501c3 Financial Statements - Usage (Part 2)




As a part of the successful nonprofit management, each 501c3 needs to come up with the financial statements at the end of the reported period. The financial statements (Income Statement and a Balance Sheet) bring a valuable information on the financial health of the nonprofit. Based on the numbers, the Board of Directors may decide on a new strategic plan for development and on a new direction in order to guarantee a sustainable growth.

 Quite often, the Board members prepare the financial statements and use them for:


1. Preparation of the nonprofit’s tax return (f990). This is the most common usage, based on the financial statements, the nonprofit files a tax return – either f990N, f990-EZ or f990.


However, in our fast-paced life and especially if the Board is managing the nonprofit’s activities on-the-side of their real life occupation, we often forget that the Financial statements can be also used to:


2. Share the financial information with the nonprofit’s members; newly-appointed Board members and followers;


3. Illustrate the numbers with a chart and attract new donors and corporate sponsorship;


4. Discuss the numbers during a board meeting and decide on new ways for further development; or change the strategic direction of the nonprofit;


5. Compare the numbers with previous years of operation (if your nonprofit has been in existence for a while); highlight the percentage of increase or decrease of the revenues, respectively the expenses.


6. Plan the Budget. Budget projections are an essential part of the grant writing process;


7. Create a dashboard with information on the organization’s most recent financial statements; mission; new goals and share information on the program activities’ implementation with your Board;


8. Apply for a bank loan or request a funding;


9. Upload your financial statements on the organization’s website or other websites your nonprofit is subscribed, such as GuideStar;


10. Provide your financial statements to a third party (IRS, attorneys, etc.) when your nonprofit is being audited.


Despite the fact that the accounting is a complicated field, the nonprofit’s Board members need to be able to read and understand the numbers in the financial statements. If you know your nonprofit’s goal and what you want to accomplish in a short-period of time, you should also know how much you need in order to bring into life your charitable cause. 

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