Being able to tell your organization’s story in a meaningful way can be done with effective financial reporting. A financial statement is similar to a story but is told with numbers. That being said, the financial statement author needs to think about their target audience when deciding what information should be conveyed. The type of audience should also help to determine the best formatting and display parameters that will provide the reader with the ability to quickly understand what message is being communicated through the financial report.
For example, a Balance Sheet often referred to as the Statement of Financial Position, will communicate information about the health of an organization at a fairly high level. The reader can see how much cash is on hand to pay bills in the near future or the total net assets that are available today. Without context this information is difficult to interpret.
Nonprofits utilize the Statement of Financial Position to better communicate to their audience, whether that is their Board or even a prospective donor, by reporting their Net Assets by restrictions. The ideal Statement of Financial Position should be presented on one page. This allows the reader to easily identify the distribution of Net Assets by restriction, which is a key purpose for this report. Prior period information should always be included to provide trending statistics and allow the reader to see how your organization has changed over time. Has it grown? Has the total assets to liabilities improved? Has your organization invested in capital assets? This type of information should be clearly presented in the statement so the reader can quickly identify your organization’s financial story.
Now let’s look at a different audience – your internal report readers, otherwise known as program or department managers. The type of information they require is more granular yet must still be presented in a clear and concise fashion. The clearer the information the more meaningful the translation of the numbers will be for their purposes. How much budget remains as a percent to continue effective delivery of programs? Are personnel costs on track? Etc …
Depending on the organization, managers may or may not have interest in and control over revenue information. Providing expenditure information to your managers with corresponding budget amounts and comparative data allows your team to make better decisions and therefore be more productive. One way to present expenditure and budget information is by categorizing expenditures and providing subtotals for the actual and budget. The manager can quickly determine their budget position by simply evaluating the data and forming their conclusion. The idea is to provide summary information in one page for quick reference or answers. By providing supplemental detail reports the manager can drill into variances if necessary. Financial statements should be thought of as chapters of a book, one chapter or statement does not tell the best story. Being able to provide a comprehensive report package comprised of cohesive cleanly prepared statements allows the reader to quickly read and understand the story being communicated.
What to include in a Board Report Package:
- Statement of Financial Position (one page with prior period amounts)
- Statement of Revenue over Expenditures (combining by program or funding source, include ending net assets)
- Functional expenditures: Programs, Fundraising, Management & General
- Supporting Statements or schedule can include – Cash Flows
- Statements, charts and graphs, cash balances, top 10 expenditures, forecasts, financial notes or interpretation of the statements for the board
What to include in an Internal Manager Report Package:
- Prepare all reports by Function, Department, Activity, Location, etc
- Summary Expenditure Report – Current Period Actual, Current Period
- Budget, Percent Spent, Year to Date Actual, Year to Date Budget, Year to Date Percent Spent
- Summarize Expenditure Report by Category – Personnel Expenditures, Direct Costs, Indirect Costs