The main purpose of finance reports is to show the performance and the ongoing viability of your nonprofit organisation. Importantly, it is also an accountability process as the reports are prepared for stakeholders of the organisation which may include the community, shareholders, government agencies who provide grants, donors or service providers.

It’s great to be passionate about your cause but it also has to be viable. Robin Hood was passionate about helping the poor but he had to weigh the money he has retrieved from the King against the cost in arrows, horses and men. Did the benefits outweigh the results? That’s what the finance report will show you.

Properly prepared reports should also be used to identify anomalies and in extreme cases they can identify fraudulent activities. Was all the gold distributed to the poor or did some of it end up hidden under that forest green tunic?

Key questions that the finance reports should be used for are:

  • Did the organisation make a surplus or loss?
  • Can the organisation pay its debts and expenses?
  • Does the organisation have more assets than liabilities?
  • If government grants were received were they used as detailed in the funding agreement?
  • If donations were received were they used for purpose that they were donated for?
  • How did the organisation perform against budget?

Once the financial reports and performance have been determined then they can be used to plan for the future. For example, if there was a surplus then how should that be used for future years? Should it be used to invest in expansion of thenot for profit organisation, buy more equipment or pay off debts?

Preparing a strategic plan that is then linked to a budget is critical to this future planning as you are preparing a plan as to how you will best use the organisational resources to achieve key outcomes. If the budget is properly prepared then throughout the year as you monitor actual performance against budget you can identify how well you are going in achieving your objectives and then make changes as they are needed.

No matter how well intentioned you are, if the venture is not profitable there is no point in continuing, is there? The purpose of financial reports is to help you make that decision.