5 Ways Nonprofits Can Use Financials to Increase Transparency | npENGAGE

5 Ways Nonprofits Can Use Financials to Increase Transparency

By on Mar 15, 2019

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Even if you’re not the one in your household who pays the electric bill, checks your bank statements, or transfers the money into savings, you are still invested in the financial health of your family. How money is spent affects you and you’re therefore conscious of the financial impact your actions make.  

The same mentality should apply in the nonprofit world. Oftentimes, stakeholders are so far removed from the budget and the balance sheet that they may have no clue how the organization is doing, or they only give the financial statements a cursory review without going deeper. They’re likely devoting every bit of energy to the cause or busy in their day-to-day that there’s no time left to dig deeper and do the research on the organization’s financial health. 

The Benefits of Financial Transparency 

  1. Increased Engagement. It’s important for organizations to be transparent about their financials and ensure all stakeholders, including donors, board, staff, and volunteers, understand the numbers. Transparency breeds ownership. When the people who care about your organization understand more about the financial foundation of the organization, they feel a bit more responsible for their small piece of the pie than before. When they feel a greater sense of ownership and responsibility, they will ultimately become more engaged. They’ll stay involved longer and make a deeper commitment when they understand how their work impacts the big picture.
  1. Increased Contributions. GuideStar published a study that showed “transparent nonprofits received 53% more in contributions” than less transparent organizations. This study of 6,300 organizations showed that those who shared more than just the basic 990 on GuideStar and earned their GuideStar Seal of Transparency earned more the following year. If your organization isn’t being more transparent, you are giving other organizations the opportunity to attract your potential donors.  
  1. Improved Donor Relationships. Going above and beyond the basic 990 and audited financials and sharing more intimate details about your organization’s financial health will help to improve donor stewardship and relationships. According to this article on npENGAGE, building trust and open relationships with donors can help retain ongoing support. 

Learn more about the benefits of financial transparency in Blackbaud’s new white paper: Compliance Risk Management for the Empowered Nonprofit 

5 Ways to Use Financials to Increase Transparency 

Many nonprofit leaders understand the benefits of transparency but don’t know how to share relevant information about their numbers. They may not be comfortable speaking confidently about financials or know what to shareHere are five actionable steps you can take to share your financials and impact on a deeper level with your stakeholders, even if you’re not a “numbers person. 

  1. Share financials with your staff. The more transparent we are about our numbers to the entire team, the more accountable they will feel towards their own small budget. When making decisions on buying supplies for their program or talking about the organization at a donor visit, they’ll think about the big picture because they actually understand it. Present a one-page financial dashboard or overview of the financial statements with a couple of relevant bullet points such as gross and net revenue from your latest event, a new grant you received for a specific program, or why you missed your revenue goal last month at your monthly staff meeting to connect the team to the organization’s financial health. 
  1. Use your 990 for greater transparency. The Statement of Program Service Accomplishments on Part III of the 990 is your opportunity to share information about your three largest programs and the amount of money you spent and received for those programs. Many organizations do not include nearly enough detail here; they write “Education Program” or “Girls Empowerment Program” and that’s it. This is a huge missed opportunity. In this section, you have over ten lines for each of the top three program areas, so it’s important to include as much relevant detail and metrics about your programs as possible. 
  1. Calculate metrics from the balance sheet. I love using our existing financial statements to pull new insights to share with stakeholders (board, donors, staff). My favorite metric on the balance sheet is months of cash on handwhich shows how many months your organization could operate if no additional funding came in. I always like to see 3-6 months of cash on hand – this lets me know an organization is strong and sustainable. To calculate this metric, simply divide your current cash balance by your average monthly expenses. 
  1. Share metrics from the income statement. Again, using existing financial statements to share a deeper story is an easy way that leaders can increase transparency. Revenue diversity is an interesting calculation from the income statement that demonstrates how much your organization relies on any one revenue source for funding. There is no right answer on exactly how diverse your revenue sources should be but sharing a simple revenue pie chart with each section representing a revenue stream is an interesting way to increase transparency. 
  1. Enumerate program costs. Simple financial statements don’t tell funders and others exactly how much your programs cost to operate, but sharing this information is another way to increase transparency. A simple calculation would be to take your total program expenses divided by the number of programs (or whatever relevant unit your organization uses). The more accurate calculation would also allocate a portion of administrative expenses into programmatic costs as well.  

