A Guide to Monthly Financial Reporting
The objective of monthly financial reporting is to provide information about the financial position of an organization, including performance and changes. Financial reporting provides useful information to a wide range of users such as:
- Program Managers who require monthly financial reporting to manage the expenses of the program and to ensure there is enough funding to carry out the purpose of the program
- Board Members who use financial information to manage the overall operation of the organization and plan for future programs. Board Members are required to receive monthly financial reporting. This ensures the organization properly reports expenses, and revenue and programs are meeting performance standards.
- Grantors use financial information to decide whether to fund a grant application. They assess the financial health of an organization, looking to ensure their investment is a good use of funds.
What is included in a nonprofit’s monthly financial report?
Generally, the Financial Accounting Standards Board (FASB) recommends that nonprofits establish procedures to prepare and review the following reports on a monthly basis:
- Statement of Financial Position (Balance Sheet)
- Statement of Activities
- Statement of Revenue and Expenses with a budget comparison
- Statement of Cash Flows
How can my nonprofit organization create monthly financial reports?
There are a few steps to follow when creating monthly financial reports. For a complete guide on how to create monthly financial reports, read How to Read Financial Statements for Nonprofits. A summarized version is below.
First, make sure your accounting system is set up properly. Part of the discovery process when NFP Partners starts an engagement is to review each client’s monthly financial statements. This review gives insight into the current financial health of a nonprofit and provides input to the organization’s procedures for the month-end. We review the Chart of Accounts to understand the general ledger. We also discuss the ability to track and report programs and funding sources.
Second, a month-end procedure should be followed, so all expenses and revenue are recorded to reflect an accurate picture of the activities of that month.
This should include a review of the monthly general ledger to ensure proper coding of expenses and revenue to GL accounts, reconciliation of the bank statement, and a review of aging reports (AP and AR).
Third, review the Balance Sheet and Statement of Activities as a whole. This review gives insight into the organization’s financial position for that month. Compare the reports to the last month to see which balances went up and which ones went down. You’ll also want to compare the budget to actuals year-to-date.
Use this information to analyze if the organization is following the budget, over-spending, or under-spending. Don’t just report or analyze the data, DO SOMETHING with the information you gained.
How can monthly financial reports impact my nonprofit organization?
Financial monthly reporting provides information for organizational leaders to make economic decisions about how to distribute scarce resources. Nonprofits do not plan to generate a profit, but rather, intend to generate revenue to invest back into their organization to continue serving the mission, so every dollar counts!
To learn how NFP Partners can help your organization through outsourced nonprofit accounting services, click here or contact us today. Our Ultimate Guide to Outsourced Nonprofit Accounting may also answer any burning questions your nonprofit has.