Presenting Financial Statements to your Nonprofit Board
The ultimate responsibility for upholding your nonprofit organization’s success, including being true to your mission, maintaining an effective business strategy, reaching your financial goals, and remaining in compliance with tax and financial reporting requirements, lies in the hands of your Board of Directors. So your Board members have big shoes to fill, and they rely on accurate financial statement presentation in order to make healthy decisions on behalf of your organization. While financial statements are an invaluable tool in their decision making process, it’s no secret they contain an overwhelming amount of complex and technical information.
Despite the fact that so many of the critical decisions made by nonprofit boards are based on your organization’s financial standing, board members are not always equipped with the technical and financial expertise required to foresee the financial implications of the decisions they make. And, with a typical board term lasting around 5 years, the rate of turnover also makes arming your Board with the level of detail and training needed to understand the intricacies of your financial statements a difficult task. So, the question is: What exactly are the steps to a successful presentation of your financials to your Board?
Knowing (and captivating!) your audience
Your presentation needs to shed light on the strategies and the trajectory of your goals for public funding, private funding, grants, and fundraising events. However, it’s best to stay away from strictly going over your financial statements, line by line, number for number. Use narrative detail and graphic representations to highlight key metrics. Anything to cut down on the monotony and technical detail, so your audience remains engaged.
Avoiding information overload
Your Board needs to have a firm grasp of compliance matters, as well as a high-level understanding of your organization’s financial situation. Avoid unnecessary details and present only information that is timely, accurate, and relevant to your Board. It also helps to supply relevant information beforehand, so they have the opportunity to review the data and consider their questions and concerns. It’s important, legally and for your organization’s success and reputation, that you disclose where your organization’s funding comes from, how and where it’s being spent, and your plans for the future. Don’t shy away from presenting benchmarking data in conjunction with your goals. Proven trends increase your Board’s comfort level in adopting change.
There are definitely some basic items your Board needs to operate successfully. Annually, your Board should receive copies of the organization’s 990 filings, annual financial reports, and your audit report, as applicable. And a properly prepared budget should be provided for year-to-year comparison, context, and assessing the feasibility of your goals. Your Board should receive a copy of your income statement to assess expenses and your balance sheet for full awareness of liabilities and assets.
Newer disclosure considerations
Expenses and balance sheet presentation fall in an area of presentation that has changed with the issuance of the Financial Accounting Standards Board’s (FASB) issuance of Accounting Standards Updates (ASU) 2016-14 and 2018-8. These ASUs were, in large part, issued to increase financial statement transparency; consequently, the information has become easier for your Board to interpret and understand.
For financial statements for calendar years ending after December 31, 2017, all nonprofits (not only those in health services) must disclose information on functional expenses. This adds the element of the “nature” of your organization’s expenses. The information may be in a traditional statement presented in the front of your financials, or it may be information you add only to your disclosures in long form. Either way, it must show how you allocated expenses in more detail, and it should be presented to your Board.
The ASUs also changed the nonprofit presentation of revenues, funds, and net assets for financial statements for calendar years ending after December 31, 2017. Rather than categorizing assets as “unrestricted,” “temporarily restricted,” or “permanently restricted,” they now fall in one of two categories, “with donor restrictions,” or “without donor restrictions.” This information, as well as for what purpose those restricted funds may be spent, should be presented to your Board.
Preparing a strategy
The quality of the information your Board receives, as well as their level of understanding and confidence in same, will determine the direction your organization takes – and these decisions will guide your organization in its success in fulfilling its mission.
The professionals at Livingston & Haynes are nonprofit industry leaders here to help organizations like yours through every stage of the financial statement process, including assistance when you’re presenting your financial statements to your Board of Directors. Contact us to discuss your strategy or to address other nonprofit tax, accounting, and consulting needs you may have.