October 1, 2009
Filed under: Board of Directors: Governance, On BOARD
Recently, A&BC’s fall On BOARD (new board member training and placement program) class completed its session on nonprofit finance. A&BC thought that some of the discussion points from the On BOARD training could be useful for arts organizations and their boards of directors at this time.
Why should board members pay attention to finance?
Because understanding an organization’s cash flow, revenue streams, and expenses is essential to assessing the health of an organization. Plus, early detection of financial issues may help prevent catastrophes by alerting board members and staff of potential concerns.
How do the board and staff interact regarding finances?
The board approves an annual budget, while the staff (Executive Director, Operations Director, or Managing Director) effectively creates the budget. Staff may consult the treasurer or finance committee, but the board does not create the budget itself. Ultimately, it is the board’s responsibility to ensure that the organization has sufficient revenue for the staff to operate toward mission fulfillment.
What is the relationship between finance and mission?
The bulk of an organization’s expenditures should be focused on program or production costs, since these are the activities that further the mission of the organization. The board and staff should strive to keep administrative and overhead costs to a minimum so that that appropriate funds are provided to the programs accomplishing mission-driven activities.
What are some finance basics for board members?
While non-profit (NP) and for-profit (FP) financial concepts and documents are similar in many ways, certain categories will exist solely in the non-profit or for-profit environments; e.g., Grants Receivable, Unrestricted Assets and Restricted Assets are recognized by NP only. There are also quite a few line items that are similar in nature but have different names. Some examples of these items are:
- (FP) Balance Sheet = (NP) Statement of Financial Position
- (FP) Income Statement = (NP) Statement of Activities
- Functional/Programs Activity in NP is similar in definition to Direct Materials/Direct Labor in FP
- Cash Flow Statements and Budgets (Annual/Operating) are the same in both sectors
Where can board members find resources?
The best way for board members to determine if an organization’s numbers are in line is to compare a budget against the organization’s past years as well as to other organizations with comparable characteristics. Resources for data on the non-profit environment that can be helpful include:
www.boardsource.org
www.guidestar.org
www.nptimes.com
www.philanthropy.com
www.nonprofits.org
http://nonprofit.alltop.com/
A&BC’s On BOARD trains professionals in the Chicagoland area in the major aspects of board service including legal & fiduciary responsibilities, funding, fundraising, and generative/strategic board functioning. Arts and culture organizations can apply to receive one of these candidates through the program. Candidates meet and get to know the participating organizations over the four-month program with the goal of finding a mutual match that will result in election to that organization’s Board of Directors.
To participate as a candidate or to apply as an arts organization to receive a candidate, contact Kristen Romans Mason, (312) 372-1876 x221.