By Regenia Bailey / Guest Column
The majority of people on nonprofit boards serve because of the organization’s programs, its role in the community or a personal connection to its mission. Few come to the board table with a burning desire to understand the organization’s finances and business model and help it do a better job in these areas. Yet maintaining financial accountability is one of primary responsibilities of the board of directors.
While it’s great to have a strong board treasurer or finance committee, it’s important that every board member takes the role of understanding the organization’s finances seriously. Some may have a steeper learning curve than others, but if each member on every board in the Corridor improved their financial oversight game by 1 percent in the next eight months, we’d see a healthier nonprofit sector in the region by the end of 2017.
Improve your understanding
Perhaps you are comfortable with financial statements, but don’t fully understand the format and items in the statements that you see each month as a board member. If you need clarification about the information in the monthly financial statements, ask the board’s treasurer or president for a short training or review – for yourself or the full board – on the reports. Chances are, if you are having difficulties understanding the information presented, so are other board members.
It’s important that the board understands the finances of each activity in the organization. This means looking at an activity’s complete costs, as well as the revenue it generates. Complete costs include the direct costs of the activity (those costs that only occur because the activity takes place), the percentage of shared costs such as rent, utilities and general supplies assigned to that activity, as well as an allocated portion of administrative costs such as expenses for accounting, human resources and organizational leadership.
Specific program activities may generate earned income or attract restricted grant or donor funding. Fundraising activities raise funds through event registration and donations. It’s particularly important to look at both sides – the projected revenue as well as the anticipated costs – of each fundraising activity. Many boards have been surprised and disappointed to discover that their seemingly successful fundraising event may have appeared to hit its goal, but when costs were figured in, the event barely broke even.
Asking questions about financial statements can help put the information from these reports in context of the work of the organization. One particularly useful question is, “What are these reports telling us?” This asks for the narrative about the numbers, which may be more readily understood by board members. For the person who is answering the question, it is helpful to refer to the specific numbers in the statements to help guide board members through the story that the numbers provide.
Consider the future
If there are variances between the budget and the actual numbers, or if you notice a trend that seems concerning, learn more about the impact this will have in the future. Using financial projections or questioning the trend’s impact are ways to understand the implications of the current financial picture on the organization’s future financial health. The sooner the board spots problematic financial trends, the sooner it can intervene to improve the situation.
All nonprofit leaders – not just those serving on the finance committee – must have good financial oversight skills. Gathering information, asking questions and thoughtfully considering the impact of today’s activities on the health of the organization tomorrow, can help you improve your skills and strengthen your organization.
Regenia Bailey is the founder and owner of Bailey Leadership Initiative. Contact her through her website at www.baileyleadershipinitiative.com