Nonprofit finance basics.

The five numbers every leader should know.

• Total cash on hand — the literal bank balance.
• Usable (unrestricted) cash — what you can actually spend on operations.
• Months of operating reserves — usable cash divided by monthly expenses.
• Budget vs. actual variance — are we on plan?
• Cash forecast for the next 90 days — what’s coming.

Revenue vs. cash vs. usable cash.

A $1M grant award is revenue. The wire that hits the bank account when the funder pays is cash. The portion you’re actually free to spend (after restrictions, indirect rates, and timing) is usable cash. All three are different numbers, and conflating them is the most common cause of nonprofit cash surprises.

Restricted vs. unrestricted.

Restricted dollars come with strings — they can only be spent on specific programs, time periods, or activities. Unrestricted dollars are the lifeblood of the organization: they cover overhead, fund capacity, bridge timing gaps, and pay for things grants won’t. A nonprofit with $5M in restricted grants and $50K in unrestricted cash is far less stable than the surface numbers suggest.

Where nonprofit finance differs.

Nonprofit finance shares vocabulary with for-profit accounting but works differently in important ways. Most boards and EDs underestimate the complexity until something breaks. The areas where it diverges:

• Fund accounting. Net assets are split into unrestricted, temporarily restricted, and permanently restricted. Each pool has its own rules and reporting.
• Functional expense classification. Every dollar is reported as program, management & general, or fundraising. Misclassification erodes the Form 990 story.
• Revenue recognition. Contributions, grants, exchange transactions, and conditional promises all recognize differently. Getting this wrong distorts the financials.
• Cash vs accrual. Small nonprofits often run cash; auditors expect accrual. The transition is painful if delayed too long.

The chart of accounts is strategy.

The chart of accounts in a nonprofit is not just a bookkeeping tool. It encodes how the organization sees itself: program structure, grant boundaries, fundraising categories, allocation method for shared costs. A poorly designed chart of accounts makes every financial conversation harder and every grant report a manual exercise. A well-designed chart of accounts lets reporting fall out of the system rather than be reconstructed each month.

What to fix first.

If finance feels chaotic, the highest-leverage fixes usually are:

• Rebuild the chart of accounts to match programs and grants.
• Establish a monthly close calendar — same dates every month.
• Reconcile bank, investment, and credit card accounts within 10 days of month-end.
• Produce a 1-page financial summary for the board, every meeting, in the same format.
• Separate the bookkeeper role from the accountant or CFO role.

Questions EDs and boards ask.

Do we need accrual accounting? Most nonprofits over $1M revenue benefit from accrual. Audit, grant reporting, and pledge tracking get easier. Below $1M, cash with strong note disclosures often works.

How much should we spend on finance? Healthy nonprofits invest 1.5–3% of revenue in finance and accounting (staff, software, audit, tax). Under-investing creates problems that cost ten times more later.

Who is responsible for the financials — the ED or the board? The ED is operationally responsible. The board, especially the treasurer and finance committee, is fiduciarily responsible. The two roles complement each other; they don’t substitute.