Learning:How to understand,read,and analyze nonprofit financial statements

LearnPhilanthropy has been reaching out to the field and asking for “how to…”learning paths from practitioners.  ”How tos”include things such as how to develop a skill,prepare for a new role,be more effective in a current role or learn something important to one’s career.

This learning path is from Chad Gorski,Program Assistant at Howard Hughes Medical Institute.  Chad’s work includes overseeing payment processing and report analysis for $20 million in science education grants to US Medical Schools,Colleges,and Biomedical Research Labs.  He is involved in strategic planning,performance measurement,planning grantee conferences,and coordinating grant competitions and review panels.

We asked Chad,“What learning path would you suggest for someone who wants to understand how to read and analyze nonprofit financial statements?

My recommended steps for achieving or working toward this learning outcome are:

1. Understand the logic behind double-entry book-keeping and the nonprofit accounting equation (Assets = Liabilities + Net Assets),the content and purpose of the four basic nonprofit financial statements and the IRS Form 990,and discuss with co-workers the financial statement analysis needs in your organization…what part of the due diligence and decision-making process does it fulfill.
2. Review materials or attend learning sessions on financial statement analysis that cover topics such as expenses,net assets,restricted assets,fundraising,cash-flows,overhead,financial ratios,and the auditor’s opinion letter.
3. Reach out to others that fund similar type organizations to learn about workflow alternatives,tricks of the trade,analytical tools,and external resources and experts. Future learning opportunities could include project budget analysis,analyzing financial risk,enhancing due diligence processes,and use of Guidestar and Charity Navigator in accessing nonprofit financial data.

I’d suggest looking at: Project Streamline’s guide:“Streamlining Grants Budgets and Financial Reports,” which discusses the basics of financial statement analysis starting on page 10 and the related “Due Diligence Guide” helps grantmakers think through what information is really needed to make a grant.

An effective workshop,training,or course: Any Tim Stiles (KPMG) session on financial statement analysis.  This workshop is often offered at the Grants Managers Network conference.

People that I’d recommend talking to:Barbara Bach at the Rasmuson Foundation,Janice Opalski at the Robert Wood Johnson Foundation.  

Organization(s) with a lot of good resources,tools,trainings: Grants Managers Network, IRS,and the Free Management Library.