For your organization to be sustainable, long-lasting, and well-positioned to accomplish its purpose, strong financial oversight is critical. Healthy funding allows you to deliver programs without cutting corners or being short-staffed, expand the number of constituents you serve, and strengthen and diversify the programs you offer. All of this takes engaged planning by, and direction from, the board.

Financial planning starts with an annual budget. Depending on the size and structure of your organization, the board may do most or all of the work developing the budget, or management may put together a proposed budget which the board then reviews, adjusts if appropriate, and approves. The budget should be driven by your goals for the coming year, and fit in to longer-term plans if you have them. Decide what you want to pursue and accomplish, and what resources you’ll need and investments you’ll make in order to achieve those goals. You should have both an operating budget and a capital budget. An operating budget covers recurring revenue and expenses of your day-to-day activities. A capital budget is where you plan for investments such as acquiring large assets (buildings, vehicles, equipment, etc.), building a reserve or rainy day fund, establishing or increasing your endowment, etc. Read more here about budgeting, financial management, and forms that budgets can take.

Throughout the year, you should be reviewing financial reports at least quarterly, possibly monthly depending on the needs of the board. Management should produce a profit and loss statement, balance sheet, budget-to-actual comparison, and other reports and analyses that you need to evaluate the health of your programs and organization. If programs are doing better or worse than anticipated, consider how to capitalize on strengths and improvements, and if you need to make changes to shore up a struggling area, or correct a misstep. Be ready to respond to unexpected events and adjust your financial planning accordingly, such as an unexpected influx of donations and fee-for-service revenue, grants and contracts not being renewed, or equipment needing to be repaired or replaced.

Determine whether your organization is required, or otherwise desires, to have an audit. If you do, the board is responsible for hiring the auditor, reviewing the audit report, and overseeing management’s response and follow-up if significant issues are raised in the report. If you haven’t been involved in or reviewed an audit before, familiarize yourself with how to choose an auditor and what to expect throughout the process. This article by the National Council of Nonprofits has a section about the role of the audit committee, or full board, after the audit is completed. Your auditor will likely prepare your Form 990 to file with the IRS, and the equivalent filing for your state. If you’re not audited, these will fall on management. Review both before they are filed and understand the information included, financial and otherwise.

The board is also responsible for securing adequate funding for the organization. Be involved in fundraising, both by giving regularly yourself, and by finding outside donors. This may include individual donors, foundations and other organizations who give grants, and/or organizations who will contract with you for services. Be aware of any restrictions or terms attached to your funding, and make sure to stay in compliance. Donors and organizations you contract with may restrict money to be used for a specific purpose, or to be used in a particular timeframe, or not to be used for certain expenses. Nonprofits are legally required to abide by these restrictions, so be sure to document what they are and be able to report on how restricted money is used.

Finally, make sure you have financial controls and policies in place that protect the assets and financial integrity of the organization. Consider what controls are appropriate and invest time in developing strong policies, such as conflicts of interests policies, compensation policies, whistleblower policies, document retention policies, and gift acceptance policies.

The 3 areas of board oversight responsibilities – financial, management, and programs – overlap in some places and work together to guide your organization’s health and direction. It can feel like a lot to wrap your head around, especially if the organization is going through a busy season or is large, with a complex structure. Your work should ultimately be rewarding, as you see what your programs are able to accomplish and the constituents you’re able to impact along the way.