If you serve as a board member, founder, executive director, or senior manager of a nonprofit, you carry a fiduciary duty. That means you are expected to act in the best interests of the organization and ensure its funds are used appropriately and transparently.

Many boards lean heavily on members with finance or accounting backgrounds, but every board member should be able to read basic financial reports, ask informed questions, and spot potential red flags. In serious cases of mismanagement, individual board members may face personal risk.

For staff leadership, understanding the numbers is just as critical. You use financial information to make day-to-day decisions, plan programs, build budgets, and respond to questions from donors, auditors, and regulators.

Your nonprofit's financial statements summarize how money moved through the organization over time. Some reports show results for a specific period (such as a month, quarter, or year), while others show cumulative balances from the day the organization began.

Boards and finance committees should receive financial statements at least quarterly, and many organizations review them monthly.

The Statement of Financial Position is often still called the "balance sheet" in nonprofit conversations. It presents your financial position at a single point in time--usually the end of a month or year.

It has three core sections:

• Assets: Cash, investments, receivables, property, equipment, and other resources the organization owns or controls.
• Liabilities: Amounts owed to vendors, staff, lenders, and others.
• Net assets: Assets minus liabilities; this represents the value the nonprofit has accumulated over time.

The Statement of Activities is the nonprofit equivalent of an income statement. It summarizes how much revenue was earned, how much was spent, and whether total net assets increased or decreased for the period.

At the bottom of the Statement of Activities, you'll see change in net assets. A positive number means the organization brought in more than it spent for that period. Occasional deficits may happen, but repeated deficits can erode net assets and threaten long-term sustainability.

Nonprofits don't just track what was spent; they also track why it was spent. Functional expense reporting groups costs into three broad functions:

• Program services: Costs directly tied to delivering your mission and services.
• Management and general (administration): Governance, finance, HR, IT, and other support functions.
• Fundraising: Activities that generate contributions, such as campaigns, grant writing, and donor events.

Many expenses benefit multiple functions. For example, rent, utilities, or executive staff time may need to be allocated between program, admin, and fundraising using a reasonable allocation method (such as square footage, staff time studies, or usage).

1. Did we bring in more than we spent this period?
   Review the change in net assets on the Statement of Activities. A surplus is not the only sign of health, but you should generally see more surpluses than deficits over time.
2. Do we own more than we owe?
   On the Statement of Financial Position, compare total assets to total liabilities. Positive net assets are important; shrinking net assets may indicate that the organization is depending on debt or spending down reserves.
3. How much of our money is truly available to spend?
   Look at cash and investments without donor restrictions. Some funds are legally restricted for specific purposes or time periods and cannot be used to pay general operating expenses.

Ratios are quick calculations that combine information from your financial statements into easy-to-interpret metrics. Here are three that many funders, banks, and watchdogs pay attention to.

Two useful ways to calculate reserves and cash

1. Start with the Statement of Activities. Note total revenue, total expenses, and change in net assets. Compare to the same period last year and to the current budget.
2. Review revenue trends. Are individual donations, grants, or program fees trending up or down? Are there one-time items you shouldn't assume will repeat?
3. Scan the expense mix. Look at how much is going to personnel, programs, administration, and fundraising. Watch for new or unusually large line items.
4. Move to the Statement of Financial Position. Compare cash, receivables, and liabilities to prior periods. Are payables growing? Is debt staying manageable?
5. Check restricted vs. unrestricted balances. Confirm you have enough liquid, unrestricted resources to cover ongoing operations.
6. Calculate one or two ratios. Even a quick program expense ratio or days-cash-on-hand figure can spark good board discussion.