As many nonprofits have discovered through experience, not all of your board members are going to understand your nonprofit financial reports and explanations. While many of your board members will come to you with substantial financial experience and understanding, some members of the board will not be as well-versed in reading nonprofit financial reports and understanding financial terms. As a leader in your nonprofit organization, it is your job to ensure that the board understands what is being presented. After all, without financial knowledge specific to nonprofits, your board has no way of understanding the financial implications of their strategic decisions. Arming them with the knowledge they need will not only improve your financial presentations, but it will also help your board make better decisions for the organization.
We’ve created a few strategies to help you educate your board on understanding your nonprofit’s financials. Keep the following in mind as you prepare your board for financial presentations:
- Determine what your board needs to know. Don’t overwhelm your board members with useless information they don’t really need. Focus on the specifics related to the type of organization you’re running and instruct them on everything they need to know to uphold their fiduciary responsibilities.
- Start with the basics. Once you’ve identified what your board needs to understand to be successful, it’s time to start educating them on the basics. Make sure all board members understand the purpose behind (and can read) the statement of financial position, statement of activities, and statement of cash flows. Your board will need to understand each of these statements, be able to link them together, and find the answers to their financial questions. Keep the format of these reports consistent so as not to confuse your board.
- Make sure they understand accrual accounting. Your board members need to understand the basics of accrual accounting and be able to understand terms such as “deferred revenue” and “prepaid expense”. This may take some time to explain, but we promise it’s worth the effort in the end. It will save time and efficiency at meetings, as you won’t have to partake in lengthy discussions clearing up accounting questions and can focus your efforts on solving the real financial issues.
- Use your financial presentations as a teaching experience. If you can, carve out 10 – 20 minutes to go over specific accounting items with your board members during the meeting. Create a set plan of topics you’d like to cover across the year and work them into your financial presentations and meetings. You’d be surprised by how much you can cover in a year.
- Send board materials and preparatory items prior to the meeting. Don’t expect your board members to learn everything on the spot; give them time to review concepts before the meeting so you have more time for valuable discussion.
- Use visuals in your presentations. As the saying goes, a picture speaks a thousand words. Demonstrate key financial concepts using graphs and charts. Present financial data in graph and chart form as well. This will not only help keep the board interested in your presentation, but it will also help them retain what they are learning.
- Bring in an accountant or financial consultant. Have your accountant or financial consultant drop in periodically to clarify the concepts you have been teaching.
- Make the information relatable. Find a way to make the information you are presenting relatable to your board members. For example, if one of your members is a corporate businessman, discuss how to calculate the return on investment (ROI) of a new program. If your financial information cannot be easily related to the people making the decisions, the decisions won’t be quality.
Not all of your board members will be financial experts, but you can help them understand the basics so they make effective decisions for the organization. Your board members have a fiduciary responsibility, and it’s important to help them remember that. If you could use some help explaining nonprofit accounting basics to your board members, we can help! Check out our nonprofit accounting services to see how we can help you.