Non-profit financial statements can be intimidating, but you don’t need a degree in accounting to have a working understanding of them. By familiarizing yourself with four key financial statements, you’ll gain a clearer understanding of how your fundraising efforts fit into the organization’s overall financial picture. This in turn will give you a sense of how savvy donors and prospects assess your organization to determine how it spends its money, if it’s financially viable in the long term, and if they would be comfortable making a contribution.
You can use your organization’s own documents to get familiar with financial statements. Note that these four statements are generated directly from your organization’s accounting software as opposed to your donor management software. Your organization’s bookkeeper or accountant can provide you with copies.
Think of a balance sheet as a snapshot that offers a comprehensive view of an organization’s financial health at a specific moment in time. You can use this document to evaluate an organization’s assets (things of value or with future economic benefits) versus its liabilities (debts or future economic costs).
The format of a balance sheet is always the same: Assets are listed first, followed by liabilities and then net assets (temporarily restricted, permanently restricted, and unrestricted). Assets are generally listed in order of liquidity (how quickly the assets can be turned into cash).
Take a look at your organization’s balance sheet with the following questions in mind:
As of the date of this balance sheet, what does the organization owe?
How much cash does the organization have?
Are the organization’s current assets greater than or close to its current liabilities?
This document shows the organization’s operating results over a particular period of time (usually a fiscal year). When you look at a statement of activities, you’ll see support (grants and contributions), revenue (fee for service, event income, merchandise sales), and expenses. The statement of activities includes the actual amount as well as the amount budgeted, so you can see variances.
Take a look at your organization’s statement of activities with the following questions in mind:
How do the actuals compare to the budgeted amounts? Does anything surprise you?
How many different sources of revenue do you see?
Does the organization rely heavily on a particular funding stream?
This statement shows the sources and uses of cash, so you can see where cash is coming from and how it’s being spent. You’ll see cash flow from your organization’s core operations, cash flow from investing, and cash flow from financing.
Take a look at your organization’s cash flow statement.
Is there enough cash coming in to support the organization’s programs?
This statement lists expenses incurred during a particular time period, allocated by program services (mission-related activities) and support services (such as administration and fundraising). The total expenses on this statement will equal the amount you saw listed on the statement of activities.
Take a look at your organization’s statement of functional expense.
What is the organization’s largest expense?
If your organization reduced that expense significantly, how would it affect your organization’s ability to achieve its mission?
To gain an even stronger understanding of the organization’s financial health and stability, it’s a good idea to compare your non-profit financial statements over time (for example, five years) to get a sense of trends and patterns. These insights will benefit you as an employee of the organization, and will also prepare you to have more informed conversations with funders and other stakeholders and to answer their questions as they consider supporting your mission.
Join us for a guided tour of our software, with Live Q&AView Recording or Register Now >
Visit our extensive knowledge base for troubleshooting tipsVisit Now > Learning Resources
Get knowledgeable support from our team, our community and our helpful articlesLearn More > Browse our Consultant Network
Get help migrating complex dataFind a consultant > Free Courses & Downloads View All >
Meet other Little Green Light users. Share resources and tips.Request Access >