The Statement of Financial Position is also known as the Balance Sheet. It provides a snapshot of your organization’s finances and is crucial for understanding its financial health because it reveals the flexibility of your funding, highlighting your organization’s capacity to cover additional operating expenses and take the risks needed for growth.
The Statement of Financial Position has three sections:
Assets: What your organization owns. These are things like cash, receivables, investments, equipment, and property.
Liabilities: What your organization owes to other people or organizations. Examples include loans, accounts payable, and deferred revenue (e.g., grants received for future periods).
Net Assets: This is everything that is left over after you subtract what you owe (liabilities) from what you own (assets). It can be summed up as:
Net Assets = Total Assets - Total LiabilitiesIt's important to think of net assets as having three categories:
Without Donor Restrictions: Funds available for any purpose. Because these funds can be used for anything, they give you the greatest financial flexibility and resilience.
With Donor Restrictions: purpose or timing: Funds earmarked for specific uses or timeframes. For example, funds raised to repair the roof on a church would be restricted to a specific use. A grant to cover expense for calendar year 2025 would be a time restricted grant.
With Donor Restrictions: held in perpetuity: With donor restrictions: held in perpetuity means that the principle is restricted forever, or without expiration. This is often referred to as a permanently restricted donation, endowment, or scholarship fund.
When assessing your organization’s financial health, it’s crucial to distinguish between restricted and unrestricted donations. If you don’t separate these funds properly, you might overestimate how much money is available to cover your expenses, which can lead to budgetary issues or hinder your ability to make strategic decisions. Understanding the difference ensures a more accurate picture of your available resources and helps you manage your finances effectively.
Key Insights From The Statement Of Financial Position
1. Financial Stability and LiquidityThe Statement of Financial Position reveals whether the nonprofit has enough current assets (like cash and receivables) to cover current liabilities (such as accounts payable and short-term loans). This is essential for assessing:
Short-term stability: Can the organization meet its obligations, such as payroll or vendor payments, without relying on additional funding?
Liquidity: How quickly can assets be converted to cash if needed? A strong liquidity position ensures the organization can handle unexpected expenses or delays in funding.
2. Financial FlexibilityBy examining net assets without restrictions vs net assets with restrictions, nonprofits can determine:
Operational flexibility: How much unrestricted funding is available to cover day-to-day operations and unexpected needs.
Dependence on restricted funds: If most funds are restricted, the nonprofit may face challenges in meeting general operating expenses.
Together, these insights help nonprofits evaluate their financial health, plan for sustainability, and align resources with their mission.
Consider partnering with a professional nonprofit bookkeeper to help create and interpret your Statement of Financial Position. With their expertise, you can gain valuable insights and work together to explore next steps for your organization—whether that involves planning for growth, expanding programs, or reassessing your revenue generation and financial management strategies.
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Other Important Financial Statements
Statement of Activities: Your Nonprofit’s Story of ImpactCash Flow Statement Insights Nonprofit Leader Should KnowStatement of Functional Expenses: A Nonprofit Leader's Guide