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Financial Training for Nonprofit Boards: Part 1- Know THIS First

best practices board finances foundation reporting Nov 30, 2023

     Today, I’m beginning a four part series on financial literacy for nonprofit boards. I’m excited to share my heart and my experience both from a relational perspective, and from  a practical standpoint. I want to equip you with actionable insights and guidance for nonprofit leaders on how to effectively empower your board through financial literacy. This series will prepare you with the knowledge and the tools to improve your financial governance and strengthen the decision making capabilities of your organization. Today, I want to begin with the “why.” Why prioritize financial literacy for your board?

Financial Literacy Varies Greatly Among Nonprofit Boards

     Nonprofit board members have a fiduciary duty that requires them to remain objective, unselfish, responsible, honest, trustworthy and efficient with the nonprofit’s resources. So… how does a board member fulfill that fiduciary duty without having a solid understanding of the organization’s finances or the financial standards that apply to a nonprofit? Well, that's what this series is all about. You see, in my 25 years of experience, I've seen both extremes of financial literacy within nonprofit boards. 

The Nonprofit Board on Autopilot

     At one extreme, you have a board that is “on autopilot.” They show up, they get a packet, they flip through the pages without understanding them or knowing what to look for, and they just rubber stamp it with their approval. But they don't actually know what they're looking at. They genuinely do not understand what they just flipped through. They don't actually know what the reports mean, let alone how to read the reports. In the most extreme cases, these board members can even miss the early warning signs of a financial disaster looming on the horizon. I've seen this first hand. I’ve sat in those board meetings. Because I have a financial background, it doesn't take me long to speak up and start asking questions, which  typically invites me into deeper conversations. Unfortunately, there are a lot of  “autopilot boards” in nonprofits of all sizes. 

The Financially Literate Nonprofit Board

     At the other end of the spectrum is a board that has been well oriented into the nonprofit’s financials. These boards not only ensure they receive good financial reports, but they truly know how to read them.   These boards invite the Executive Director and the various board members into essential conversations that offer opportunities to increase effectiveness and strategies for allocating resources. These boards will actively help their nonprofit thrive. When a nonprofit’s board is financially literate, they can move beyond simply checking the proverbial box of “fiduciary duty” to make a tangible impact within their nonprofit that would've been missed without a deeper understanding of the finances.

Benefits of Financial Literacy Training for Nonprofit Boards

     Once again, before we dive into the details of how to train board members in financial literacy, I want to clarify why it’s so important to do so.

  1.   Financially literate boards are more engaged in board meetings. They show up, they participate, they discuss. 
  2.  Financially literate board members ask really good questions. This is not the same as being nit-picky. “Why are we $50 over on office supplies?” These are not the questions they’re asking. Instead, they’ve been empowered with the training to ask really critical high-level questions. They’re saying things like, “I see the pattern that tells me this time of year we've normally raised __% of our funds, but right now we're at __%. Let's talk about the plan to get there. What can we do to help?”
  3.   Financially literate board members fulfill their fiduciary duty. Since they know what they're doing and how to do it, they find greater meaning and reward in their board service, which leads to lower board turnover and greater fulfillment and satisfaction among your board members.
  4.  Financial literacy leads to better relationships among leaders. The relationship between an Executive Director and the board members skyrockets whenever there's high financial literacy. When the nonprofit’s board Executive Director get in sync with one another, they have unity in their relationship. When there's unity, there are all kinds of blessings that will unfold. The relationship is healthier, the collaboration is stronger, and ultimately, the impact of the nonprofit is greater. 

     I'm looking forward to this series. Stay tuned for the second installment next week. You can subscribe to my weekly emails here so you don’t miss any part of this series. Over the next several weeks, I’ll be  be sharing specific steps to achieving financial literacy within your nonprofit board. 

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