Sean Hale is founder of Nonprofit CFOs. He believes when nonprofits have solid financial foundations they can focus on what they do best—changing lives and communities.
After listening to Sean’s compelling interview on Patton McDowell’s Your Path to Nonprofit Leadership Podcast, where he discussed misperceptions and myths around nonprofit financial reports, I knew immediately an article for my audience of nonprofit, association, and chamber of commerce leaders and their board members would definitely be a good one.
I reached out to Sean with a request for an interview to share his insights and he graciously agreed. My ask was that he focus on board member’s fiduciary responsibility and understanding of financial statements.
To set the frame work, my first question was, Please give an easy to understand definition of what fiduciary responsibility means.
Sean replied with, “Every state has laws outlining a board member’s fiduciary responsibility. It means that a board member needs to safeguard the organization’s financial health. They can’t be asleep at the wheel.
Pro Tip: A clean audit isn’t enough. In fact, a clean audit only does a fraction of what people think it does. It doesn’t mean the nonprofit is financially healthy. It doesn’t mean that management and the board understand what the financial health is. It doesn’t mean that you’re getting timely, accurate financial reports. It doesn’t mean that you’re free of fraud.
Sean got on his soap box about clean audits in this LinkedIn article https://lnkd.in/p/g-UJPyNx
I next asked Sean to go deeper with, What should a board member know about an organization’s financial status? What is must-know information to have and understand in a financial report? What is nice to know but not necessary.
Sean shared, “Certainly, every board member should know if the organization’s financial health is in green, yellow, or red territory. Some CFOs even color code their reports that way!
From there, it might look different from one organization to the next. For most, however, it can be valuable to know such things as:
* Days of cash on hand
* Days of unrestricted cash on hand
* Budget versus Actuals (org wide and by major activity; basically, are we where we thought we’d be by this time in the year and, if we’re off, by how much and why?)
An organization that does a lot of billings will want to keep a close eye on accounts receivable (money that is due to the organization). An organization that has volatile cash should definitely maintain a cash flow projection.
On the other end of the spectrum, while the finance committee should see plenty of detail, the board financial reports should be short and sweet. One page each for the balance sheet and P&L with 12-point font. If the organization has a $1 million budget, you can round every number to the nearest $1,000 because any number under $1,000 isn’t likely to change any decisions the board will make, right?”
Responding to my request, Would you please elaborate on what you’ve shared about financial reports don’t need to be complicated. How can they be made easier to understand? Sean said,
“Every nonprofit with an annual budget above $500,000 should have a graphic, financial dashboard. Those make it much easier for board members to see, at a glance, the organization’s financial health.
The basic idea is to transform the key measures of the nonprofit’s financial health into graphs.
If all they ever see is the balance sheet for last month, even a highly-engaged board member might never notice that cash has steadily fallen for the past 12 months. But if they see a graph that shows it dropping $100k per month for the past 12 months, they’re going to sit up and take notice.
For a limited time, Sean is offering readers of this article a $200 coupon off his basic dashboard starter kit . Use this code to get your discount: HARDY-SMITH-2026.
I next asked, If a board member isn’t clear on information in the financial report, How should they get the understanding they need?
“Board members are the moral and legal “owners” of the nonprofit. They can’t take money from the organization and put it in their pockets, or otherwise personally benefit from being on the board. But they have to treat it with the same seriousness as if were their personal business.
So, if you hired someone to run your family business, how many months would it be acceptable to be in the dark about the businesses’ financial health? Close to zero, right? The same thing goes for board members. They can and should set the minimum bar at good financial reports. That includes a good narrative in plain English and a graphic financial dashboard. They should also set the expectation that the reports be timely and accurate.
The board needs to instruct the ED to make this a priority. And, BTW, if the board isn’t getting good reports, how in the world is the ED doing their job? Or are they flying blind?
Financial literacy training is also key. Every nonprofit should invest in this for their board. Good training in plain English.”
What are signals to look for that would indicate a board member isn’t understanding the financials and not communicating their uncertainty?
“Do they ask good questions, and have good insights, from the financial reports? Not every board member at every meeting, but every board member over the course of the year.
Or are they looking at their phone, perhaps? Are their eyes glazed over?
If they’re digging in on some detail that isn’t going to change anything the board decides on, that’s another sign. In a $1 million nonprofit, if a board member is asking why the travel expenses are off by $500, they’re almost definitely trying to cover up for not knowing what’s going on.’
Sean often talks about the myths in financial reporting and I asked that he elaborate on some of those myths.
“The treasurer doesn’t have to be a CPA. And if that’s your main criteria for selecting your next treasurer, you could be doing more harm than good because so many CPAs can only speak in jargon. So treat those three letters as a “nice to have.” Instead, look for someone who:
* has an affinity for the mission
* is comfortable with math and numbers
In fact, your best bet might be to look for a fifth-grade math teacher!”
Sean suggests finances should be included in conversation with candidates for the board and during new board member orientation. And I asked why is that?
“Every prospective board member should know what they’re signing up for. That includes the financial health of the organization.
Imagine you just got married to someone and then learned after the honeymoon that they brought $100k of credit card debt to the relationship. What would that do to your feelings of warmth and love?”
I invited Sean to add whatever he thought would strengthen what has already been shared.
“When you’re hiring finance and accounting staff, don’t look for a rock star (even if you see all of your peer nonprofits doing it). The person that can be all things to all people simply doesn’t exist. They’re not going to do awesome data entry, plus awesome analysis, plus be your strategic thought partner, plus be able to quote GAAP rules by chapter and verse.
When you set rock star-level goals, many very good candidates won’t even apply either because they know you’re being unrealistic or because they know they won’t meet your expectations.
And if you do manage to hire someone with those sets of expectations, you’re setting them up for failure.
Instead, it’s important to understand the difference between a bookkeeper, CPA, and CFO and expect that one person can only do one of those roles well.
Pro Tip: This also holds true for just about every other role in the organization.”
Thank you Sean Hale for sharing this insight to help board members understand financial reports which is essential for properly executing their governance and fiduciary responsibilities. Learn more about Sean on his website: www.NonprofitCFOs.com
How will you use Sean’s advice to ensure your board members do understand your organization’s financial reports?