Nonprofit board members are responsible for ensuring their organization has sufficient resources to carry out its mission. Therefore, each director should have regular access to the following financial metrics:
Each year, the board should approve an annual operating budget. This budget provides an overview of revenue sources and anticipated expenditures including program service expenses and support services. Support services include management and general expenses as well as fundraising costs.
Some donors may have an unrealistic expectation that all funds should go directly to programming. Board members should keep an eye on programming as a percentage of total expenses, but they also need to be realistic about their overhead costs.
Benchmarking information about nonprofit finances is available at GuideStar. GuideStar provides information on over 1.8 million IRS-recognized tax-exempt organizations. It’s committed to sharing the highest-quality data about nonprofits.
Regular, updated financial statements should be part of each board meeting. Financial statements provide a snapshot of the organization’s current financial situation and how it compares to the approved budget.
The board should monitor discrepancies between anticipated and actual financial activities, and get an explanation for any variances.
If expenses are running over budget, it’s the board’s job to encourage staff to rein in costs or find funding to cover them.
Cash on hand
Also, board members are responsible for making sure the organization has sufficient resources. They should work closely with management who monitors whether the cash on hand is adequate.
The organization’s staff should provide a calculation for the required cash on hand. They can determine this amount by calculating the average cost of running the organization daily. There’s no hard-and-fast guideline, but the board should work with the organization’s leadership to determine what’s appropriate.
On one hand, having funds that only cover expenses for one or two weeks puts the organization in a precarious situation. It could force the organization to borrow money to cover program expenses or to pay its employees.
Alternatively, having too much cash on hand may deter donors who assume the organization doesn’t designate a proper portion of its funds for programming. Or, they think the nonprofit has a cash surplus and doesn’t need contributions.
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