Volunteer service on a board of directors for your favorite charity or community service organization is a noble choice and a good way to help promote the cause for which that organization exists.  But, when you attend the board meetings, you may feel under-prepared to understand the financial documents, much less approve them. There are even some terms that sound somewhat intimidating like risk, liability, and fiduciary responsibility.

This blog is a place to start with becoming better educated, prepared, and ready to serve as the director of a non-profit organization. (Note: getting everything into one blog was not possible, so watch for Part 2 next week!).

The most important point to understand is that the financial health of your non-profit empowers the mission of the organization. If you are not financially healthy, distractions mount and the mission suffers. We are going to consider just a few financial documents here – the Budget, Income Statement, and Balance Sheet.

The Budget is agreed upon by the board of directors and senior management based on a number of factors including past trends, anticipated revenue, expenses, and most importantly, the strategic plan. Aligning and directing available resources to best support the accomplishment of what is in the strategic plan makes the budget a tool, rather than a burden or master. A budget for the current year is mandatory. Budgets for the next 3 to 5 years would be even better.

The Income Statement shows the activity of the current month or quarter and the year-to-date trends. It usually provides the actual revenue and expenses in comparison with the projected budget.  Well-prepared budgets take into consideration trends for when revenues are received and when expenses occur. Revenue can be all at one time, such as with annual dues, or at special times, like the annual fundraising banquet. Keeping that in mind can ease a lot of anxiety in board meetings.

The Balance Sheet presents an organization’s financial position at a specific point in time.  The balance sheet shows the assets, liabilities and the net assets of the organization. This statement will include the cash balance, investments, property and the amounts the organization owes.

Remember, as a director, engaging your fiduciary responsibility helps keep your organization healthy and operating within its means. To do otherwise puts the focus and mission of your organization at risk.

Next week we will explore ways you can manage risk by establishing clear policies, controls, duties, and roles. We will also explain some processes that provide object assurance to directors to ensure the accuracy and clarity of the financial information you review.

Stay tuned . . . and, as always, if Price CPAs can be of service to you, your company, or a non-profit board on which you serve, please contact us at 615.385.0686 or through our website at www.pricecpas.com. (NOTE: Be sure to ask about our board leadership financial training presentation!)