Understanding and analyzing your association’s financial reports is among the most critical responsibilities of a board member, and often the most frequently misunderstood. Here are a few tips to help you and your fellow board members better use financial information:
Establish regular reporting periods.
For some organizations, monthly financial reports are critical. For others, quarterly reports are sufficient.
Review your chart of accounts to make sure it is sufficiently detailed to provide an overview of your organization’s financial position.
Ideally, you should be able to see enough detail to understand how the organization is receiving and expending funds on a monthly basis, but not so detailed that it becomes unwieldy. Avoid too many “miscellaneous” spending or income categories.
Organize your chart of accounts by major program areas.
This will help board members determine how much they are spending on their programming and can be useful for strategic planning purposes. This will also make it easier to provide the detail required on your annual tax returns.
Make use of your accounting software.
Almost any accounting software will allow you to produce a wide variety of financial reports, so ask your staff to tailor the information in a way that makes sense to your board. Again, the goal should be to provide sufficient information on a regular basis, but not to get so mired in detail that you lose sight of the big picture. We recommend QuickBooks software for ease of use and reporting options.
Review reports on a regular basis.
Two reports that we recommend board members review on a regular basis are a balance sheet and a budget performance report showing actual income and expenses as compared to budgeted income and expenses. You don’t want to wait until the end of fiscal year to realize you have a problem.
Consider accrual accounting.
Accrual accounting is the preferred accounting method as opposed to cash. In accrual accounting, transactions are recorded when they occur, rather than when payment is made or received. This is the preferred, albeit more complicated, system because it provides a far more accurate picture of fiscal condition.
Don’t be afraid to ask questions.
Staff members and advisers should be eager to make sure you understand the organization’s financial reports. If you have questions, it’s likely that other board members do too.
When used correctly, your association’s financial reports provide invaluable insight into the workings of your organization. These seven tips will help ensure that financial information is provided in a useful format that board members can use to make informed decisions.
