This article was written MCN executive director Nonoko Sato and originally published in the Spring 2023 issue of Nonprofit News. Read the full issue.
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For a long time, I believed that nonprofit financial literacy was unachievable for non-finance professionals and not useful to my work. I joined nonprofit boards for my professional development, only to shy away from sitting on the finance committees believing I had nothing to contribute. It increased my feeling of imposter syndrome, and I questioned my competence and worth, which was already exacerbated by being one of the few women of color in nonprofit leadership positions.
I cannot understate the sense of confidence I developed simply by understanding what each line on the balance statement represented, because financial literacy is power.
Nonprofit finances tell a story, demonstrate how an organization lives into their values, and are a tool for accountability or, conversely, gatekeeping. Disparities and inequities exist everywhere, including nonprofits, exacerbated by decisions, policies, and systems designed by dominant culture to exclude people from financial decision-making. Among many reasons, good accounting practices allow leaders to make calculated decisions, for boards to assess risks and opportunities, for funders to feel confident about an organization’s sustainability, and for current staff and candidates to understand the financial health of their organization.
As workers seek more transparency, accountability, and shared ownership of decision-making processes, their ability to meaningfully contribute is tied to their ability to read organizational financial statements.
And for nonprofit boards, one of their core responsibilities is fiduciary oversight, which cannot be properly conducted without their ability to comprehend financials and be prepared to ask good, insightful questions.
At a minimum, nonprofit board and staff financial literacy should include:
- Confidence reading and interpreting financial statements like balance sheets, income and expense statements, and cash flow documents;
- Understanding organizational revenue streams and any restrictions on how the funds are meant to be used;
- Knowledge of the budgeting process; and
- Ability to ensure internal controls are in place and that the organization is complying with various laws, regulations, and reporting requirements.
At the individual staff and board level, financial literacy can inspire confidence, especially for people who have identities underrepresented in our sector, to feel that a career or board role in nonprofit finances is a viable one. Financial literacy also gives leverage to workers to understand the flow of money, aid in key discussions around equitable and transparent pay structures, and advocate for critical benefits to recruit and retain talent.
At the organizational level, ensuring all (and I mean ALL) staff and board members are empowered to understand financials and invited to participate in dialogue demonstrates a model of shared leadership.
Strong leaders and board members are confident enough to be transparent about financial decisions and willing to be held accountable. This is the value and the challenge of collective financial literacy power.
Additionally, organizational decisions regarding where to allocate resources matter. Financials can track and show how nonprofits are living into their values by prioritizing vendors that are local or owned by people who have faced systemic divestments. Boards and finance leaders can choose investment funds that aim to have a sustainable and socially just impact (such as ESG or environmental, social, and governance funds).
There are excellent finance resources and trainings in Minnesota including MCN (like this one on July 19!) and our friends Propel Nonprofits. I also encourage you to check out #NPFinance23 on Twitter for attendee take-a-ways and insights from our recent Nonprofit Finance & Sustainability Conference.
So, in conclusion, a toast. May your investment portfolios be strong, your multi-year gifts be unrestricted, your assets be robust, your accounts receivable secure, and your monthly cashflow always nets positive. And here’s to all of us knowing what this means. Cheers!