10 financial best practices for volunteer boards

Emily, a successful entrepreneur, was stepping into her first board meeting at a local arts foundation. She was eager to apply her business acumen, but as the treasurer began to explain the intricacies of grant allocations and the need for strict compliance with donor restrictions, Emily realized that the financial world of nonprofits was far more nuanced than she had anticipated.

Special nuances unique to nonprofits and charities require special expertise — expertise you need, no matter the role you play for your organization. Whether you’re a new or seasoned board member, or you’re in a supporting role, you’ll find lessons to learn in responsible budgeting and oversight for mission-driven organizations. Let’s take a look at best practices to get your board and your organization financial and budget oversight on solid footing.

Most new board members join a nonprofit or mission-driven organization with a good understanding of personal finance. Some join with working expertise on business finance. But all are usually surprised by at least some aspect of managing not-for-profit finances.

Why boards should get acquainted with best practices for budgeting

There are important reasons why your board should be intentional about financial oversight and budgeting — and several audiences who are going to be watching, from donors to the government and beyond.

As stewards of the public trust, your board has a fiduciary responsibility to act and make decisions in the best interest of your organization. Good board members leave their own interests behind for the good of the nonprofit or charity they serve, taking an ethical approach to managing finances. This responsibility falls under the board’s duty of loyalty.

Donors are particularly interested in your organization’s budgeting principles and how your budget tracks over time. It’s a reflection of your organization’s sustainability. Good financial practices encourage donors considering where to send their discretionary dollars. More importantly, nonprofit budget best practices instill confidence in your board ­— whose members often are supporting donors themselves and responsible for fundraising.

Stakeholders, such as staff, volunteers or community representatives, count on the board to monitor the budget and proactively manage it. They’re looking for assurance that your board is making wise and prudent decisions over spending and investing.

The intent of laws around nonprofits is for the organization to remain sustainable for as long as possible. Nonprofits and charities are subject to the rules and laws that govern them, and for compliance reasons, volunteer boards must practice good financial practices. This good financial management falls under the duty of care, another aspect of fiduciary responsibility.

10 nonprofit budget best practices for board consideration

Best practices for nonprofit budgeting will cover most of the bases of responsible financial management. Be mindful that all organizations are unique, and your budget will reflect your nonprofit’s financial needs.

Use the following 10 budgeting best practices as a basis for creating your nonprofit’s best practices.

1. Review financial reports at least quarterly, and give them more than a cursory look. Take note of any unusual expenses. Don’t be afraid to ask questions about any expenses, whether new, large or regular.
2. Approve your budget annually and place it in your board meeting minutes. It should be accessible to board members at all times.
3. Be transparent about your budget. Your donors and stakeholders will place more trust in your board and in your organization when they have the opportunity to see how much money is coming in, how much money goes out and how you allocate funds.
4. Strive to equal or exceed your expenses. It’s good practice to have a reasonable amount of money allocated for cash flow to avoid having a deficit.
5. Address deficits immediately. Develop a plan for mitigating them. Take a deep look at expenses to determine if any discretionary costs can be eliminated or reduced.
6. Budget conservatively. Center budget discussions around the worst-case scenario so your nonprofit is continually prepared to deal with a crisis.
7. Consider committed revenues and uncommitted revenues separately. Donors may not come through with their promises, especially if they run into a crisis of their own. A sensitivity analysis will give your board data to understand the scope of potential revenue.
8. Take any restraints or limitations on gifts or grants into your budget. Some grantors may offer a grant with payouts over a period of months or years. Factor the revenue at the time it comes in. Also, be aware of any limitations of what you can spend grant or gift money on.
9. Evaluate this history of your budget. You may have larger expenses in certain months than others. Fundraising events and the timing of large donations also have a big impact on your budget. You can always amend your budget as necessary to account for variations.
10. Always be prepared for a financial crisis. Develop an alternate budget to fall back on in case a major funder falls through unexpectedly or your board is facing a major expense unexpectedly.

Financial oversight tips for volunteer boards

Consider these additional tips for careful financial stewardship.

When reviewing your financial reports, be sure to view them in light of your cash flow and expense reports. If you spot a red flag, it’s best to catch it early and address it.

While board members may access your budget online or on paper, it doesn’t have to be a static file. Your budget stands as a guide, but you could also think of it as a living document. Visit your nonprofit’s budget often, just as you would your personal or business budget. Board management software makes this easier.

Ensure that  internal controls are in place. Jo-Anne Williams-Barnes, CPA and financial accountant, points out that “implementing nonprofit internal controls is one of the most effective ways to showcase fiscal responsibility, reinforcing trust with existing and potential supporters.”

As another tip, create professional-looking budgets and keep them updated. Donors and stakeholders could ask for a copy of your budget or Form 990 at any time. Responsive organizations demonstrate that they’re prepared and proactive. When someone asks for a copy of your budget, it’s a good time to point out how often your board reviews its budget. Fundraising is highly competitive, and your board won’t want to miss even one opportunity to receive financial awards.

How BoardEffect helps your board with sound financial practices

A board management solution should fully support your board’s fiduciary duties, and BoardEffect in particular offers a comprehensive, all-in-one, secure solution to simplify sound financial practices:

• The digital board book interface makes it easy for users to edit, add and link documents such as budgets and financial reports to agenda items for quick review. Microsoft365 integration supports familiar editing processes.
• Private, secure workrooms offer an accessible place for finance committee members to meet.
• Customizable approval workflows create a clear path for board members to understand exactly what is needed from them and when — including budget approvals, financial policy reviews and more.
• A built-in surveying tool allows quick polling of members’ financial savvy and training needs.
• The searchable document library gives board members  24/7/365 access to a copy of your financial policies and procedures.

Everyone may not join the board with a complete understanding of nonprofit financial practices, but everyone can build their expertise — with BoardEffect which offers a robust tool for healthy stewardship and strong boards. Set up a demo today to find out how we can help.