What You Need to Know to Govern Responsibly
Joining the board of a non-profit usually starts with a desire to contribute time, experience and perspective to a cause you care about. It rarely requires being a financial expert.
Still, every board member shares responsibility for the organization’s financial health. You don’t need to be an accountant to do that well, but you do need to understand how the numbers tell the story of what’s really happening inside the organization.
Here are the key financial fundamentals every non-profit board member should be comfortable with.
Why Financial Oversight Matters
For many non-profits, the financial picture isn’t as predictable as it once was. Cash doesn’t always come in on a neat schedule, expenses don’t pause when funding is delayed and expectations from donors and funders have become more exacting.
That reality puts more responsibility on the board. You don’t need to be involved in day-to-day finances, but you do need enough understanding to know when things are drifting off plan and when questions should be asked.
Good oversight isn’t about checking every number or second-guessing management. It’s about having a clear sense of whether the organization is on stable footing, whether potential issues are being surfaced early and whether decisions are being made using current information rather than best-case assumptions.
The Budget: Your First Line of Financial Control
A budget is more than a simple planning exercise. For any organization, but especially for non-profit entities, it’s one of the most useful tools the board has at its’ disposal to measure how the organization is performing throughout the year.
At a minimum, the budget should:
- Be approved before the fiscal year begins
- Reflect realistic expectations for revenue and expenses
- Clearly show whether the organization expects a surplus or a shortfall
When reviewing the budget, board members should start with the bottom line. Does the organization expect to break even? Build reserves? Use reserves? Each scenario has implications for sustainability.
One common gap in non-profit budgeting is the focus on cash flow alone. Many budgets assume that all revenue will be received and all expenses will be paid within the year. That can mask timing issues and financial risk.
A budget that “looks fine” on paper doesn’t always reflect what’s happening behind the scenes.
Comparing Budget to Actual: What Boards Should Watch For
When boards receive year-to-date financial statements, the first instinct is often to check whether the surplus or deficit aligns with expectations. That’s important, but it’s not enough.
Even when results appear on track, two questions should always be asked:
- Are revenues properly recorded and actually collectable? Pledges, grants or membership fees may be recorded as revenue before cash is received as long as the revenues relate to the fiscal year end of the organization; however, if collection is uncertain, then results may be overstated.
- Have all expenses been properly recorded? Missing invoices or unrecorded liabilities can understate expenses and paint an overly positive picture.
Small timing issues can quickly add up. If left unaddressed, they can significantly distort decision-making.
How Often Should Boards See Financial Information?
Most boards look at financial statements when they meet. For most organizations, that means monthly. The statements presented are internally prepared by staff of the organization and ideally will have actual results compared to the budget. This cadence usually works well, as long as the information is timely and someone is actually reviewing it
Where problems tend to arise is when meetings are spaced further apart, and no one is clearly responsible for reviewing the numbers in between. If results are drifting from plan, the board shouldn’t be hearing about it months later.
At a minimum, boards should be clear on who is reviewing financial results between meetings, how unexpected variances are brought forward, and when an issue crosses the line from operational to board-level concern.
Financial issues rarely announce themselves all at once. They usually build quietly. The earlier they’re noticed, the easier they are to address.
Forecasting and Adjusting Before Problems Escalate
One of the most valuable roles a board can play is helping management think ahead.
Non-profits should avoid committing to spending based on revenue that hasn’t yet materialized. Membership levels can change. Grants can be delayed or declined. Economic conditions can shift quickly.
Strong boards encourage:
- Regular forecasting based on current financial data
- Contingency planning for revenue shortfalls
- Timely adjustments to spending when assumptions change
Fiscal Responsibility Is a Shared Duty
Not every board member needs to understand accounting standards or prepare financial statements. But every board member should be comfortable asking informed questions and understanding the answers.
If you accept a board position, you’re accepting stewardship over the organization’s resources, including its funding, reputation and long-term viability.
A basic understanding of financial statements isn’t about compliance. It’s about ensuring the organization can continue to do the work it exists to do.
If your board would benefit from clearer financial insight or stronger controls, having the right advisory support can make all the difference.
