The Role of The Board in Ensuring Financial Stability

A strong, financially stable nonprofit is built on more than just passion—it requires planning, oversight, and strategy. One of the key players in making this happen is your nonprofit's board. The board isn’t just a group of figureheads; they’re your organization's fiduciaries and are responsible for guiding your organization toward financial health and ensuring it can fulfill its mission for years to come.

Why Financial Stability Matters

In nonprofit work, your mission is at the core of everything and you need a solid financial footing to make sure you can fulfill that mission. Financial stability means having the funds to cover current expenses, prepare for the future, and bounce back from challenges. A well-prepared board can help you stay resilient and able to make a difference, even during tough economic times.

How Board Members Support Financial Health

Your board members play a central role in keeping finances on track. They offer guidance, oversight, and often connections that help secure funding. Their ability to see the organization from a different angle, combined with their community knowledge, is valuable! Here are some core ways board members can support your nonprofit’s financial health:

1. Provide Financial OversightBoard members should keep a close eye on your financial activities by reviewing budgets, financial statements, and other reports regularly. I suggest monthly. They should be asking questions like:

   • Are we spending within our means?

   • Do we have enough cash flow to cover upcoming expenses?

   • Are there any areas where we could reduce costs or improve efficiency?

   • Are staff being appropriately compensated?

   • What’s the long-term plan for growing revenue, raised funds, and making sure the organization is operating sustainably? 

Regular financial reviews ensure transparency, identify potential risks early, and give everyone confidence in the organization’s financial health. Financial transparency with the board is crucial to organizational health. 

2. Engage in FundraisingBoard members should also help secure funding by participating in fundraising. This doesn’t always mean asking for donations directly, but they do have a responsibility to introduce the organization to potential donors, sponsors, or partners. Effective boards set an example for giving by supporting fundraising events, making personal contributions, and sharing the organization’s work with their networks.

3. Set and Monitor Financial PoliciesFinancial policies guide how the organization handles money, such as reserves, investments, and expense reimbursements. Board members should help create, review, and update these policies to ensure they support both financial responsibility and mission-driven spending. Some essential policies include:

   • Operating Reserve Policy: This helps the organization save funds to handle unexpected expenses or temporary income shortages.

   • Gift Acceptance Policy: Defines the types of donations your organization will (or won’t) accept, protecting you from offers that might bring hidden costs or conflicts.

   • Investment Policy: Establishes how funds will be invested and when and how much may be used by the organization. 

     
     

4. Develop a Strategic Financial PlanBoard members play a crucial role in creating and following a strategic financial plan. They work alongside staff to set achievable financial goals, such as increasing reserves or funding a new program. This plan should cover both short-term and long-term needs, giving a roadmap for growth, sustainability, and impact.

   
   

Best Practices for Nonprofit Finance Management

Effective board oversight and smart financial practices go hand in hand. Here are some best practices that can help boards guide their nonprofits toward financial stability:

1. Focus on Budgeting and Forecasting - Budgets shouldn’t be set in stone; they need regular reviews and adjustments. By forecasting, your board can anticipate future financial needs or challenges and adapt before they become critical issues. Budgeting helps boards see where funding gaps might arise and make plans to close them.

   
   

2. Build a Cash Reserve - Just like personal savings, a cash reserve can be a lifesaver for nonprofits. Board members should work with staff to build and maintain reserves to cover at least three to six months of expenses. This gives the organization breathing room during unexpected funding delays or drops in donations.

   
   

3. Monitor Financial Ratios - Financial ratios, like the program expense ratio (how much of your funds go directly to programs) or the fundraising efficiency ratio, give a quick view of financial health. Boards should track these ratios to ensure the organization is meeting standards for effectiveness and efficiency.

   
   

4. Audit and Review - Regular audits or financial reviews from an independent third party can help the board verify that finances are being managed well and within legal guidelines. An audit doesn’t just reassure funders and supporters; it also builds the organization’s credibility and trustworthiness. It is a best practice for any mid to large nonprofit organization. 

   
   

5. Promote Transparent Reporting - Clear, regular financial reports shared with the board (and publicly in annual reports) build transparency. Transparency strengthens relationships with donors and helps board members and staff stay aligned on financial goals. Work with your board to determine the best way to share information. 

   
   

   At my organization, the board finance committee is heavily engaged in planning and oversight. They meet monthly with our COO, who manages all the organization’s finances, and me. At this meeting, the finance committee receives a budget updated with YTD financials for that month, comparisons with the last year, a profit & loss statement, and a statement of financial position to back up the budget information.  There may be additional information, depending on the time of year and projects the committee is undertaking (investment reallocations, new policies, etc.) However, the full board prefers a summary report, with the understanding that they can view and discuss the detailed budget at any time. In addition, the full board does review the proposed budget, which includes notes and assumptions developed by staff and the finance committee, prior to adopting it. 

   
   

Financial stability isn’t about having a huge surplus—it’s about ensuring your organization can reliably meet its goals and fulfill its mission. The board plays a huge role in achieving this, from providing oversight to actively supporting fundraising efforts. With a strong, engaged board, your nonprofit can plan confidently for the future, grow sustainably, and stay focused on making a difference. By following best practices and keeping an eye on finances, board members become champions for a thriving, mission-driven organization.