Are you a nonprofit treasurer who is tired of creating reports that no one reads? You're not alone. In this blog post, we'll discuss three components of treasurer reports that actually get read. By following these tips, you'll be able to create more engaging and informative reports for your board members. Thanks for reading!
What is a Treasurer's Report?
The purpose of the Treasurer's Report is to inform financial strategies and monitor their implementation. Since the treasurer, or secretary/treasurer, is an officer of the board of directors tasked with monitoring the financial well-being of the nonprofit, the Treasurer's Report is a document that outlines total income, expenses, assets (what is owned), liabilities (what is owed) and usually compares theses numbers to a plan - either a budget or forecast.
This report generally covers a period of time since the previous report was given to the board of directors. Typically, the reports are given monthly, or at least quarterly, and will cover more than one time period for comparison. For example, income and expenses for the current month, year-to-date, and prior year-to-date.
A useful treasurer's report will answer the questions of what, when, why, how, and who.
What happened and what does it mean for the future?
When did it happen and when might it happen again?
Why did it happen and does this circumstance still exist?
How did it happen and can it be repeated?
Who needs to take action?
Does the Treasurer's Report require a board vote to approve?
Since the treasurer's report is an official document presented by a board officer, the board should vote to accept the report as given or request it be amended to provide more information. This is not a motion to "approve" the report but to accept the report as written into the official documents of the organization.
Treasurer's Report Components
A good treasurer's report is concise, informative, and easy to understand. It should appeal to all types of readers and give enough information to inform strategic decisions without inundating users with details. You can achieve this by including the items below in your treasurer report.
A dashboard of Key Performance Indicators (KPIs) - we'll talk about these later
A bullet-point narrative of important activities, including large budget variances, significant swings in amounts from the same period last year or the prior month, and notes regarding significant future events.
Financial reports that are formatted as a summarized table of actual performance compared to budget and/or forecasts.
A report formatted in this manner appeals to those who need visual cues, those who love tables of data, and those who prefer to just know the highlights. It's a win-win!
Key Performance Indicators, or KPIs, are typically presented in a dashboard. The dashboard offers visual cues of trends, potential problems, and overall performance using graphs and other graphic elements.
KPIs are not exclusively financial. This is a great place to depict progress toward strategic initiatives. It's also wonderful for adding program impact measures.
Which KPIs or Ratios to Include
When deciding what to measure on the treasurer's report dashboard, first look at the strategic plan. You know, that document the board spent hours arguing over that has never seen the light of day since. Hopefully, this is not true of your board. Although, this usually happens because no one is held accountable for the plan.
KPIs add accountability for strategic performance. Let's look at a few examples.
Cash Flow (aka Liquidity)
A common strategic objective among boards of nonprofits in the growth and maturity stages is developing or adding to a cash reserve. Remember, Cash is King! This is never more true than in a nonprofit. Having a reserve means the community can count on receiving services even when the economy is tough. As a matter of fact, this is typically when nonprofits see a surge in need.
For working boards of startup organizations and nonprofits in the early growth stage, a cash reserve is something to aspire to. Measuring cash for these organizations means making sure there is enough in the bank to cover expenses and needs in the immediate future.
There are three basic measures of liquidity that should be part of every treasurer's report, regardless of the nonprofit lifecycle stage. They are:
1. Days Cash on Hand - Measures how many days the organization could operate without bringing in additional cash. To calculate Days Cash on Hand (DCOH), divide the sum of current cash in all accounts by the average daily expenditures. Average daily expenditures can be calculated using budgeted expenditures divided by 365 or annualizing current year-to-date expenditures then dividing that number by 365.
2. Liquid Unrestricted Net Assets (LUNA) - LUNA is another liquidity measure that adds all assets except fixed assets to the calculation. Since restricted contributions must be used according to donors' specifications, LUNA tells the reader how long the organization could operate on only cash and other liquid assets that are not donor-restricted. LUNA is typically measured in months.
3. Quick Ratio - This ratio is another KPI that is important to startup, growth, and turnaround stage nonprofits. It measures the proportion of total current (short-term) assets excluding inventory to the total current (due in less than 12 months) liabilities. In other words, do you have enough liquid assets to cover what is owed over the next 12 months?
A Quick Ratio of less than 1 means you will run out of funds before you run out of things to pay. Ever heard of "too much month at the end of the money?" A Quick Ratio greater than 3 may signal you could be using your liquid resources in a more strategic way.
Download the treasurer report templates for nonprofit organizations provided below to get more information on these three measures.
I hate to even give these ratios space. They have been overused, misunderstood, and given a bad rep over the decades. These ratios are easily manipulated to tell the story the reader desires. However, when used appropriately and read in context with other activity measures, efficiency measures can be very useful.
Here's what I mean.
1. Cost to raise $100 - This measures fundraising efficiency. There are two schools of thought about this measure. For example, if I told you I would give you $100 and all you had to do to get it is give me $75, would you do it? People like Dan Pollota believe the cost to raise $100 is irrelevant as long as it is less than $100.
The other school of thought is based on Return on Investment (ROI). The question here is did you earn the most you could from as little input in comparison to other ways the input could be used.
Going back to our $100 example, is the $25 gain on the $75 investment as good or better than the gain earned by keeping the $75 in an investment account or savings vehicle, or using the $75 to pay for program costs that result in an impact measuring greater than $25?
