Nonprofits need to be as concerned and dedicated to their financial statements as any for profit business. Nonprofits are a business that operate for their mission and still need to review and evaluate their financial statements for the health of the organization. Nonprofits are required to have a yearly audit, release their financial statements to the public, share them with granters, donors and supporters.
The profit and loss: nonprofits should pay attention to the ratio of expenses to income. Keeping a close eye on your expenses and reducing your costs is how you can add more money to your program and ultimately grow. Most donors want to make sure the agency they are investing in is in strong financial health. They do not want to give money to an agency that might not be around in a month or a year. Keeping track of your expenses allows the agency to show how much money is going towards program vs administrative costs (also a strong reason donors give).
The balance sheet will give you an in-depth look to your finances. Donors will look to see your liabilities vs your assets and also to see if the agency has three-six months of savings. Agencies in a strong financial position will be able to show that their debt is minimal and they are in a strong cash position.
Cash flow will help an agency to make sure that month to month, they are able to cover their bills.
Why do I need a CFO?
You didn’t start your business or become the head of an organization because you are a financial expert. You are there to grow and succeed. The accounting, bookkeeping and financial aspects of your business are important to how you run your company, but it is time consuming and if not done properly, can lead to more headaches down the road.
Keeping track of your bookkeeping and your financial statements is time consuming and difficult to manage. But most frustrating is understanding and interpreting your financial picture from reports. CFOs are responsible for timely and accurate presentations and financial reports in order to capitalize on your growth.