simple by only providing three reports. Some committee members may want to dive into the weeds in more detail. This is great, but is not usually time well spent during a board meeting where the financial portion may only be 10-15 minutes. Those reports can be sent later.
Dive into the linked articles on each report and see how you can start producing simple, accessible reports for your board today.
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