For nonprofit leaders, board members, and financial professionals, understanding financial reports and key performance metrics is essential to strategic decision-making.
Accounting may be considered the language of business, but to many, it is a foreign language. Financial terminology and complex reports often make it difficult for non-accountants to extract and communicate meaningful insights. By simplifying financial reporting and focusing on the right nonprofit financial metrics, organizations can make data-driven decisions that strengthen fiscal health and mission impact.
Start with a Culture of Financial Fluency
Nonprofit personnel with expertise and passion for the mission are often hesitant to participate in nonprofit financial management. However, it is possible to create a culture where everyone in the organization values budgeting and financial reporting as integral to optimizing mission impact.
Information that tells the organization’s financial story or answers the user’s question without needing the help of an accountant is essential to a participative financial culture, and it helps to deepen donor engagement. Instead of expecting users to navigate traditional financial reports—such as the statement of financial position or statement of activity—the finance team should focus on identifying what information matters most to their audience. This user-centered approach improves engagement and financial literacy. This requires the finance personnel to step out of their comfort zone and adapt reporting strategies to align with audience needs and perspectives.
Build Trust to Improve Financial Engagement
Establishing financial transparency and avoiding complex accounting jargon helps build trust among stakeholders. Avoiding “accounting lingo” makes the conversation feel more accessible to those without accounting backgrounds. Further, encourage engagement by asking open-ended questions like ‘Tell me more,’ and ‘can you expand on that?’ Incorporate more accessible formats, such as visuals and narratives, instead of traditional reports. Consider a dashboard customized to the factors identified by the stakeholder. Be consistent in what is presented and the language used.
Use Participative Budgeting to Strengthen Nonprofit Financial Planning
Participative budgeting is an integral part of this process. Nonprofit budgeting best practices treat the budget as a strategic tool—helping organizations allocate funds, assess needs, and monitor financial trends. This approach strengthens board financial oversight and improves fiscal transparency.
Choosing the Right Financial Metrics for Nonprofit Stakeholders
As financial users build confidence and provide more information for reporting, identify the key indicators which address their need. Some of the indicators may be non-financial amounts. For example, donor development staff may want to evaluate donor retention rates in comparison to the costs for building a sustainable relationship. Whereas nonprofit board members responsible for financial oversight often focus on cash liquidity and sufficiency of reserves. (Pro Tip—one very accessible way to illustrate cash liquidity is by using a stoplight-style financial dashboard, using red, yellow, and green to illustrate financial risk.) Program managers may be more focused on specific services, and they may want a way to measure true costs to serve each service participant.
Clear, Actionable, and Customized
By refining nonprofit financial reports and tracking the right key metrics, organizations can improve financial transparency, board decision-making, and mission impact. When nonprofit financial reports are clear, actionable, and customized, nonprofit professionals—including finance professionals, executive directors, board members, program staff, and everyone in between—can make data-driven financial decisions that improve financial transparency, engagement, and board financial oversight.
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