Every day, your nonprofit accepts donations and spends money toward your mission. Instead of spending hours poring over individual transactions, you should generate financial statements for the nonprofit. Read Chisholm Law Firm’s blog to learn more about financial statements.
What are financial statements?
Financial statements are scorecards that let you view the health of your nonprofit by looking at a summary of its transactions or activities on a few pages. Looking at a few pages is far less cumbersome than reviewing hundreds of receipts and pages of bank statements.
You can generate financial statements using a commonly accepted set of accounting rules. These rules allow nonprofit founders, board members, banks, and funding organizations to compare nonprofits from different industries in a universal way. Statements help build trust with potential donors.
Statements are similar to sheet music for musicians. They allow people unfamiliar with a song, or in this case, your nonprofit, to read the sheet music (financial statements) and immediately understand the music (the health of your nonprofit).
Why are financial statements important?
Even though you are probably already keeping your records and tracking numbers for your nonprofit, it may be good to generate financial statements regularly. Here are some of the ways these statements can help your nonprofit.
Keep your nonprofit healthy
Financial statements allow you to easily track many of the important numbers to know if your nonprofit is healthy and growing. When you are aware of the trajectory, you can better organize your nonprofit and plan for that growth.
Additionally, knowing the health makes it easier to stay in tune with your nonprofit. Occasionally, nonprofit founders become distanced from their organization and are unaware of how it is performing. Staying on top of financial statements can help you stay connected.
Another benefit is that you will be able to pitch your nonprofit to potential donors better. Donors want to know that you will use their donations wisely, and preparing financial statements allow you to do that.
Know if your nonprofit is in the “black”
Financial statements typically allow you to see all your expenses and income on one page. Having the information in one place will let you know immediately if you are making or losing money in your nonprofit.
For example, you will be able to see if the donations you receive from events are more than the donations you receive from online campaigns. You can also tell if you are spending too much on staff, programming, or if you need to increase the budget in those areas.
It’s crucial to have a balanced budget for your nonprofit – primarily since we rely on donations to serve our community. Being aware of how your nonprofit is financially performing will help you plan for the future.
Allow others to understand your nonprofit
You may decide that you would like to apply for grants or a bank loan in the future. In both scenarios, you will likely need to have financial statements prepared for your nonprofit so that the other parties can assess the financial health of your nonprofit.
We have already touched on this point, but it is crucial to repeat it: donors and other lenders want to know that they are making a sound investment by donating to your nonprofit. Being transparent with your financial statements shows others that you are serious about impacting your community.
Financial statements are also helpful to have on hand if you ever need to show them to the IRS or other government agencies. Since they show your income and your expenses, they provide credibility to your organization. Keep them in your corporate minute book for safekeeping.
Speak with an Expert
If you need help setting up financial statements for your nonprofit, you should consider speaking with a nonprofit attorney who can help you understand the best practices. Here at Chisholm Law Firm, we will help you do everything the right way the first time.
Chisholm Law Firm has helped thousands of people start and grow nonprofits that impact the world. If you want the best for your nonprofit, look no further than Chisholm Law Firm. Our clients have a 100% success rate for nonprofit and trademark filings*.
You can rest assured that your nonprofit is in the best hands and that we’ll get everything done right the first time. Call us today to schedule your free consultation.
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*Past results do not determine future outcomes.