NonprofitBODFinancial oversight is one of the board's core jobs, and it terrifies people who don't come from a finance background. It shouldn't. You don't need to audit the books — you need to ask good questions. Four numbers get you most of the way.
1. Months of cash on hand
Divide your cash by your average monthly expenses. Under three months is a flashing warning light. This single number predicts more nonprofit failures than any other.
2. Budget vs. actual
Don't just look at what was spent — look at what was planned versus what happened. Big variances, in either direction, deserve an explanation.
3. Revenue concentration
If one grant or one donor is more than a third of your revenue, you have a risk, not a relationship. Ask what happens if it goes away.
4. Restricted vs. unrestricted funds
Restricted money can only be spent as the donor specified. Healthy unrestricted reserves are what keep the lights on. Confusing the two is how well-meaning organizations get into legal trouble.
If the numbers don't make sense to you, they don't make sense. Ask until they do.
Your job isn't to prepare the statements. It's to understand them well enough to know when something's wrong — and to say so out loud.