Financial statements give direction

From left: Schaller, Linfors, Crocker
From left: Schaller, Linfors, Crocker

Julia Vail

RALEIGH, N.C. – Nonprofit executives who think their organizations are too small to require detailed financial statements may be cheating themselves out of valuable information, said panelists at the Oct. 16 statewide conference of the N.C. Center for Nonprofits in Raleigh, N.C.

Financial statements not only help an organization decide which programs best fit their mission, they also serve as a crucial tool for communication with boards and donors, speakers said.

Panelists at the discussion session, “Understanding your Nonprofit’s Financial Statements,” were Kitty Schaller of the MANNA Food Bank in Asheville, N.C., Diane Linfors of the Durham Symphony in Durham, N.C., and Joe Crocker of the Z. Smith Reynolds Foundation in Winston-Salem, N.C.

Careful records of income and expenses led MANNA Food Bank to discontinue a program offering on-site meals to children in western North Carolina. The program, though well-funded and perfectly aligned with the food bank’s mission, had to make way for other priorities.

“If you see a way to deliver better stewardship of charitable dollars,” Schaller said, “you have a responsibility to do that.”

The food bank opted to fund a program that sends children home from school with backpacks full of food. In that way, the organization addressed its mission and its resources simultaneously.

However, mission should always remain at the forefront, the panelists said.

“Your mission should always direct what you do,” Schaller said. “You can’t sell your soul to get funding.”

Financial statements also can help keep track of budgets that fluctuate throughout the year.

“We tend to be pretty seasonal,” Schaller said, “so it’s not like one-twelfth of the income comes in every month.”

Indispensable financial tools for nonprofits include balance sheets, statements of revenue and expenditures, cash-flow statements and general ledgers, Linfors said.

The balance sheet provides “a capsule of your organization on any given day,” she said. It is most useful when it enables an organization to compare yearly figures.

A statement of revenue and expenditures is helpful in that it “gives an idea of where you are compared to where you should be,” Linfors said.

General ledgers, which track the receipt of donations, are not necessary for everyone to monitor, Linfors said, but they provide a good tool to “tell you where everything came from.”

These financial records not only give nonprofits a better idea of which programs work the best, but also communicate their value to grantmakers and donors.

The Z. Smith Reynolds Foundation looks carefully at these documents while considering grant applications to make sure nonprofits are managing funds effectively and meeting their goals, Crocker said.

“As executive directors and CFOs, you need to be mindful of what your financial information looks like relative to what you’re requesting funding for,” he said.

Operating reserves play a big role in determining how much of a grant a nonprofit receives, Crocker said.

“Having operating reserves is a sign of a good, healthy nonprofit,” he said. However, “if you’re just sitting on it, you may be jeopardizing your chances of getting grants.”

The key, Crocker said, is balance. It is crucial for nonprofit executives to ensure that available funds are being used effectively in pursuit of the organization’s goals.

Careful analysis of finances can not only be a persuasive argument when applying for grants, but also can help spot programs that should be cut or changed.

“Tweaking and fine-tuning might make that program a star program,” Linfors said. But “you pull the plug when you feel one program is impacting your ability to do others.”

However, nonprofits should not fret over programs that did not ultimately work out, because they helped build visibility and promote mission.

“By doing that program,” she said, “you may have gotten your name out to people who didn’t know you existed.”

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