Nonprofit Board Toolkit Get to Know Your Nonprofit
Board Members to Meet
When you begin your service as a nonprofit board member, there are many people to meet. Getting to know them, listening to their “why” for joining the organization, and hearing about their goals and responsibilities will help you gain a better understanding of the board’s opportunities and challenges. These conversations can help you determine where and how you might start adding value to the board.
Formal onboarding for new board members is often a luxury, and you may need to take the initiative in introducing yourself to key stakeholders.
Nonprofits typically have directors in a few key roles. State laws require nonprofits to fill the following officer positions within their board of directors:
President or chair of the board: This role works with the rest of the board to set goals and objectives, and is responsible for seeing that they are met. The president or chair also places all board members on committees, often assigning committee chairs. As head of the board, they also facilitate board meetings and ensure all board members attend.
Secretary: The secretary acts as a liaison for communication between the board and its managers. The individual in this role handles the scheduling of meetings, and sends out any notices of that meeting along with any other pertinent materials, such as agendas, the minutes from previous meetings (which the secretary is also responsible for recording), or any other information for board discussion. They are also responsible for organizational records, such as filing legal or financial documents.
Treasurer: The individual in this role is responsible for overseeing, managing, and reporting the organization’s finances. Their duties include managing finances, preparing budgets, monitoring revenues and expenditures, completing and filing IRS forms, and reporting out to the board and management
Many nonprofits have committees made up of board members and sometimes staff. Many committees take their work to the board for decision-making. In other cases the committees make decisions and inform the board. Here is a brief summary of the tasks for the various types of committees:
Fundraising committee: Responsible for overseeing fundraising efforts such as hosting events, securing grants, thanking donors, preparing year-end asks, formulating corporate giving strategies, and working with both the board and fundraising staff to raise money for the organization.
Finance committee: Provides oversight of the organization’s budget to ensure that the nonprofit is operating with the necessary finances to deliver its services and programs and that its financial reports are accurate. This is sometimes combined with the audit committee.
Membership committee: Provides insight to the board and staff on membership recruitment, engagement, and retention.
Executive committee: Usually acts as a steering committee that prioritizes the agenda of the board meetings. Executive committee members also sometimes manage urgent matters between board meetings.
Governance and nominating committee: Works to measure the performance and quality of the board, committees, and individual members against the roles and duties for which they’re responsible. They also oversee board of director member recruitment and succession.
Communications and public relations committee: Handles all matters that relate to communicating with donors, stakeholders, and others. This committee oversees newsletters, official communications, social media platforms, online presence, and contact with the media.
Committee chair: While duties vary by committee, individuals in these roles typically are responsible for the management of that committee and working with other committee members toward the successful completion of specific tasks.
Key Stakeholders and Constituents to Meet
A strong, healthy partnership between board and staff supports resilient leadership that can contribute to the organization’s overall impact. In smaller organizations, there may only be a handful of staff, including the executive director. In this scenario, it’s best to get to know everyone.
In larger organizations, this may not be possible, but it would be helpful to meet key executive leadership, especially those whose role and responsibilities align with your committee positions.
If it’s within reason and the individuals are accessible, ask the board president to introduce you to the organization’s founders. Hearing the nonprofit’s origin story directly from its creator(s) can be an incredibly insightful experience.
Before or after you join a board, set aside time to meet former board members. Some nonprofits have term limits for board members in their bylaws. On others, former directors may stay on as advisory board members who provide guidance to the board and committees on items such as strategy, events, membership, and even human resources.
Connecting with former board members can provide you with key insights (particularly regarding your committee) and historical information you can use to guide your decisions and actions as a new board member.
Much of a nonprofit’s direct contact with beneficiaries and clients is carried out by the staff, but as a new board member, you can make an effort to meet the people your nonprofit serves (where and when appropriate) such as at volunteer events and galas.
Familiarizing yourself with the programs your organization offers, how services are delivered, and what the volunteer experience is like builds knowledge, provides guidance, and fosters empathy between the board and the individuals the organization is designed to serve.
While you may not meet these individuals in person (some prefer to remain anonymous), it is wise to know the names, faces, and motivations of the organization’s major supporters, as well as what they have given. Their support of the organization can come in numerous forms, such as monetary or in-kind gifts (e.g., real estate, goods, services, expertise, or cash equivalents).
Many organizations have partnerships with other nonprofit organizations. These partnerships are intended to provide mutual benefits to both the organizations and those they serve. In some cases, nonprofits work with community partner organizations (e.g., United Way) to deliver their services. If this is the case for your organization, get to know the names of the organizations and the key leaders at the board and staff levels.
Introduction to Nonprofit Financials
Rustandy Center executive director Caroline Grossman offers insights into the key differences between for-profit and nonprofit financial statements in this video recorded in 2018.