2. Overhead ratio - My least favorite, but the one donors pounce on in the Overhead Myth, measures the proportion of total expenses spent on administrative support. This is typically calculated using the organization's Form 990 available through the IRS or on Candid's website (formally GuideStar).
This is the ratio that is possibly the most easily manipulated. Organizations have shared costs that must be allocated to the different functional areas (program, administration, and fundraising).
Things like salaries, office rent, copiers, utilities, and supplies are allocated among the functions based on a "reasonable" methodology - something like square footage, the number of employees (FTEs), or a time study. These methodologies are easily skewed to tell the story the organization wants donors to know.
Depending on your stage in the nonprofit lifecycle, the "correct" overhead ratio will be different. In the startup stage, you should be spending a significant proportion of your expenses on overhead. This is the infrastructure-building stage. Many of your programs will still be in MVP status.
In the early part of the growth stage, overhead and program spending will begin to equalize. Your programs are beginning to expand and infrastructure must expand with them for adequate support. Depending on the time frame, your overhead ratio will fluctuate as you make investments in the organization during this stage.
As your organization matures, spending on overhead will likely be a smaller proportion of expenses. In this stage, you have found process efficiencies, invested in needed technology, and are more focused on making a bigger impact in the community.
Watchdog groups such as Charity Navigator, Candid (aka GuideStar), and BBB's Wise Giving have touted for years they are getting away from using these efficiency ratios to effectively punish organizations for spending on capacity-building efforts. However, they still play a large role in the rating formulas used by each of these groups.
3. Cost to serve one (child, village, animal, etc.) - This measures the resources needed for a given output. Outputs are no longer the stick by which programs are measured, but they are a good indicator of strategic implementation that can be quickly measured on an ongoing basis.
Impact measures are now the gold standard and require a more longitudinal study to quantify. This Return on Investment (ROI) metric is still worthy of measuring even if it requires more resources and a longer-term outlook. The ultimate success of the organization is tied to impact measures (effectiveness measures), and the cost to achieve this impact (efficiency measures) will determine the sustainability of the program(s).
There are pros and cons of concentrating in a single area. Whichever side of the coin your strategic plan lands on, concentration measures are important KPIs to watch.
Concentration measures include:
Total contributions by donor and donor type
Total expenses by category
Total revenue by category
Total outputs by service type
The risk of concentration is similar to "putting your eggs in one basket." What if that "basket" shrinks or ceases to exist? The risk determination is based on the quality of said basket and the environmental factors that affect it.
The Nonprofit Treasurer Report Template
A good template for a monthly treasurer report should include 3 basic sections - The narrative, the dashboard of performance to plan metrics, and the financial reports.
Narrative or Executive Summary
The main value of the nonprofit treasurer report is in the conclusions and observations made by the treasurer and explained in the Executive Summary. The quality of these conclusions and observations lies in how they inform strategic discussion and decisions.
It's important the narrative be as free from bias as possible. When an opinion is rendered, it should be called out and alternatives outlined. For example, if the treasurer prefers conservative investments, they may indicate that 90 days of cash on hand is insufficient. Alternative investments and earning potential should also be mentioned to inform the reader.
Performance to Plan
There are many different types of plans in place at once in a vibrant nonprofit. These can include marketing plans, fundraising plans, strategic plans, budgets, forecasts, and any number of documented dreams. Tracking actual performance compared to these plans is the only way to keep your eye on the prize.
Reporting on performance-to-plan is most informative when using a graph, such as a line, bar, or area chart. However, this data can be taken out of context. So, be sure to add some bullet points to your executive summary that explains why variances happened. Both significant positive and negative variances should be highlighted.
There's no good substitute for delivering financial statements to the board of directors. Every member has a legal responsibility called the duty of care for the resources entrusted to them. However, the level of detail presented should match the level of decision-making required. Usually, a high-level concise view of the financial statements is sufficient.
Some financial information is meant for management's use only. These reports are not required to conform to generally accepted accounting principles (GAAP), or any other rules for that matter.
The most important aspect of these reports is that the preparation method is noted. Those making decisions from these reports should always be aware of the limitations of the data and all estimations used during preparation.
Now that we've dispensed with the formalities, let's look at an example of a management report treasurers may want to include in their reports.
Special Event Reports
To keep board members apprised of the overall performance of events, consider preparing a separate financial report for each fundraising event. This can include data that isn't allowed to be recorded in the financial statements, such as the value of total volunteer hours. It should also contain other important details like the cost to raise $100 and the number of new donors secured.
Creating templates for management reports will help keep the information comparable.
There's An App For That
If mathematics is not your favorite pastime, then you are in luck. Every major spreadsheet application has simple tools for creating graphs and dashboards.
If data is your love language and you want to get fancy, business intelligence platforms like Microsoft PowerBI and Tableau create live dashboards with forecasting capabilities. Depending on the accounting software used by your nonprofit, you may have access to real-time dashboards. Check out Fathom, Spotlight, and Domo for sleek, real-time analysis tools.
For those who prefer the simplest route, I've developed a treasurer report template in Google Sheets, Numbers, and Excel for your enjoyment. Make sure to download yours today.
Being the treasurer of a nonprofit is a great way to serve the community. As the designated protector of financial resources, you may feel it's a burden too heavy to bear.
Don't fret. The responsibility of being a good steward lies with every member of the board of directors. As treasurer, you get to lead the financial discussion and ensure the board has a good understanding of the organization's financial position.