If you serve on a nonprofit board, can you answer this question?
What drives the organization’s economic engine?
Is it philanthropy? Events? Fees-for-service? Third-party reimbursements? Or maybe social enterprise?
While cash flow is critical in the operations of every nonprofit, where that cash comes from will fundamentally change how board members serve. For example, organizations that rely heavily on contributed income also rely heavily on their board members for fundraising.
Board members must be given clear expectations for their personal financial gift, but also for their role in ensuring the organization has enough resources to fulfill its mission.
In addition to understanding the organization’s economic engine, potential board members need to ask these questions in order to decide if the experience will align with their interests and expertise:
- What is my required minimum gift, and is my company also expected to give?
- How much am I required to raise, and will I have access to training or other resources?
- What is the revenue mix of the operating budget?
- For the last five fiscal years, how often was the organization in the red or in the black?
- Does the organization carry long-term debt such as a mortgage and/or short-term debt such as a line of credit?
- Is the organization planning to embark on a capital campaign, and if so, what is the expectation for board participation?
- How much does the organization have in cash reserves?
- Does the organization have an endowment, and if so, how much is invested and what is the spending policy?
- Who is the staff leadership team responsible for the primary revenue sources, be they earned or contributed?
- Does the organization own or lease its facilities?
- Is depreciation a funded line item in the budget?
- How often does the board require reforecasts after the budget is approved?
While there is no magic formula for what the answers should be, the dialogue that ensues from this level of strategic questioning will be revelatory.
Choosing to serve on a nonprofit board is a big decision. Truly understanding the funding model and financial health of the organization will dictate what opportunity is best for you.
Article by: Kerri Laubenthal Mollard, Founder & CEO