How much is that doggy in the window?

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April is financial literacy month, so in the nonprofit community it’s the right time of year to ask this question: “We’ve got some board members who don’t want to serve on the finance committee and claim not to understand financial reports. How can we help them become more comfortable with our nonprofit’s finances?”  Hmm. Without meaning to be flippant, I submit that helping board members with this is as simple as showing them a cute puppy and asking them how much it costs. They might not be familiar with cost allocations for programs, or restricted funds, but they can understand that the cost of the puppy is not just the initial cost, but also the direct costs of food, treats, vet bills, plus the real, yet indirect costs of washing towels (muddy paws!), and just in case – “Oops – the puppy just swallowed its leash!” (this actually happened to a neighbor of mine) – funds set aside for emergencies.

So the puppy provides us with some important but pretty basic concepts in nonprofit finance: calculating full costsannual budgeting, and reserves. Another very important concept for board members to understand, that I confess I couldn’t figure out how to fit into the cute puppy analogy, is donor restricted funding. Why not take ten-minutes at the next board meeting to make sure everyone is on the same page with these basic concepts?

If you’re still asking: “What’s with the puppy?” I admit that nonprofit accounting is not THAT simple, but how about opening your next board meeting with some cute puppy pictures and then introducing your board to one of these options?

  1. Take a “video coffee break” – Balance Sheet Basics – What we have, what we owe, and what we’re worth (Nonprofits Assistance Fund);
  2. Energize the board with a group project: The authors of Nonprofit Sustainability designed a way for board and staff members to analyze, visualize, and recognize the relative costs and return on investments for a nonprofit’s various activities using their “matrix map;” 
  3. For those who like checklists:  Ask your board to complete a short Financial Management Self-Assessment Tool developed by the Nonprofit Association of Oregon that will give you a starting point for what to focus on first when building up your board’s financial literacy.
  4. For readers: Share these how-to publications: Understanding Nonprofit Financial Statements, Third Edition  (BoardSource) which can help your board members understand underlying financial concepts so that they are equipped to perform their fiduciary responsibilities, set realistic financial goals, evaluate your organization's performance, and make informed decisions, or the Budgeting guidebook for small nonprofits (a free resource provided by the Virginia Society of CPAs);
  5. For board members who take the DIY route: Affordable software tool for building a budget with proper cost allocations and managing cash flow: Cash Flow and Budget Toolkit (New York Council of Nonprofits); and finally,
  6. The OD approach: Share and discuss: How to talk about finances so nonfinancial folks will listen (Bridgespan).

Happy Financial Literacy Month from all of us at the National Council of Nonprofits.

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