Financial Reporting That Your Nonprofit Board Will Love
Empower your nonprofit board with financial reports they will love and trust, boosting their confidence and capability to support your mission.
The Importance of Winning Your Board's Trust Through Financial Reporting
We all know - but often forget - that instilling confidence and trust in your board members is crucial. They are some of your biggest advocates and make important decisions for your organization. Empowering these key stakeholders with the information needed for decision-making and the intangibles needed to promote your mission in the community is essential. By demonstrating your responsibility and credibility through your financial reporting, your board members will gain greater confidence in the organization as a whole.
If your financial reports are confusing, unclear, unreliable, or untimely, you are robbing your board members of the opportunity to have a greater impact. They are limited in their influence and decision-making if they aren’t equipped with accurate, reliable, and timely reporting that tells a clear story. The good news is that gaining your Board's confidence through better financial reporting is achievable.
Essential Factors for Effective Nonprofit Financial Reporting
There are several factors important for all types of organizations that you want to keep in mind. Your financial reports should be timely, accurate, and reliable. They should also comply with Generally Accepted Accounting Principles (GAAP). Financial reports are necessary for all organizations to engage in effective strategic planning, day-to-day leadership and cash flow management. In other words, the future of any organization can come down to the power of financial reporting. Yep, that's a bold statement.
For nonprofits, there are additional unique factors to consider. Differentiating between restricted and unrestricted funds is one factor that sets nonprofit financial reporting apart. These designations are necessary to be legally compliant, but they also provide key insight to the financial position of your organization.
Financial reports are not just a legal necessity for nonprofits; they are a strategic asset that can drive your organization’s success. Maintaining the four essential financial statements — the Statement of Financial Position, Statement of Activities, Statement of Functional Expenses, and Statement of Cash Flow — is critical for compliance, but that’s only the starting point. Effective financial reporting goes beyond meeting legal requirements; it’s about connecting your financial data to your mission and using it to make informed decisions. When done right, these reports can provide key insights to your Board that help ensure every financial decision — whether it’s budgeting, fundraising, or allocating resources — aligns with and supports your nonprofits goals.
Capturing the Heart of Your Board Members with Data-Driven Narratives
An empowered board possesses both quantitative and qualitative data. However, data on its own leaves something missing. Help your board make sense of the data by giving them the story that it is telling. What are the trends? What does it say about our financial health as a nonprofit? What is it telling us is needed to ensure sustainability and fulfill your mission? Questions like these can help you craft the story and do more with the data.
Consider what the data is telling you in terms of performance, sustainability, and resource management. Think in terms of past, present and future. Provide context and narrative. Weave in qualitative data, such as noting if a major donor plans to give in a different quarter than usual.
We can capture the heart by captivating the mind. Grab hold of your board's attention by offering both the executive summary and detailed insight. This helps to cater to the different personalities and skill sets in the room. Using visuals and graphics can also help your board members keep sight of the big picture while fostering a more robust dialogue.
Actionable Insights: Engaging Your Board for Strategic Decision Making
Based on the information you have available through financial reporting, identify potential scenarios for the next quarter and the current fiscal year. Communicate how you would respond to these scenarios and gather your board's input. And be sure to tie these scenarios and discussions back to program impact.
The key here is to make your insights actionable. Communicate where you need your board's support as it relates to the current financial position and trends. Tying the request for support back to the data will help secure the buy-in of your board members and motivate their action.
Consistency and Confidence: Presenting Financial Reports with Ease
While it can take time to identify the reporting format that works best for your nonprofit organization and leadership, once you do, maintain that format. Providing a familiar format will remove a barrier to understanding and result in meaningful conversation among your board more quickly.
Many nonprofit leaders find that presenting financial reports to their board is vulnerable and intimidating. Look for opportunities to brush up on your skills. Tap into one of the many free resources available to gain skills in nonprofit financial reporting and delivering financial reports to your board. Consider asking a trusted CFO in the community to mentor you in financial leadership. Lean on others such as your Finance Chair, the people preparing your financial reports, or another nonprofit leader as you become more comfortable with financial reporting. Increasing competency and support will increase your confidence as you engage your board around finances.
Financial Reporting: The Unexpected Route to Greater Impact
Most nonprofit leaders recognize the value and necessity of financial reports. Nonprofit leaders certainly recognize the value of an engaged Board of Directors. But few leaders consider how financial reporting can be a bridge to a more engaged Board. By considering the essentials of reporting, the opportunity to use data to tell a story, and how you present it, you can leverage financial reporting to build trust and empower some of your most important stakeholders for the good of your mission. Who knows... before you know it, you might just be the one to fall in love with financial reporting.
