Being a member of a Board of Directors for a non-profit requires commitment and passion for the mission of the organization. Board members are often on multiple Boards at the same time, so providing useful information and clear objectives will enable Board members to be both efficient and effective. There are several ways you can assist your Board in fulfilling their duties, from a financial management perspective and from an organizational requirements perspective.
Determining Meaningful Metrics
Although there are many standard metrics which you could provide your Board, seeking input from Board members for items specific to your organization will result in the most meaningful information. In addition, you may belong to industry groups from which you could solicit input for industry averages. For example, if days cash on hand compared to daily cash needs or personnel costs compared to total expense is important to your organization, it is probably also important to others in your industry as well. This information might be useful in determining how well your organization is operating compared to industry peers. Providing information in graphic format (pie charts, bar graphs or other visuals) can also make complex financial information easier to understand.
Key Financial Ratios
Depending on the wishes of the Board, financial ratios could also be a component of the monthly or quarterly reports. For example, the current ratio (current assets/current liabilities) is a liquidity ratio which is one indicator of the organization’s ability to pay its obligations on time. A ratio of 1:1 or more indicates that, at the measurement date, the organization has enough cash and other assets that can be converted to cash in the next 12 months to pay the obligations due in the next 12 months.
Activity ratios can be used to see how total expenses in various categories (program services, management and general, and fundraising) compare to total support and revenue for the period. Tracking these and other ratios over time can highlight potential problem areas which may need to be addressed.
Organizational Board Duties
Many times Boards are focused on current operations and longer range items are put “on the back burner.” While focusing on current operations is needed, neglecting other Board responsibilities could cause problems down the road. To assist your Organization in being proactive and help your Board become more effective, encourage the Board to regularly review policies and by-laws. To minimize valuable Board time for these activities, you might consider having a “policy committee” review a section of policies on a rotating basis, with the goal to review all policies over a 12-24 month period. This committee would then recommend policy changes to the entire Board as needed. Your Board could apply the same process to by-laws, with the additional step of having them periodically reviewed by legal counsel.
We Are Here to Help
Communicating financial information that is both accurate and understandable allows Board members to engage in meaningful discussions and make informed financial decisions. Please contact us if you need assistance in developing useful financial reports for your nonprofit organization.