As a nonprofit board member, you should understand the following balance sheet concepts.

  • The balance sheet is a snapshot taken at a moment in time. This report shows what your nonprofit owns and owes on a specific date.
  • Liquidity is how quickly you can access your cash or other short-term assets. An organization’s liquidity represents their ability to meet obligations as they come due.
  • Assets are what your nonprofit owns or has the right to use. There are different categories of assets including cash and cash equivalents as well as current assets.
  • Liabilities are what your nonprofit owes to others.
  • Reserves, or emergency funds, should be set aside by the organization for use in case of unexpected expenses, planned future events, or emergent programmatic opportunities.

There are balance sheet-related actions that you can take to develop and instill a strong nonprofit finance culture within your organization.

  • Review the balance sheet each month for anything unusual or any unexpected balances. The balance sheet is a key financial statement that all board members should receive and review. If you have questions after reviewing the balance sheet, do not be afraid to ask for more information.
  • Implement a reserve policy if you do not already have one in place. Developing and implementing a policy will generate conversations about the ideal amount of and procedures for using reserve funds that align with your nonprofit’s specific situation. The board should consistently monitor whether or not you are meeting established reserve targets.
  • If the balance sheet shows continued decline, consider what that might mean for the organization’s stability. The board will need to have candid conversations to identify back-up plans (e.g., reserves, line of credit, debt, etc.) and when to implement the plans to ensure the organization has access to cash/resources.
  • If your nonprofit is in a very stable financial place, is it time to try new things? Is financial stability the goal at this point in the organization’s development? Consider the need to implement an investment policy to accept more risk and invest excess funds.

Reflect

Reflect...

Review your organization’s most recent balance sheet. Here are some questions to ask yourself. Consider asking these questions across several board meetings to see how your answers change over time.

Assets:

  • What does your organization own?
  • What are your organization’s current assets?

Liabilities:

  • What does your organization owe?
  • Are current liabilities less than current assets?

Liquidity & Current Ratio:

  • Is your organization’s current ratio greater than one? If not, what is the organization doing to address potential liquidity issues?
  • Does the organization have sufficient access to cash to cover emergencies or programmatic opportunities?
  • How much money could the organization access in the next three months and 12 months?

Reserves:

  • How much cash does the organization have in reserves?
  • Does the organization have a reserve policy? If yes, is the organization meeting financial reserve targets? If not, are you talking about developing a reserve policy?

Restrictions:

  • Does the organization have any restrictions on cash?
  • Are the board and staff aware of contributions received with donor-imposed time or purpose restrictions? Have restrictions been met?
Skip to content