Nonprofit boards tend to encompass a variety of skills and interests. But while many of these are valuable in terms of company oversight, they don’t always equip board members to review financial information knowledgeably.
To give your board of directors the financial understanding they need to carry out their roles successfully, it’s important to recognize what effective nonprofit board reporting looks like.
Your nonprofit board’s role
Nonprofit board members don many hats while fulfilling their obligations as company trustees – including making sure your organization is:
- Financially healthy
- Operationally sound
- In possession of adequate resources to satisfy its mission
From a fiduciary perspective, NPO boards are also integral to proper financial oversight. Not only do they ensure there are financial controls in place to help prevent fraud, they make certain company funds are being spent in accordance with donor and funder requirements.
What information does your board need to see?
While your internal staff is responsible for the day-to-day management of company funds, it’s your board’s job to review information related to those activities to help keep your organization in good financial shape.
As you assemble your nonprofit board reporting throughout the year, there are 7 key pieces of information your directors will want to see:
- Statement of financial position (aka your “balance sheet”)
- Statement of operations (aka your “income statement”)
- Statement of cash flow
- Monthly financial statements that report actual results compared to your budget
- Cash flow forecasts that can flag potential issues in advance
- Budget statements that must be reviewed for the coming year
- Audited financial statements that should be reviewed from the previous year
To provide additional context, streamline board discussions, and make any decisions that need to happen as efficient as possible, you should also include an interpretation of the financial data you report to the board (you’ll probably want to work with an accountant or controller for this).
Ideally, that will include:
- Focusing on exceptions and important outliers
- Pointing out any financial problems and providing thoughtful solutions
- Not spending too much time speaking to “business as usual” outcomes or emphasizing data around “status quo” events
Ultimately, your executive director board will want a clear line of sight between if and how funds are being spent in keeping with your NPO’s mission.
Core KPIs for NPOs
Speaking of mission, your board will also be looking for input on how well your organization is performing in terms of meeting its goals.
Key performance indicators (KPIs) give executive directors a standardized way to examine trends and compare data across different locations or periods of time. All of which allows them to stay focused on the big picture, rather than getting bogged down by details.
Some of the nonprofit KPIs your board may find valuable include metrics related to:
- Program efficiency
- Donor retention rates
- Donation growth year-over-year
- Cash runway
- Gross receipts period-over-period
- Budget variances
Not every KPI will benefit every NPO. But the right metrics will make it easier for your board to track and monitor business objectives.
Nonprofit board reporting best practices
When it comes to effective nonprofit board reporting, how you report your data is just as important as what information you share.
Here are 3 best practices that will improve the quality of your reporting.
1. Prepare the necessary financial statements ahead of time
Not only should you give every board member the opportunity to review your financials in advance (so they can ask well-informed questions during board meetings), it’s critical to keep your bookkeeping up to date so reports are accurate, timely, and primed to generate thoughtful decisions.
As we’ve discussed, not all nonprofit board members will be equipped to read, understand, or apply complicated financials. So you may want to familiarize them with how to navigate statements and other reports, and what to look for in terms of impactful factors.
2. Use the right reporting tools
Using a centralized dashboard to display KPIs and other financial reports is a great way to help your board work through the information you’re sharing – especially if you pair it with meaningful commentary on important details like variances in estimates vs actuals.
The nonprofit accounting specialists at Enkel can also help you use your accounting software to design a board report template that will make the presentation of your financial information seamless.
3. Know which reports are relevant to your board
Not every nonprofit board wants or needs to see the same information. So instead of bombarding board members with unnecessary or irrelevant details, be selective about the data you choose to present.
Summarizing income and expense amounts, for example (as opposed to presenting masses of day-to-day transactional details), will make it easier for your directors to stay focused on high-level strategic planning and thinking.
Be prepared to follow up on your nonprofit board reporting
Once you’ve reported your data, make sure you’re ready and able to address any follow-up questions by arming yourself with back-up details - like information related to specific program expenses.
If you’re reviewing an externally restricted fund, for example, your board might want to know more about the expense restrictions in place, and whether your organization is spending funds in accordance with those constraints.
At Enkel, we help dozens of nonprofits and charities manage their books so they can pull together the board reports they need when they need them. Find out how we can improve your processes for monthly and quarterly financial reporting.