Effective nonprofit financial management requires more than inputting a few numbers into a fund accounting software solution and running a general report on the overall financial health of the organization. Many nonprofits make the mistake of assuming the financial reporting can end at the Statement of Financial Position (also referred to as the balance sheet) and Statement of Activities (also known as the income statement). While these reports are certainly essential to managing a nonprofit, they should not be the only financial management reports you pull on a regular basis. All of your transactions will impact the Statement of Financial Position and Statement of Activities, however, there are a number of different reports capable of “slicing and dicing” those transactions and data to provide you with better insight into how your organization is performing and to help you remain in good standing with your donors and funders.
We’ve highlighted the top 3 reports we recommend every nonprofit organization run on a regular basis in addition to the Statement of Financial Position and Statement of Activities. These reports will keep you on-track with your organizational goals and help you better manage your nonprofit’s funds:
- Statement of Functional Expenses
The Statement of Functional Expenses is basically the Statement of Activities; however, all expenses are reported by functional classifications, such as general expenses, management expenses, and program and initiative-related expenses. The majority of an organization’s funding comes from donors and – more often than not – donors place restrictions on the use of those funds. These funds may be temporarily restricted (such as a building fund), permanently restricted (such as an endowment fund) or unrestricted (meaning you can use the funds as you like). According to FASB Statement 117, organizations are required to report the change in net assets according to the restriction categories of permanent, temporary, or unrestricted. The Statement of Functional Expenses allows you to do just that.
- Statement of Cash Flows
The Statement of Cash Flows provides organizations with a summary of the inflow and outflow of cash over a specified period of time. Many nonprofits use accrual accounting, meaning the recognition of revenue and expenses often varies from the actual timing of disbursements and cash receipts. The purpose of the cash flow statement is to address the actual flow of cash throughout the organization, as well as validate the ending cash balance as reported.
- Statement of Financial Disclosure
The Statement of Financial Disclosure is simply a list of comments and explanations detailing an organization’s financial management procedures. Both FASB Statement 116 and FASB Statement 117 require these specific disclosures from nonprofit organizations.
In addition to these reports, it’s also a good idea to run periodic reports detailing your revenue, expenses, and net assets, as well as reports showing the correlation between funding sources and programs. This will not only give you a good idea of where your organization stands financially, but it will also help you answer important questions from donors and managers. We promise – having these reports readily available will save you a lot of time (and headache).
Abila MIP Fund Accounting can help you easily create all of these reports to appease your donors, funders, and nonprofit board. Designed specifically to make the nonprofit accounting process easier, Abila MIP Fund Accounting software is packed full of special features and customizable reports to meet all of your accounting and reporting needs. Click here to view a list of the reports you can create using Abila MIP Fund Accounting and see an example of each.
If you need help creating any of these reports or would simply like to learn a few more best practices to nonprofit financial management, give our office a call today at (503) 648-9051. We’d be more than happy to show you how to best utilize your fund accounting software to create the reports you need.