Question

1. Nonprofit Financial Statements do not include a Profit/Loss Statement whih is an important financial statement in the For-profit sector and is important for reflecting how well a business performed during the reported period. If a perspective donor asked you for this information for your nonprofit organization, how would you respond and what Financial Documentation would you use to present your nonprofits "Financial Performance"?

2. Discuss the purpose of the following nonprofit financial statements and what purpose they might serve in presenting your organization's financial standing to your board and potential donors: Statement of Financial Position, Statement of Activities, Statement of Cash Flows, and Statement of Functional Expenses

Answer 1

1.Despite not having the necessity of publishing an annual financial report with its Profit and Loss statement, Non-Profit organizations need to furnish some financial information pertaining to their operations to prospective donors. Some of the information and means of presentation would be as follows:

1.       The financial picture of the organization – the way the organization spends its way. The organization should be capable of showing the list of all programs the organization has invested in with the amount invested over a time period. All overhead expenses going into each program and all financial ratios should be recorded in a transparent manner. The organization can take a lead and publish these numbers on their website and in their annual publications.

2.       Collate a list of appropriate metrics which prove that the programs taken up have worked. The focus should be to measure, report and then ask for the donations.

3.       Alignment of the financial results with the Vision, Mission and Approach of the organization. The information of how effectively the non-profits achieve their missions, is the actual information that a donor is looking at and would like to know in any case.

4.       Though optional, Annual Reports should be prepared and put up on the website. This creates a professional image of the organization and creates an appropriate avenue to keep current and prospective donors informed. All necessary documents like the tax records should be readily available to be shown to any donor.

2.Statement of Financial Position – this reveals the amount and the duration of the donations already received by the organization, and the investments made till date in various programs. This gives an overview of the amount the organization holds currently and how it has spent the donations in the past one year.

Statement of Activities – This charts out all the programs where the organization has invested certain sums and at what date.

Statement of Cashflows - This records all incoming as well as outgoing income and expenses respectively for the organization. This helps in collating all expenses at one place matching it with the cash coming in from different sources – the donations primarily.

Statement of Functional Expenses – This would record all overhead expenses incurred during the investment and launch activity for a program. This would help the organization to keep track of all such expenses that would in other ways be overlooked and not accounted for.