Not everyone can be a financial expert, but board members should be inquisitive and keep an eye on these three areas to spot red flags:
- Dip in Cash Flow – Is this normal? Is this unexpected?
- Financial reports with unfavorable variances and deficits
- Increasing liabilities – Is this a trend or pattern? Why are debts ballooning?
According to Kate Barr, the Executive Director of the Nonprofit Assistance Fund, “Boards pay too much attention to income statements and budgets, both short-term information, and not enough attention to the long-term perspective of balance sheets. Yellow flags are on the income statement. Red flags are on the balance sheet.” Read more