This ensures financial transparency, which is a great way to build trust with stakeholders and other constituents. Nonprofits must follow basic accounting practices and share the details of how income is expended in a way that donors, funders, and grantors can understand. Unlike for-profit businesses, nonprofits are required to be incredibly transparent with their financials so that donors can understand how their investments are being utilized to help the organization carry out its mission. It’s important to understand the organization's different revenue streams to ensure that the funds are stewarded appropriately.Īlong those same lines, nonprofits have a responsibility to their donors when filing financial statements. Some of those funding sources come with restrictions-or rules-on how they may or may not be spent. Without solid financial reporting and a good understanding of those reports, it’s impossible to make informed decisions about these financial investments.Īdditionally, nonprofits rely a lot on charitable gifts, grants, and donations to generate revenue. If an organization is interested in adding a new staff position, growing programs, or investing in professional development, there needs to be adequate funding to support those endeavors. As an employee, board member, or even donor at a nonprofit, it’s important to understand the organization’s financial statements for a few reasons.įirst and foremost, having a solid understanding of the organization’s financial situation enables leaders to better plan for the future. Many of these financial statements are similar to what a for-profit business would file, but there are some significant differences. ![]() Nonprofits must comply with IRS guidelines for filing financial statements to ensure they are adhering to nonprofit rules and regulations.
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