Financial Clarity for Nonprofit Boards

1. Financial Clarityfor Nonprofit Boards Developed by Nonprofits Assistance Fund

2. Who We Are Nonprofits Assistance Fund’s mission is to buildfinancially healthy nonprofits that foster community vitality. Our financial experts help nonprofits strengthen their capacity to address unexpected events, finance new opportunities, and realize strategic goals. We fulfill our mission by helping you thrive. Find out more at www.nonprofitsassistancefund.org.

3. Goals for Today’s Webinar • 1. Discuss the financial responsibilities of the board of directors • 2. Learn what financial information is important for the board • 3. Understand the nonprofit Income Statement and Balance Sheet • 4. Learn to analyze and ask questions about financial information

4. Financial Accountability of the Board • Accountable to the public as a tax-exempt organization • Evaluate and monitor effective use of financial resources • Use financial resources to fulfill mission • Use financial resources as directed by donors • Use financial resources in a way that is consistent with values • Ensure future financial health and viability

5. Financial Responsibilities of the Board • Adopt strategic plans and goals • Create and maintain an appropriate governance structure • Adopt policies for financial practices and activities • Ensure adequate staffing • Approve the annual budget, understanding assumptions, priorities, and risks

6. Financial Responsibilities of the Staff • Prepare and plan • Comply with board direction and decisions • Follow adopted policies • Develop and use procedures and practices • Monitor progress and make decisions within framework • Provide accurate and adequate information • Adopt strategic plans and goals • Create and maintain an appropriate governance structure • Adopt policies for financial practices and activities • Ensure adequate staffing • Approve the annual budget, understanding assumptions, priorities, and risks

7. How Boards Use Financial Information Compliance Evaluation Planning Action Poll: In which way does your board best engage in financial management?

8. Financial Reports Should Be… • Accurate and consistent • Available soon enough to be of use in monitoring and planning • Understood in context of the organization’s history and external environment • Understood in relationship to program activities

9. The quality of financial decisionsis directly related to thequality of financial information.

10. Basic “Must Have” Financial Information • Organizational budget • Approved by the board before the fiscal year begins • Monthly or quarterly financial reports • Income Statement • Comparison of actual income and expenses to budget • Balance Sheet • Audit report • Required in Minnesota if revenues exceed $750,000 • Auditor is hired by the board • Verification of required reports • IRS Form 990, other required forms and registrations

11. Compliance • How much? • Reviewhistorical financialinformation.

12. Income Statement and Balance Sheet

13. Income Statement • Amounts of income and expenses for a certain period of time • Resulting Change in Net Assets • Surplus (profit) or deficit (loss) • Also known as net income

14. ND Center for Nursing Quarterly Update

15. ND Center for Nursing Quarterly Update

16. ND Center for Nursing Quarterly Update

17. ND Center for Nursing Quarterly Update

18. Income Statement • Support • Contributed income • Revenue • Income earned from delivery of goods and services

19. Contribution Categories • Not all contributed income is the same. Contributions may have restrictions based on donor intent and direction. • Classifications are required by GAAP accounting rules to ensure accountability to donors.

20. Contribution Categories • Unrestricted • Available for general use • Temporarily Restricted • Restrictions expire over a defined period of time or by performing defined activities • Often in the form of a program grant • Common to most nonprofits • Permanently Restricted • Principal remains intact, but investment income can be used • Often in the form of an endowment or scholarship fund

21. Contribution Categories • Temporarily Restricted funds are recorded as income when committed • When restrictions are met, Temporarily Restricted funds are transferred into the Unrestricted category with the accounting entry “Net Assets Released from Restrictions”

23. Income Statement • Personnel expenses • Usually the largest component of total expenses • Operating expenses • Program expenses

24. Income Statement • Depreciation • A “non-cash” expense to recognize the value of using a fixed asset (equipment, vehicle) for the period • Nonprofits do not always include depreciation as an expense • Including depreciation expense and achieving a surplus is called “funding depreciation”

25. Income Statement and Balance Sheet

26. Balance Sheet • Financial assets and obligations as of a specific date

27. Balance Sheet • Assets • What is owned • Liabilities • What is owed • Net Assets • Net Worth, Equity, or Retained Earnings Assets = Liabilities + Net Assets

28. Balance Sheet • Current Assets • Cash, or will be converted to cash within 12 months • Includes cash and investments • Receivables which have been earned and are legally due to the organization

29. Balance Sheet • Long-Term Assets • Capital assets (usually depreciated over time), the value of which is the cost at acquisition • May include land, buildings, leasehold improvements, equipment, furniture • Long-term investments or other assets that are not liquid (within 12 months)

30. Balance Sheet • Current Liabilities • Obligations due within 12 months • Payables • Deferred revenue that is income received before it is earned (advance payments)

31. Balance Sheet • Long-Term Liabilities • Notes or loans payable in more than one year • Mortgage loans and bonds payable

32. Balance Sheet • Net Assets • Beginning balance from previous year end • Change in Net Assets: surplus or loss amount from the Income Statement for the same period • Ending Net Assets

33. Balance Sheet • Assets andNet Assets are segregated by type • Unrestricted • Temporarily Restricted • Permanently Restricted

34. Evaluate • How well? • Askquestionsand make comparisons.

35. Evaluate • Do we have an unrestricted surplus or deficit? • Are contributed funds restricted for a specific purpose?

36. Evaluate • What is our largest source of income? • Most stable source of income? Income mix reflects field of service

37. Evaluate • How do actual income and expenses compare to budget? • Compare to previous years? • Compare to peer organizations?

38. Evaluate • How much cash is available to meet obligations? • What is our balance in Unrestricted Net Assets? • Do we have Temporarily Restricted assets intended for future use?

39. Evaluate • Do we have Permanently Restricted Net Assets, such as an endowment or scholarship fund? How is it invested? • Have we invested in significant fixed assets? • Have we designated a cash reserve?

40. Evaluate • Think about your income, expenses,assets, and liabilities in relation toyour mission and programs. • Significant changes from the previous yearshould fit with changes in the way yourorganization works.

41. Planning • What next? • Develop strategic plans and budgets.

42. Planning • Determine and support your organization’s mission and strategic plan. • Set/agree to goals for program and development activities.

43. Planning • Understand the assumptions for proposed budgets. • Make sure budgets relate to program and strategic goals. • Approve a realistic annual budget before the fiscal year begins.

44. Action • Decision time.

45. Board and Management Must Commit to… • Maintaining financial health to support mission-related goals • Good planning as the foundation of stability • Quality financial information • Regular and consistent monitoring of financial status • Responding to changes, opportunities, and setbacks with timely action • Clear and reasonable roles and responsibilities for financial and other management aspects • Transparency and integrity in financial decisions, practices, and information