“I’m not a numbers person.”
If you’ve ever said this in a board meeting (or thought it while nodding sagely at financial statements you barely understood), you’re not alone. Financial oversight ranks high on many nonprofit board members’ “most dreaded” list.
Here’s the truth: You don’t need an accounting degree to provide solid financial oversight. As a board member, you just need to know what questions to ask and which red flags to watch for.
(Your board packet will include an agenda, minutes, director’s report, other reports, and financial documents. Ideally, the ED will provide this to the board at least 3-5 days before the meeting.)
Let’s cut through the jargon. These are the three key financial documents every board member should be able to read:
1. The Statement of Financial Position (Balance Sheet)
Think of this as your organization’s financial health snapshot. Focus on:
- Cash position: Do you have enough to cover 3-6 months of operations?
- Receivables: Is money owed to you growing or shrinking?
- Restricted funds: Are these being tracked separately from operating funds?
Red flag to watch for: Declining cash reserves over multiple quarters without a strategic reason.
2. The Statement of Activities (Income Statement)
This shows your financial performance over time. Key areas:
- Revenue diversity: Are you overly dependent on one funding source?
- Program expenses ratio: Is your mission getting the majority of your money?
- Budget-to-actual variances: Are there significant differences that need explanation?
Red flag to watch for: Consistent negative variances in revenue projections.
3. Cash Flow Projection
Many boards never see this crucial document that shows expected money in and out.
- Look for months where cash dips dangerously low
- Question assumptions about timing of major grants or donations
- Understand seasonal fluctuations in your organization’s cash needs
Red flag to watch for: Multiple consecutive months of projected negative cash flow.
Five questions to ask at every finance committee meeting
- “What expense or revenue line differs most from our budget and why?”
- “Are there any delayed grant payments or major donations we should know about?”
- “What’s our current operating reserve and has it changed significantly?”
- “Are we on track to meet our annual fundraising goals?”
- “Are there any compliance issues or filing deadlines coming up?”
Financial oversight isn’t just about numbers
Excellent financial governance also means:
- Ensuring proper financial policies exist and are followed
- Understanding how financial decisions impact your mission
- Asking questions when something seems unclear
- Supporting transparency about financial challenges
- Celebrating financial wins and responsible management
New organization tip: These reports may not contain much information in the beginning. No worries. Get used to reviewing them while financials aren’t too complex.
Action steps for better financial oversight:
- Schedule time with your ED or finance director for a personal walkthrough of financial statements.
- Identify one financial metric most relevant to your organization’s health and track it monthly.
- Join the finance committee even if you’re not a “numbers person”—diverse perspectives improve financial decisions.
- Ask for a financial dashboard with visual representations of key metrics if you don’t already have one.
- Find a fellow board member with financial expertise who can be your “translation buddy” for complex issues.
Remember, asking basic questions doesn’t make you look uninformed—it makes you a responsible board member. Your organization’s financial health depends on engaged oversight, not silent nodding.
What financial metric do you find most helpful for understanding your nonprofit’s health? Share in the comments!
Whether your board is in good shape or if there are concerns, today is the ideal time to work toward success. Schedule a free call today.
