Key Financial Questions Every Board Member Should Ask
Equip Your Board with the Right Questions to Support Financial Health and Oversight
Introduction
Board members play a vital role in ensuring a nonprofit’s financial health and sustainability. But many board members feel unsure about what to ask or how to engage with financial statements and reports. Asking the right questions can make a significant difference in guiding the organization towards financial stability, transparency, and long-term impact. In this post, we’ll explore essential financial questions every board member should ask to help fulfill their oversight responsibilities effectively.
Key Financial Questions for Board Members
🌟 1. Are We Financially Sustainable?
Why It Matters: A nonprofit’s sustainability is fundamental to its ability to carry out its mission. Understanding sustainability means looking beyond the current year and planning for the future.
What to Ask: “Do we have enough reserves to sustain our operations if we face unexpected expenses or a revenue shortfall?” and “Are we diversifying our funding sources to reduce risk?”
🌟 2. How Are We Performing Against the Budget?
Why It Matters: A budget is a roadmap for the organization’s activities, and reviewing performance against it helps board members ensure the organization is staying on track.
What to Ask: “Are we on budget, or are there areas where spending or revenue is significantly over or under?” and “What adjustments might we need to make to meet our budget goals?”
🌟 3. Do We Have Strong Internal Controls?
Why It Matters: Internal controls help protect the organization’s assets, prevent fraud, and ensure the accuracy of financial reporting.
What to Ask: “What controls do we have in place to prevent financial mismanagement?” and “How frequently do we review and update these controls?”
🌟 4. What Is Our Cash Flow Status?
Why It Matters: Cash flow is critical for covering daily expenses. Even if revenue looks strong, cash flow challenges can disrupt operations.
What to Ask: “Do we anticipate any cash flow shortages in the coming months?” and “How are we planning to address any potential gaps in cash flow?”
🌟 5. How Are Restricted Funds Being Managed?
Why It Matters: Many nonprofits have restricted funds that must be used for specific purposes. Mismanagement can lead to compliance issues and impact donor trust.
What to Ask: “Are we properly tracking restricted funds?” and “Do we have processes in place to ensure that restricted funds are used according to donor intent?”
🌟 6. Are We Prepared for an Audit?
Why It Matters: An audit provides an independent review of the organization’s financial practices and increases transparency.
What to Ask: “Are we ready for our next audit, and have we addressed any previous audit findings?” and “Are there any anticipated audit issues we should be aware of?”
🌟 7. What Financial Risks Are We Facing?
Why It Matters: Every nonprofit faces financial risks, from funding volatility to economic downturns. Being aware of these risks allows the board to prepare and respond proactively.
What to Ask: “What financial risks have we identified?” and “What steps are we taking to mitigate these risks?”
🌟 8. How Are We Investing Our Resources?
Why It Matters: Financial investments should align with the organization’s mission and risk tolerance. Effective resource management can strengthen the organization’s financial foundation.
What to Ask: “How are we investing our assets, and does our investment strategy align with our mission?” and “Are our investments generating an appropriate level of return given our goals?”
🌟 9. Do We Have a Fundraising Strategy That Supports Our Financial Goals?
Why It Matters: Sustainable fundraising is key to maintaining and growing the organization’s resources.
What to Ask: “Do we have a diversified fundraising strategy?” and “Are our fundraising efforts effectively supporting our operational needs and long-term goals?”
🌟 10. Are Our Financial Reports Clear and Accessible?
Why It Matters: Financial reports should be understandable for all board members, regardless of financial background.
What to Ask: “Are financial reports presented in a way that is easy to understand?” and “How can we improve financial reporting to enhance board oversight?”
Tips for Board Members New to Financial Oversight
Ask for Explanations: Don’t be afraid to ask for clarification on financial terms, reports, or processes. A well-informed board is essential for effective governance.
Engage in Ongoing Learning: Financial management evolves, and board members can benefit from regular training on key financial concepts.
Collaborate with Finance Staff: Building a relationship with the finance team can provide board members with deeper insights and foster a collaborative approach to financial oversight.
Conclusion
Board members don’t need to be financial experts to provide valuable oversight. By asking thoughtful, targeted questions, they can make a meaningful impact on the nonprofit’s financial health and help ensure the organization’s mission is sustainable. Equip your board with these questions, and you’ll build a more informed, engaged team ready to guide your nonprofit forward.