The Numbers that Tell Your Story: Your Balance Sheet is a Confidence Builder
What funders really want to know when they open your Statement of Financial Position
This is the 1st edition in a series of five newsletters highlighting my takeaways from the “Ask Me Anything: What Funders Look for in Financial Statements” session hosted by @Candid.
Here’s something most nonprofit leaders don’t realize: when a funder opens your Statement of Financial Position, or Balance Sheet, they are not looking for big numbers. They are asking a much simpler question:
| 🤔 “Is this organization stable enough to be a reliable partner?” |
That one question breaks into three more specific ones. And if you can answer all three confidently, in plain language, before the funder has to ask you’ve already built trust.
The 3 Questions Funders Are Really Asking
1️. Can you pay your bills? Funders call this liquidity. Translation: do you have enough cash-on-hand to keep the lights on?
2️. What kind of assets do you actually hold? Cash is flexible. A building is not. Funders want to see the composition, not just the total.
3️. Are restricted funds well-managed? Large donor-restricted balances without explanation raise eyebrows. They want to know if the money is moving.
The Composition Trap
This is where a lot of organizations trip up. A strong total asset number sounds great until a funder digs in and realizes most of it is tied up in property, equipment, or restricted gifts you can’t touch.
Before your next funder conversation, walk through your own balance sheet and ask:
• How much of our assets are liquid; cash or near-cash?
• What’s our unrestricted net asset balance? That’s your real operating cushion.
• If we have large restricted balances, can we explain what they’re earmarked for?
• Do we have enough unrestricted cash to operate if a grant is delayed?
| 📌 Remember: Numbers alone don’t tell the story. Your job is to provide the caption. |
If your liquidity is low right now, don’t hide it, explain it. A capital campaign can temporarily restrict cash. A delayed reimbursement contract can create a short-term crunch. Funders understand these realities. Silence doesn’t help; context does.
What Strong Looks Like
• 3-6 months of operating expenses in unrestricted cash
• An asset mix that is primarily liquid, not property-heavy
• Restricted balances that are clearly tracked and being deployed
• No borrowing from restricted funds to cover operations
| ✅ DO THIS TODAY– Pull your most recent balance sheet.- See if you can write 3 sentences, in plain language, on your liquidity, asset composition, and how you manage restricted vs. unrestricted funds.These steps will help you in the next conversation you have with a potential or current funder. |
| Up Next → Week 2: Statement of Activities (AKA P&L) — Your Mission’s Progress Report |