Nonprofit finance, plainly

The board asked for a financial report and you are embarrassed to send one.

The meeting is coming up, someone has asked for the financials, and you are staring at a QuickBooks report that does not feel ready to share. You are not wrong to hesitate. A board needs a clear picture of the organization, not a spreadsheet that requires them to know how your chart of accounts is organized.

First, the honest version

Your board has a responsibility to oversee the organization’s financial health. That does not mean every board member needs to become an accountant. It does mean they need enough clear, timely information to ask good questions, approve informed decisions, and recognize when the organization needs to change course.

A standard QuickBooks export usually does not accomplish that on its own.

QuickBooks is designed to record transactions. Its reports can be accurate and still be hard for a non-financial reader to understand. A profit and loss statement, also called an income statement, shows revenue and expenses over a period of time. A balance sheet shows what the organization owns, what it owes, and the remaining net assets at a specific date. Both matter, but neither automatically explains what changed, why it changed, or what the board should pay attention to.

The problem is often not that the numbers are bad. It is that the report gives the reader too much detail in some places and not enough context in the places that matter.

For example, a QuickBooks profit and loss may list dozens of expense accounts: software subscriptions, printing, office supplies, contracted services, program materials, and so on. A board member may not know whether a change in one line is meaningful, whether it was expected, or whether it affects the organization’s ability to meet payroll in three months.

A board-readable monthly packet should answer a small set of practical questions:

• How much cash do we have, and how long is it likely to last?
• Are we bringing in the revenue we expected?
• Are we spending according to plan?
• What is different from the budget, and why?
• Are restricted funds being used appropriately?
• Are there decisions, risks, or opportunities the board needs to discuss?

Restricted funds are money a donor or grantmaker has designated for a particular purpose. They are not automatically available for general expenses, even when they are sitting in the bank account. This is one reason a bank balance alone cannot tell the board whether the organization is financially healthy.

Your treasurer should not have to translate a dense accounting report in real time. A good packet lets the treasurer confirm the story, ask informed questions, and speak credibly about the organization’s financial position.

What to do this week

Start with the reports you already have, but do not send them without a cover page.

Create a one-page monthly financial summary. You can build it in a simple document or spreadsheet. The goal is not design polish. The goal is clarity.

At the top, include the reporting period and a plain-language headline. For example: “Through April, results are generally on budget. Cash remains stable, but two expected grant payments have not yet arrived.” This gives board members a place to start.

Then include these core numbers:

• Cash on hand. List the total cash in the bank, then separately identify any cash that is restricted. If possible, also state the amount available for general operations.
• Year-to-date revenue and expenses. Year-to-date means the total from the beginning of your fiscal year through the current month. Show actual results beside the approved budget for the same period.
• Operating result. This is the difference between revenue and expenses. If expenses exceed revenue, say so plainly. A temporary deficit may be planned or manageable, but the board needs to understand it.
• Major variances. A variance is the difference between what actually happened and what was budgeted. Do not list every variance. Choose the three to five that are large, unusual, or important to future decisions. Write one sentence explaining each one.
• Cash outlook. If you can, state what you expect over the next 60 to 90 days: known grant payments, major payroll cycles, large vendor payments, or seasonal fundraising activity. This is not a guarantee. It is a practical forecast based on what you know today.
• Action items. End with any decisions or discussion requests. Examples include approving an unbudgeted expense, discussing a delayed grant renewal, or considering whether to adjust a fundraising goal.

Attach the detailed reports after the one-page summary. At minimum, include a statement of activities, another name for the profit and loss statement, compared with budget, and a balance sheet. If your organization tracks grants, include a simple grant or restricted-fund schedule showing money received, spent, and remaining by fund.

Before sending the packet, ask three questions: Does every number have a date? Can a board member tell which results are actual and which are budgeted? Does the summary explain the most important changes without requiring someone to search through the detailed reports?

You can also use the free Month-End Close Checklist to make sure the underlying records are complete before you report on them. Month-end close is the process of reviewing and reconciling the books after each month so the reports reflect what actually happened. Reconciliation means comparing accounting records to outside records, such as bank statements, and resolving differences.

The structural fix

A reliable board packet starts with reliable books. That means bank and credit card accounts are reconciled each month, revenue is recorded consistently, expenses are assigned to the right programs or functions, restricted funds are tracked clearly, and the budget is built in a format that can be compared to actual results.

It also means the reporting process is repeatable. The same reports should be prepared each month, on a predictable schedule, with a short narrative that explains the story behind the numbers. Board members should not have to guess whether a report is final, whether a grant is included, or whether the cash balance includes funds that cannot be used for payroll.

If you are not sure where your reporting process is breaking down, the Nonprofit Financial Health Check is a useful place to start. It is a $500 fixed-fee assessment of ten operational areas, delivered as a written report your board can read. The full fee is credited toward the first month of any engagement.

Millennial M&C Co. provides nonprofit accounting and operational support. We prepare and present; your CPA files. Nothing here is tax or legal advice for your specific situation.