Nonprofits have multiple stakeholders with varying needs and preferences for communication. Board members need consistent communication to focus on strategy and fiscal stewardship. Donors or members want updates on programming and activities, getting a sense that their investment in the organization is worthwhile. In some cases, there are also public and government stakeholders that require regular financial and outcome reporting.
Without effective communication, nonprofit organizations can erode trust, mission clarity and potentially their bottom line. They will not attract staff or volunteers. They will have limited sources of financing. Here are guidelines for effective stakeholder communication that should be in place at your nonprofit organization.
Board Member Communication & Training
Board members must rely on accurate financial information for planning and administration as well as transparent financial management. In addition to reviewing monthly income statements, balance sheets and budgets, the board should also have awareness of forecasts and cash flow projections impacted by noteworthy events or new programs.
Report formats are important for easily relaying income and expense summaries. Board members need to understand the big picture. This is where financial narratives and annual training by your nonprofit CPA come in handy. Ask for assistance with report formats, major budget categories and key performance indicators to support board member understanding. Hold an annual board member training on financial reports to keep everybody on the same page.
With clarity in your financial reporting and board member communication, you will retain board members, expedite decisions and have the ability to test and discuss different budget scenarios and financial impacts going forward. With timely financial trend analysis, you will also be equipped to pursue future development.
Donor & Member Communication
If your organization relies on donors or members as part of your budget, these stakeholders have their own preferences as to the frequency and type of communications that work best for them.
You may need to offer a combination of in-person, print and digital communications to meet their needs (and sometimes for legal compliance). Regardless, both stakeholder types want to know that the organization is managed well. Donors are more concerned about mission impact while members are more concerned with the value they derive from the organization personally.
The financial narratives will be different, too. Donors want to know about overhead ratios compared to direct program impact…and justifications for increased administrative and overhead costs. Members, meanwhile, want to know why dues are increasing or how their dues are managed to protect their professions and/or promote their interests.
Consider these motivations when communicating nonprofit financial management information to donors and/or members. Simplify reporting where possible and focus on bullet point outcomes of interest to them. Storytelling can also be beneficial when you can identify real people and the monetary benefits they received from your organization.
Public and Government Communication
Depending on the type of nonprofit organization, requirements to share financial statements and file certain tax and other forms with various public or government entities on a monthly, quarterly or annual basis. These stakeholders oversee grant or lending programs that support nonprofit funding; they are also state and federal tax authorities that oversee nonprofits’ tax-exempt status.
To deliver accurate financial statements to these entities, the organization must maintain clean and accurate books. This includes monthly account reconciliation either by in-house staff or by a public accounting team familiar with nonprofits. The dangers of inaccurate or delayed nonprofit financial statements are many, but they can include loss of funding and even loss of tax-exempt status.
When communicating with these agencies, it is valuable to have outside representation to support credibility, accuracy, proper remediation and timely delivery of the information requested. Even the most experienced directors of finance and chief financial officers have many things on their plate, and they will benefit from consultation with an experienced CPA. Working with your nonprofit CPA to communicate with government entities will help you avoid mistakes and delays.
This is a snapshot of effective nonprofit communication for financial management. There are many nuances and scenarios we have experienced with our clients, and we are happy to consult with you on more valuable or streamlined financial reporting to share with your various nonprofit stakeholders. Contact the LvHJ not-for-profits team for more information.