Welcome. I'm Caroline Grossman, director of programs at the Rustandy Center, and also a Booth alumna. Today we will be discussing the key attributes of nonprofit financials and how they are different from for-profit financials.
Since most of you tuning in our booth students and alumni, this presentation assumes a basic grasp of accounting. In this presentation I will walk you through a few sample financial statements, which we put together for this purpose.
A typical nonprofit financial statement package for a board of directors includes the following: a balance sheet, which is sometimes called a statement of financial position. A statement of activities. A cashflow statement. And explanatory notes. The package sometimes also includes an account aging report, and a statement of functional expenses.
Some of these statements resemble those of a for-profit. The asset side looks the same, including current assets, cash equivalents, and other assets. The liability component is also similar, so we see assets and liabilities that were carried forward. A key difference to look for is that some net assets, instead of the difference between assets and liabilities, are restricted by donor designation.
In nonprofits, a donor can make a designation and have something very specific to which they allocate those funds. The statement of activities displayed here is similar to an income statement. You can look at the statement of activities like you look at an annual budget. Not surprisingly, that's a very common practice at board meetings. A board will look at the budget and compare figures to where the organization expected to be at this time based on last year.
If you think about living paycheck to paycheck, the nonprofits often go from payroll to payroll. A board can see how an organization is doing by looking at a statement of financial activities, revenue, supportive expenses, and then categorize based on temporary or permanently restricted funds. The statement of functional expenses breaks down expenses by function, so the organization can track what is driving the expenses.
This is very useful, because it allows the board to see if the organization is indeed spending according to budget. It is also good fodder for board discussion on how funds are spent.
Cashflow statements are pretty similar in a nonprofit and for-profit. We therefore don't need to delve too far into the cashflow statement, but it is worth taking a look at the example. What we do need to remember is why it's important to review financial statements. Board members have an obligation to review them. It's one of the primary responsibilities and duties of board members. The organization should be circulating financial prior to each meeting. And if the organization is not, then it is a duty of the board member to request them.
Operationally, financial statements are very important to donors. Donors often ask, What percent of revenue are program expenses? How much revenue is actually spent on delivering services? Often, donors don't want to see too much money going to overhead, but on the flip side, some needs go to overhead otherwise the organization can't operate.
The administrative ratio is one that's always a bit tricky. So, you need to stay tuned in to the organization's needs. The fundraising ratio is also important. Are you raising enough money to make the organization work? What are the salaries in comparison to funds raised? These are a few questions to ask when reviewing financial statements.
We'll conclude today, by going into more detail about important ratios to keep in mind as a board member viewing financial statements. On the financial side it's important to look at liquidity, which are current assets over current liabilities. This allows you to see how well the organization is able to pay expenses in the normal course of business and should ideally be one in the quarter. The debt to equity ratio, which is debt over total net assets, may not be useful to compare across organizations, but can be helpful as you look at trends across years in one organization.
On the operational side, it's critical to look at the program ratio. The program expenses over total revenue, how much revenue is spent on delivering services. The fundraising ratio, which is fundraising expenses over total fundraising income, which pulls out the cost of fundraising.
Finally, the administrative ratio and the salary ratio also help you understand the health of the organization. While there aren't hard and fast rules about what these ratios should be looking at trends is critical and just giving some thought to understand them can really help you add value as a board member at a nonprofit organization.
Thank you so much for joining us for this presentation. Please don't hesitate to reach out to the Rustandy C enter if you have any questions about this presentation or anything else in the toolkit.
Know Your Organization
While organizations differ in how they provide social benefit, some documents are required and/or common to each nonprofit organization in the United States. Here are the common documents you’ll see in your first 90 days on the board.
Articles of incorporation are legal documents filed to create both for-profit and nonprofit organizations. An entity incorporates with the state by filing this document with the secretary of state’s office. Depending on which state the organization is in, this document could be called a corporate charter or a certificate of incorporation.
The board creates bylaws at the time an organization is established. Bylaws outline how the organization will be structured and organized, how actions and decisions of the board will be made, how rules will be enforced, and how authority will be distributed. Bylaws are subject to state law and to the regulations of some cities as well.
By understanding the financials of an organization, you see where its priorities lie. Rustandy Center Executive Director Caroline Grossman provides more detail about the key differences between for-profit and nonprofit financial statements in her 2018 presentation Introduction to Nonprofit Financials. (Interested in watching this video? Scroll up on this page.) To help you understand the financial health of your nonprofit, the treasurer may provide you with the following documents:
Budgets: The size of the organization and the scale of its operations will determine the budget’s complexity. For smaller organizations, consider looking over the past three years of budget sheets. A review of this timespan will help you identify trends in the organization’s revenues and expenses, particularly as they relate to your committee work (if you serve on one). Make note of any major fluctuations in fundraising and don’t hesitate to ask questions.