Transparency in the nonprofit sector is increasingly important for organizations of all sizes and it will serve leaders well to share more about their numbers with all stakeholders, including donors, board, staff, and volunteers. When people understand the organization’s financial health on a deeper level, they will become more engaged and committed to being a part of its success. 

ABOUT THE AUTHOR

Stephanie Skryzowski is a Chief Financial Officer that helps purpose-driven leaders better understand and use their numbers to make smart decisions. She is the Founder and CEO of 100 Degrees Consulting which works with clients around the globe to help them do more and serve more, and speaks often about storytelling with financials – using your numbers to share your organization’s impact on a deeper level. When she is not crunching the numbers in Excel, Stephanie is traveling the world with her husband and toddler daughter. 

Comments (28)

  • Christine Settles says:

    I absolutely agree with you! The idea of using the narrative portion of the 990 to elaborate on the financial metrics of specific programs / program areas is great. I’ll have to make a note of that for next year!

  • Shelly Gammieri says:

    Thank you for sharing! There are some great tips here!

  • Chris says:

    Thank you for sharing these tips!

  • Beth says:

    I like that staff is included with the sharing of financial information, sometimes the staff is overlooked.

    • Stephanie says:

      I agree that staff are often overlooked when sharing financial info, but it helps build such a greater sense of ownership!

  • William Sanders says:

    Sharing financials with staff has to be done with care. Thank you.

    • Stephanie says:

      I completely agree, William. It’s important to provide the appropriate level of detail and context around the numbers to ensure everyone understands. Thanks for reading!

  • Latonya Binford says:

    These are excellent suggestions! I would imagine potential donors would research an organization before giving, so being as transparent as possible allows the non profit to “shape” their story and image while allowing higher levels of disclosure.

    • Stephanie says:

      I agree, Latonya. I love when organizations are super transparent because it makes it easier on donors to get to know you!

  • Mary Sommer says:

    Thanks! We share information with staff when working on budget requests. Good ideas for the 990.

  • Patti Hommes says:

    Thanks for sharing! Great article!

  • Michael Hassemer says:

    Program based budgeting can help to better allocate costs to their proper areas (programs, fund raising, and management).

  • Diane Stavalo says:

    Thanks for sharing this information! Great article.

  • Jennifer Johnson says:

    Great ideas! Thank you.

  • Courtney says:

    Great info! Thanks for sharing!

  • Karen says:

    Thank you Stephanie for providing the ideas. We are transparent with our staff and ministries. We have found a lot of truth to sharing financials. Just today, we met for an hour to discuss the Annual Report and what the numbers mean. Not just financials, but the number of partners in mission who care about our mission and the commitments of our organization.

    • Stephanie says:

      I love this, Karen! I think that transparency really helps build a deeper connection between your partners and your mission. Keep it up!

  • Claudia says:

    This is some great info. thanks for sharing!

  • Heather says:

    Excellent info. Now to just everyone on board with this idea…

    • Stephanie says:

      Hi Heather! Getting everyone on board is definitely a challenge – but if you start small, with just one action, hopefully that opens up the door to greater transparency!

  • Laura says:

    Great info. I recently updated our GuideStar profile, and we are going through some staffing changes so a certain level of transparency seems crucial right now for us. Financial transparency seems to help convey a certain level of trustworthiness, that can help an organization transcend other organizational (leadership) changes.

    • Stephanie says:

      Absolutely, Laura! Financial transparency can help show stakeholders that you have a strong financial foundation to weather any leadership (or other!) changes.

  • Sarah says:

    I love these tips, especially sharing financials with staff, great ideas!

  • Heather says:

    Great tips! We already do some of this, but I have more ideas now.

  • Jennifer Wuchner says:

    Transparency is the key! Thanks for sharing these tips!

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