Nonprofit Financial Management 101: Your Starter Guide

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As a nonprofit executive, it is your responsibility to ensure that the organization is financially stable and sustainable. This can be a daunting task, especially if you are new to the world of nonprofit financial management.

But don’t worry! This guide will walk you through the basics of nonprofit financial management so that you can make informed decisions about your organization’s future.

Roles In Nonprofit Financial Management

There are a few key roles in financial management for our sector. The Board of Directors, the Executive Director, and the Finance Committee. While other specific roles may exist, these three are most commonly found in early startup stage organizations.

Board of Directors: The Board is responsible for setting the strategic direction of the organization and ensuring that it is fiscally responsible.

Executive Director: The Executive Director is responsible for the day-to-day operations of the organization and ensuring that it meets its financial obligations. The Executive Director may also be called the CEO or President.

Finance Committee: The Finance Committee is responsible for overseeing the financial health of the organization and making recommendations to the Board of Directors on financial matters.

Now, this doesn’t mean you don’t need a bookkeeper or accountant. It also doesn’t mean that as your charitable organization grows you won’t have a finance manager or even a CFO in large nonprofits. The roles above are a starting point.

Reading Financial Statements

In order to understand financial statements, you must first understand what an organization’s financial statements are trying to communicate.

Financial statements are organized around an organization’s overall mission, and they provide information about an organization’s ability to generate revenue and revenue growth, as well as its ability to control expenses.

Below is a quick summary of the four most common financial statements: Statement of Activities, Statement of Financial Position, Statement of Functional Expenses, and Statement of Cash Flows.

Statement of Activities (Profit & Loss Statement)

The Statement of Activities is a financial statement that provides information about an organization’s revenue and expenses. It is also sometimes referred to as the Statement of Operations or in business, a Profit & Loss Statement or “P&L”.

A nonprofit Statement of Activities (Income Statement) is a financial statement that provides information about an organization’s revenue and expenses over a period of time. The statement can be used to assess an organization’s financial performance and to identify trends.

Revenue is the money an organization receives from its activities. Expenses are the costs incurred by an organization to generate revenue.

The Statement of Activities can be used to assess an organization’s ability to generate revenue and control expenses.