Financial transparency is a must for every nonprofit organization. Even though you plan to reinvest the money you make in your organization’s programs and services, you still need to create a financial statement to account for the money you’ve received and how you’ve used it.
At Addition Financial, we have many nonprofit companies as members. One of the questions we’ve been hearing a lot is:
"How should I organize my nonprofit financial statement?"
The process of putting together your financial statement is an easy one. Here are some steps you can follow to get started and ensure your completed statement is in good order.
The first step is to gather all relevant documents. Having everything ready to go will simplify the process and ensure you don’t hit any snags along the way.
You’ll need:
If you have subsidiary companies and you’re creating a statement that will cover them, you’ll need the same information for them, too.
Now, you’ll need to document how much income you took in each month during the fiscal period. Income may come from donations, sponsors and fundraising events. You’ll need a total for each month as well as a total column where you’ll list your organization’s entire income for the annual period.
Remember here is where you’ll need to estimate the income from in-kind and non-cash donations. That means if you run a food bank, you might have cash donations as well as donated food. It’s your responsibility to estimate the value of the food you received and account for it here.
Next, you’ll need an Outgoing Funds section. In this section, you’ll need to include every dollar you spent for any reason.
That includes:
Once you’ve accounted for your salary and wages, fixed operational expenses and flexible operational expenses, you’ll need to create a total expense sum. This sum should, if you have calculated everything properly, represent all of the expenses you incurred in a single year.
When you’ve done all of the calculations, you should take the entire expense amount from the Outgoing Funds section and subtract it from the total income in the Incoming Funds section. The final dollar amount will give you a picture of the financial health of your organization.
If you end up with a negative amount, it means you do not have additional funds for research, services or programs. It may be an indication that you need to do a better job of soliciting donations, or that you need to cut back on programs or economize some of your expenses.
On the other hand, a positive amount indicates that you have additional money to reinvest in your organizations research, programs and services.
At the end of your financial statement, you should include a summary statement that addresses any issues revealed by the numbers and offers transparency to the person reading the report.
If your final net income was negative, then you may want to use this section to explain how you plan to address that shortfall in the coming year. You don’t need to go into a lot of detail, but it’s a good idea to say something about it.
If your final net income was positive, then it’s appropriate to explain how you plan to spend the extra funds. You may know that a specific program could use additional funding. This is the time to provide an overview of your plans for those funds.
The goal of your financial statement is to provide a clear and concise overview of the financial standing of your organization. Clarity and transparency are the most important considerations.
To learn how Addition Financial’s nonprofit checking accounts can help you achieve your mission, please click here now.