A financial statement can be a powerful tool to show impact and increase donor confidence—if it’s assembled correctly.
Many nonprofits (if not all!) are in search of opportunities to increase funding, but too often, overlook the importance of financial records to grant-makers, individual donors, and other funders.
Building a strong financial record is essential to telling your nonprofit’s story. Your financial records are one way to demonstrate that you can effectively manage money. Without this evidence, funders or partners may be reluctant to invest in your work. They want to know that their funds will be used wisely and have a positive, long-term impact.
One of the best ways to show that your nonprofit will use funds effectively is to provide evidence that you have done so in the past. Think of the financial record as the story of your nonprofit—but in numbers.
The financial record consists of yearly statements that indicate income and expenses associated with your nonprofit’s work. Here are eight things to include in your financial statements:
1. Explain the types of resources you have used.
Did you spend money on salaries for field workers? Or perhaps you bought equipment to build a well? Expenses should always be documented.
2. Explain how your organization sustains its activities.
Who has funded your work in the past? Does your organization have a way to generate its own income, perhaps through membership fees? Do you have an annual fundraiser or event to raise money? Always keep track of your sources of income.
3. Demonstrate long-term financial health.
To demonstrate long-term financial health, you will likely need to provide more than one financial statement. It’s OK if project timelines shift or changes in funding impact the work you are able to do. Just be prepared to explain why!
4. Describe the resources your nonprofit has invested in, and how they pay off.
Here’s a real-life example: A nonprofit builds a school in its first year of operation; in its second year, it’s able to start offering science and math courses. This demonstrates how an investment, the school building, pays off!
5. Show that you have diverse sources of income.
Nonprofits that have a diverse set of funding sources are more resilient! Even if your nonprofit has secured regular grants or retains a set of annual donors, seeking out new sources of funding through crowdfunding or events-based fundraising can help move your organization into a higher fundraising bracket.
6. Detail your expenses.
Try to avoid general line items, such as “Program Expenses.” Break down your program expenses as much as possible. For example, a nonprofit working to reduce malaria may have varied expenses, such as mosquito nets, awareness campaigns, and field workers, each documented as separate line items.
7. Consider allocating to project monitoring and evaluation.
Many funders like to see that nonprofits measure the results and impact of their work.
If you have already completed your financial statements, ask someone outside of your organization to look at them and summarize your nonprofit’s story, or review them yourself with this list at hand. Do your financial statements address each point? [Download a free financial statement template from GlobalGiving.] If so, you are on the right track!
Keep in mind that while financial statements consist primarily of numbers, that doesn’t mean they can’t tell a story. A funder who can understand the financial history of your nonprofit will be much more likely to support you!
Featured Photo: 53 Computers for Disadvantaged South African Youth by Afrika Tikkun