Monitoring Your Nonprofit’s Financial Success – A Guide to Strong Financial Leadership, Pt. 5
Monitoring the financial performance of a nonprofit should also include forecasting or predicting the future. This is especially important given the challenges that are presented with nonprofit accounting rules and revenue recognition. For more information on this topic, visit this article.
Preparation and review of some form of projection report are imperative to the assurance that your nonprofit is on the right path.
Many nonprofits struggle with the accrual basis of accounting and the requirements of revenue recognition. To combat this struggle, we have worked with nonprofits to develop a report that assists in “explaining” what the future might look like on a cash basis.
A report we generally use is presented as a Revenue and Expense report. This report includes adjustments made for Accounts Receivables and Accounts Payables to get to the projected cash balance of the organization. Nonprofits can use this report by updating each month with actual results as they occur. The remaining months are entered as they were budgeted. This is a tool that can also be used to make updates to what was budgeted in future months.
There’s more to do when you become aware of changes to funding streams that were budgeted or personnel changes that inevitably occur. In these cases, you can update the amounts in a document such as that shown below. This document helps to project how performance will be in remaining months.
For additional articles to help direct your nonprofit to strong financial leadership, click here.