The importance of knowing how to read a balance sheet

Donor management software has made it easier for nonprofits to manage capital. But knowing how to read a balance sheet is important.
Date Published
07/08/2014

For many nonprofits, using donation management software has all but eliminated the need for reading an actual balance sheet. This is one of the ways in which technology has made a significant impact when it comes to streamlining business processes. However, these solutions can’t be used as crutch.

For any person working for a nonprofit or other charitable organization, it’s important to understand how to make sense of a balance sheet, according to the Nonprofits Assistance Fund. This document doesn’t just account for money that flows in and out. It also keeps track of year-over-year donations, how liquid the organization is and accurately tracks cash reserves that can be used in the event of an emergency.

Certainly, all of this information can be uncovered using donation management software, but knowing what you’re looking at when reading a balance sheet is a skill that is still very necessary. This is why it’s important that anyone with access to a nonprofit’s financial records knows how to make sense of this document when the need arises.

Investors worldwide contributing to nonprofit growth
Nonprofits are always busy trying to raise funds to achieve their goals. A recent survey conducted by the Nonprofit Finance Fund revealed that 20 percent of those participating in the poll stated that in addition to contracts and grants, they would also be seeking loans. Another 26 percent of respondents revealed they would look for ways to generate earned income. All told, this data suggests that charitable organizations are no longer solely dependent on donor giving.

This is good news as devex impact, citing a joint study conducted by the Global Impact Investing Network and JP Morgan Chase, revealed that this year investors all over the world are planning to contribute 19 percent more of their capital than they did in 2013 toward impact investments.

For charities and nonprofits that operate to assist developing nations, it would be wise to tap into these investor funds to help further their causes.

However, it’s still important for organizations receiving these contributions to use donor management software to keep track of the additional money coming into the organization. This will be critical in seeing how effective the nonprofit is in certain areas and highlighting those where improvements can be made. Without this information, it will be difficult for any charitable organization to help those in need.

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