Help Your Board Understand Your Group’s Finances

April 10, 2012

Boards of directors come in all shapes and sizes. Some members are more knowledgeable about finances than others, but even the most financially savvy may not understand how the finances of a nonprofit work.

The finance director can help board members function more effectively by working with them to enhance their understanding of the financial issues facing the organization.

Most people understand the concept of expenses – we all have them, after all. Expenses at a nonprofit don’t differ significantly from expenses in other organizations.

Helping your board members understand the revenue equation is a good place to start. Most nonprofits depend on fundraising campaigns to generate much of their operating revenues. Board members are often expected to assist in this effort. However, many board members fail to understand how difficult fundraising can be or how critical it is to the success of the organization.

It is helpful for board members to see where contributions have historically come from. The finance director can easily share this understanding of the financial issues facing the organization information. A pie chart or bar graph is an easy way to illustrate the significance of different types of contributions.

In many nonprofit organizations, individual or family contributions make up the bulk of revenues, which is surprising to many board members. These often come in small contributions throughout the course of the year and are often tied to specific events, mailings or promotions.

Corporate gifts supplement the money raised from grassroots campaigns and generally come in larger, less frequent amounts, though the recent economic climate has resulted in reductions in corporate giving.

In-kind donations are also important and should be broken out separately, since these gifts don’t translate into cash to cover operating expenses. Grants and government funding should also be shown.

Seeing the revenue equation and the changes caused by the economic downturn can help board members understand the importance of their role as fundraising advocates.

The expense side of the equation also comes into play. An efficiently run and fiscally sound organization can inspire trust and attract more donations. Donors often want to know how much of their contributions actually go to the mission of the organization as opposed to administrative costs. The finance director should have solid information on this question to share with the board and the public, along with how the organization compares to others in the area.

Focusing only on numbers and spreadsheets, which finance directors sometimes do, often causes board members to glaze over, especially those who are less financially oriented. The real story is about the people who contribute, and board members of all types will relate to these stories.

The finance director and development director can work together to share the stories behind the numbers. What inspires donors to give? What types of people contribute most often? How did those people learn about the organization? What role does the board play in getting the grassroots contributions in the door? And, perhaps most critically, what happens if those funds don’t come in?

For those working in a nonprofit organization, it is sometimes easy to forget that you operate in a world different from the for-profit sector. You may assume that board members understand things they don’t. Don’t assume. Use the numbers to tell the story that is critical to the success of your organization.