What do I need to know about the income statement?

As a nonprofit board member, you should understand the following income statement concepts.

• The income statement is a report showing financial results over a period of time. The period of time can be a month, quarter, or year, and is often reflected as YTD or year to date.
• An income statement should include details on the budget, actuals, income, expenses, and budget variances.
• Internal reporting to board members, key staff, etc. should be completed on a consistent, timely basis, and reports should facilitate informed decision-making.
• External reporting to funders, donors, banks, etc. should meet any specific requirements outlined by the requesting party and should be reviewed with an understanding that your financial reports tell a story about your organization.
• Think intentionally about your nonprofit’s revenue diversification. Multiple sources of funding help ensure financial stability and protect against substantial program interruption that may come from a sudden change or loss of a significant funding source.

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

• Review the income statement monthly for significant variances, anything unusual, or any unexpected trends. Understanding budget variances is important, and the real board work is determining any action the organization may need to take. If you have questions after reviewing the income statement, do not be afraid to ask for more information.
• Compare the story you are receiving about the organization from things like executive director reports, committee reports, or newsletters to the income statement. Ask questions when items seem inconsistent.
• With an understanding of your nonprofit’s income, develop strategies for diversifying sources of funding. Research what other organizations are doing to diversify income.