By: Jessica Kuhn
When attracting donors, not-for-profits typically turn to storytelling as a chance to show a compelling need for the communities they serve. While it is effective to show programming efforts, outreach and results, many donors also want to see the organization’s financial position to understand how their money was or will be used and the direct impact their contributions will have on the causes they hold near and dear. In many ways, financial statements are one of the most tools a nonprofit can use to tell their unique story and the difference they’re truly making.
Financial statements of not-for-profit organizations are now required to be updated with FASB 2016-14 in the upcoming periods. Organizations should embrace these changes and see how they can improve their story each year through the use of the financial statements. There are several new or enhanced disclosures required, one example being the new liquidity footnote disclosure. Through this new requirement, organizations must now disclose the availability of financial assets to meet cash needs for general expenditures within one year of the balance sheet date. Rather than treat these financial statement changes as a burden, consider them an opportunity to paint the picture of how your year went and why donors should continue to contribute.
Using the liquidity footnote addition as an example, what will your available cash look like in a year? What does this mean to a donor and how can you explain a low-cash position versus a high-cash position to continue to encourage donor contributions or new grants? Many not-for-profit organizations can explain a strong liquidity position in that they have skilled management and are well equipped to handle growth. There can be a concern that donors won’t want to help a financially sound organization as much as one that’s struggling, but there are opportunities to speak to the advantages of each through this footnote and through conversations with your donors.
Another change is that the methods used to allocate costs among functional classifications are now required to be disclosed in more detail. This gives your organization another chance to review allocation methods to determine how much of an expense goes toward program costs or general and administrative costs. If this is not already transparent, it gives the donor an opportunity to see the thought behind where their contribution is going and the specific needs of your organization. A team of 150 employees needs significantly more resources than one with two dozen and without sharing those needs, your donors may not be able to look past the numbers.
Next, really dig down and use your financial advisors to see how you can improve stagnant overhead costs. More than likely, there are annual provider contracts that could be reviewed and negotiated, creating potential to both increase your services received and cut back on expenses. Are you getting the value that you need from all your existing providers? Perhaps addressing two or three each year can be an easy way to maximize what your organization is receiving and show your donors that you’re constantly looking for ways to be more efficient with expenses or the operation as a whole.
This can also be thought of in terms of the constantly changing landscape of technology. How can your organization take advantage of this? There are growing opportunities to utilize experienced, outside bookkeeping organizations. For example, having several complicated grants with certain allowable expenses can be hard for organizations to track. But many accountants are experts in helping set up the system properly, in the beginning, to make tracking and grant reporting much easier at the deadline. Solving those headaches with research or consultation with your existing advisors can be great long-term solutions for reporting challenges and as technology continues to change.
Though the reporting changes required for not-for-profit statements will affect each organization differently, this can be a great opportunity to challenge your status quo and see if any thoughtful changes can be made as you address the new disclosures. And most importantly, continue to share how your mission is making a difference for the communities and causes your donors care about most.
JESSICA KUHN, CPA, is a manager in the audit, accounting and consulting department where she performs high-quality audit, financial reporting and advisory services for several not-for-profit organizations. Jessica can be reached at email@example.com.