IRS Form 990: Once your organization is recognized as tax-exempt by the IRS, it is required to submit an annual report (e.g., Form 990 or Form 990-EZ) if it generates $50,000 or more in gross annual receipts. Religious organizations and most nonprofits with gross receipts of less than $50,000 per year may file Form 990-N instead. The form, which a nonprofit is required to share with the public upon request, reports the following information:
- Part I: The revenues, expenses, and changes in net assets or fund balances
- Part II: The organization’s expenditures by category and their major function (such as management, fundraising, programming, etc.)
- Part III: The activities performed the previous year in order to justify its tax-exempt status, detailing its four largest programs by cost
- Part IV: The balance sheets describing the nonprofit’s assets (such as cash, real estate, and equipment) and liabilities
- Part V : The officers, directors, trustees, and key employees who are responsible for the operations, and, often, detailed information about any compensation they receive
- Schedule A: The compensation of the five highest-paid employees (besides officers, directors, and trustees) and the five highest-paid independent contractors for professional services
The IRS strongly encourages nonprofits to adopt certain types of governance policies to help prevent abuse and fraud. While these policies are not required by the IRS, they are considered hallmarks of well-governed organizations and help prevent exposure to risk. Read about the importance of a Code of Ethics.
Conflict-of-interest policy: A conflict-of-interest policy is used to help all those associated with your nonprofit to identify, disclose, and deal with situations where there is a financial or other conflict. All nonprofits, no matter how small, should consider adopting such a policy.
Expense reimbursement policy: Reimbursement or payment of expenses for nonprofit officers, directors, trustees, and key employees (ODTKEs) is a hot-button item for the IRS and the public. Form 990 contains a separate Schedule J dealing largely with this issue. The schedule specifically asks whether your nonprofit reimburses or pays ODTKEs for first-class or charter travel, companion travel, tax gross-up payments (payment of any taxes due on taxable perks such as travel), discretionary spending, housing, health or social club dues, and personal services such as use of a chauffeur.
If your nonprofit reimbursed or paid an ODTKE for any of these things, you must disclose whether you have a written policy in place for such reimbursement or payment. If not, you must explain why not.
Whistleblower protection policy: A whistleblower policy encourages employees to report financial and other improprieties by establishing procedures to keep whistleblowers’ identities confidential and to protect them from retaliation. A small nonprofit without employees may not need this.
Document retention and destruction policy: This policy provides guidance on how long records must be kept by your nonprofit before they are destroyed. This is a good policy for all nonprofits to have.
Joint venture policy: This policy requires a nonprofit to identify, disclose, and properly manage joint ventures—that is, relationships with for-profit businesses. Smaller nonprofits ordinarily are not involved in such ventures.
Gift-acceptance policy: A gift-acceptance policy establishes procedures for reviewing, accepting, and substantiating nonstandard contributions. These are contributions of items that are difficult to sell and/or value—for example, vacation time-shares or stock in a privately owned company. If your nonprofit accepts nonstandard contributions, you should consider adopting a gift-acceptance policy.
Chapter, branch, and affiliate policies: You will need such policies only if your nonprofit has local chapters, branches, or affiliates.
Good business practice tells us that planning is necessary for the health, longevity, and impact of an organization. Check with your board secretary to familiarize yourself with the following documents:
Strategic plan: Prior to your arrival, the board of directors created a strategic plan or process to help the organization advance its mission. A strategic plan is typically developed with input from the staff to set measurable goals for the organization and its programs or services.
- A PEST (political, economic, sociocultural, and technological) analysis helps the board define the market and environment in which the nonprofit must deliver on its mission.
- The SWOT (strengths, weaknesses, opportunities, and threats) analysis helps the board understand where opportunities exist for creating new programs or potentially eliminating ones that cannot be supported by the organization or the market.
Marketing plan: Often created as part of the strategic plan, the marketing plan audits and sets goals for the organization’s marketing efforts, identifies and segments key audiences, and outlines how to track changes and progress over time. The plan defines all outreach efforts to constituents, including online and social media strategy, its capabilities and success related to lead capture, how and what it will use in email campaigns, and how it will measure effectiveness. The marketing plan is forward-looking and identifies success measures for the next several years.
Fundraising plan: The fundraising plan helps to set the strategy for how the nonprofit will secure donations to carry out its mission, essentially organizing all of the fundraising activities for one year (usually). Most fundraising plans outline how the nonprofit identifies and tracks donors, plans events, and coordinates annual appeals, among other activities.
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