A nonprofit organization should provide internal financial reports to the board of directors and other governance committees periodically. These reports help in decision making for the organization’s long-term future, so it is important to keep these reports accurate and to submit them in a timely manner. Listed below are some best practices for internal reports.
- Be sure the reports are easy to read.
- Reports should provide a brief overview, rather than every single detail. Decision makers review the overall big picture to determine the best path for the organization.
- Include a prior year column for easy comparison on each report.
- Consider a report that breaks down the revenues and expenses by program for review.
- Incorporate ratios to allow easy analysis of numbers. A few common ratios are listed below:
- Viability ratio: expendable assets to long-term debt
- Current ratio: current assets to current liabilities
- Quick ratio: current assets (minus inventory and prepaid expenses) to current liabilities
- Operating reserve: expendable net assets to total expenses
- Operating margin: revenues minus expenditures, divided by revenues
- Program efficiency: total program expenses to total expenses
- Operating reliance: program revenues to total expenses
- Fundraising efficiency: fundraising contributions to fundraising expenses
- Hold training sessions on how to read and understand reports, if necessary.
- Adding charts and graphs may also be helpful.
By following these best practices for the organization’s internal reports, the board of directors and other management are better able to understand the organization’s financial wellbeing and any actions that may need to be taken.
Please contact the Not-for-Profit Niche team at Gilliam Bell Moser LLP for further guidance.
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