Tuesday, November 1, 2016

Who's Minding the Money?

Do you really understand your organization's fiscal reports? When I ask the most basic of questions - what is your total annual budget? - most board members haven't a clue. That spreadsheet with lots of numbers on it? I'm betting many of them haven't even looked at it, and if they have, they are not really sure what it all means.

Prudent fiscal management is one of the most important responsibilities for nonprofit boards. Here are some tips on how to help your board step up to the plate:
  • Make fiscal reports understandable. For the numbers people: Your spreadsheets should clearly indicate all income and expense categories, and these should be consistent on both ends. They should include two previous fiscal year final reports, current year projections, year-to-date income and expenses, and a revised current year projection - so folks can easily contrast and compare past, present, and future. For the words people: Provide a narrative report that addresses any significant variances, explains shortfalls and/or surpluses in individual categories and overall, and makes clear which grants or donations are one-time only or restricted. For the visual folks: use charts, graphs, or dashboards (or all three, if necessary). Use colors - red for areas of concern, green for pleasant surprises, and yellow for nothing to write home about.
  • Schedule regular budget reviews. Conduct thorough reviews on a quarterly basis at board meetings, with monthly updates in between. Evaluate cash flow, where your revenue is coming from, any changes in programming, and any unexpected expenses or income.
  • Update your budget projections throughout the year. Change happens; this doesn't need to be a problem if you are tracking it, ready to assess what that means for your organization, and prepared to take necessary action promptly.
  • Aim for a surplus. Yep - just because your organization is nonprofit doesn't mean you can't. In fact, working towards a surplus is a prudent financial goal, because it makes it possible to consider raising salaries or hiring new staff or buying new computers.
  • Plan for the future. Every organization should have a program reserve fund with a minimum of three months (but ideally six months) operating expenses, in case of emergencies or another significant recession. You should also have a capital reserve fund with money set aside for major facility improvements and/or equipment upgrades. And don't just wish for reserves - plan for them. Designate a portion or all of any budget surplus for these funds.
  • Establish financial policies. For every reserve fund, your board needs to have a clearly articulated policy about how these funds can be used, and how decisions are made about that use. And that's not enough - your board needs to know and understand these policies, update them periodically, and enforce them.
Most important of all, encourage everyone to ask questions. Even questions that seem stupid or embarrassing. That's how you do your job; that's how you make sure your nonprofit is on a solid financial footing.

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