I am seeking input for a presentation I am giving.
Next month I am giving a presentation to Leadership Lamoille on how to read financial statements of not-for-profit entities, for people who may be asked to serve on a nonprofit board. Leadership Lamoille is a leadership program sponsored by the Lamoille Region Chamber of Commerce.
The participants in the class primarily work in for-profit enterprises and should be familiar with the financial statements of for-profit enterprises. I also have experience reading financial statements of for-profit enterprises. In my 32 years at Yankee Farm Credit, I spent considerable time with both our own financial statements and the financial statements of many of our borrowers. For this presentation I need to discuss what is different and important to understand about the financial statements of a not-for-profit entity, especially if you are considering serving on its board.
What information should I present? What would you want to know if you were in a class like this?
After serving on a few not-for profit Boards I have learned to look at the following in regard to financial statements:
1. Quality of the statements: Not –for –profit organizations are often run by people passionate about a cause. This cause is not likely to be a financial cause, and therefore, you may not have financial professionals running the organization. This is as it should be in my opinion. And it is also why it is important to have people with financial experience on the Board to help an organization maintain financial sustainability. The Boards role is to ensure a base level of financial oversight to ensure statements are correct and reliable.
2. Quality of the assets: Not-for-profits can have some interesting assets at times. An estate bequest could consist of antiques, diamond rings, or other potentially high value items, but, how do you value them and how do you turn them into liquid assets needed to run your organization?
3. Overall Governance: Who is watching? If the organization gets funding from reputable donors, you have a reasonable assurance that smart people have been watching over time and deemed the use of the funds productive. One organization I have a great deal of faith in is the United Way. The United Way offers Governance help, training and oversight. If the United Way is a donor, you know there has been significant oversight on the financial statements over time.
4. Remember, this is a not-for-profit. You’re not in it for the money. So don’t expect the same focus on financials as you would in a for-profit organization. Keep it safe, keep it accurate, and move on. You have more important things to think about, like the mission of your organization.
Thanks for allowing me to share my thoughts.
Good luck with your presentation Switchel Philosopher. Thanks for taking on this important subject.