Essential Nonprofit Financial Health Checklist for Success

A nonprofit’s financial health is its ability to execute its mission reliably, weather setbacks, report with transparency, and earn the trust of donors, staff, regulators, and partners. It’s the “vital signs” checkup for any organization—no matter the size, age, or complexity.

If money management feels overwhelming or mysterious, know that the basics never change: track your cash, have solid policies, segment funds by purpose, and always know where every dollar goes. Modern tools (like Holdings) make this easier than ever—more on that soon.

The Nonprofit Financial Health Checklist

1. Core Financial Statements & Documentation

• Prepare and regularly review core statements:

  • Income Statement (Statement of Activities): Clearly lists revenue, expenses, and the net margin ratio over a set fiscal year, showing the nonprofit’s performance and fundraising efficiency.

  • Balance Sheet (Statement of Financial Position): Summarizes assets (including fixed assets), liabilities (debt, accounts payable), and equity at a given moment. This is essential for understanding your organization’s capital structure and health.

  • Cash Flow Statement: Tracks the movement of cash to ensure payroll, expenses, and grant obligations are met out of available funds—crucial for sustainability.

• Lock in your accounting policies, ensuring:

  • Consistent categorization of every income and expense

  • Clear retention and reconciliation standards for all receipts, invoices, payroll, and grant documents

  • Regular backups of all financial data

• Prepare and file Form 990 to comply with IRS rules for tax exemption—this is the primary transparency report and must be complete, timely, and audit-ready.

2. Budgeting & Forecasting

• Create an annual budget in alignment with your organization’s goals, fundraising plans, and resource needs (people, programs, advocacy, assets).

• Use rolling forecasts and dashboards to compare actual performance to the budget, and adjust quickly when conditions, donations, or grants change.

• Involve the board of directors in key budget approvals; empower program managers with clear, real-time expense tracking.

3. Segmentation & Fund Tracking

• Segment every dollar by source: program, grant, fund, or restriction. This prevents accidental “commingling” and simplifies reporting and audits.

• Use virtual accounts or sub-accounts to track spending for each grant, program, or fund—not just one big checking account. Modern platforms like Holdings offer this natively, making internal controls much easier and reducing risk of accidental misuse.

• Hold regular reconciliation check-ins to ensure actual balances match fund requirements, donor intent, and grant agreements.

4. Internal Controls & Policy

• Write and enforce clear, practical internal control policies: who approves what, at what dollar thresholds, and how spending is tracked and authorized.

• Require at least two signers on checks/transfers above a set limit.

• Use virtual and physical debit cards for team/volunteer spending—set policies to prevent unauthorized purchases or disallowed expenses.

• Regularly review and update:

• Policies for document retention, approval, expense eligibility, and conflict of interest.

• Segregation of duties, so no single person controls all aspects of a transaction cycle.

5. Cash Flow Management

• Monitor cash flow at least monthly—know your cash position and forecast future needs (especially payroll, accounts payable, debt, and grant deadlines).

• Set and maintain a reserve policy: Best practices suggest keeping at least 3-6 months of operating expenses on hand, but this depends on your organization’s risk tolerance and funding model. Track this reserve on your dashboard and include in board discussions.

• Regularly review accounts payable and receivable to spot, prevent, and resolve cash bottlenecks.

6. Fundraising Health & Efficiency

• Track fundraising income and expenses separately. Use ratios such as:

• Fundraising efficiency ratio = Funds raised / Fundraising cost

• Program efficiency ratio = Program expenses / Total expenses (often above 75% for “gold star” status).

• Use donation data to understand donor retention, recurring gift reliability, and revenue concentration risks. Diversifying income protects against sudden shocks (like the loss of a single donor or grant).

7. Financial KPIs and Dashboards

• Measure, monitor, and report on key financial performance indicators (KPIs):Use dashboards that make these metrics visible and actionable—when everyone sees the same data, decisions are faster and communication is clearer.

• Days of cash on hand

• Liquidity ratios (current ratio: assets/liabilities)

• Working capital position

• Unrestricted vs. restricted revenue

• Net margin ratio

• Debt to equity ratio

• Expense ratio (by function: program, admin, fundraising)

8. Audit & Compliance Readiness

• Plan for at least an annual financial audit by an independent auditor (often required by grantors, states, or as a mark of good governance). Regular bookkeeping and clean policies simplify this process.

• Keep all supporting documents (receipts, approvals, contracts) organized—digital systems reduce audit prep time drastically.

• Review internal controls and policies annually with the board and key staff.

9. Board & Stakeholder Engagement

• Hold at least quarterly board finance reviews—include dashboards, major variances, risk updates, and KPI summaries.

• Train staff and board on interpreting financial statements and dashboards—when everyone understands the numbers, your organization is more resilient against both fraud and mission drift.

• Share clear, jargon-free financial info with community and donors. Transparency builds trust, supports better fundraising, and aligns everyone behind the mission.

10. Technology & Data Integration

• Pick accounting and financial management systems that “play nicely” with your other tools—look for direct integrations, simple exports, and an intuitive dashboard experience.

• Prioritize platforms offering:

• Zero-fee banking with 2%+ yield (every dollar grows your mission)

• Effortless virtual account creation for segmentation by grant, program, or goal

• Virtual & debit cards for teams or volunteers

• Built-in expense management (real-time receipt uploads, policy enforcement, automated approvals)

• Bookkeeping support if you’re understaffed or simply don’t want to juggle receipts.

• Holdings is designed for this exact need—segmenting cash, tracking grants, providing audit-ready data, and letting nonprofits easily integrate with existing accounting systems. Check out www.holdingsforgood.com to see how it works for lean teams and complex organizations alike.

Nonprofit Financial Health Metrics: Full Explanation

Sample 25-Point Nonprofit Financial Health Checklist

• Are all accounting and financial policies documented and approved by the board?

• Do you segment funds by grant, program, or restriction?

• Is there a cash flow forecast and actual cash balance monitored monthly?

• Are budgets developed and compared to actuals at least quarterly?

• Is Form 990 or appropriate IRS/state form filed, reviewed, and available for stakeholders?

• Are virtual or dedicated bank accounts used to manage grant/fund compliance?

• Are all expenses, reimbursements, and payroll reviewed and approved under a clear policy?

• Is every bank/credit card account reconciled monthly?

• Are internal controls periodically tested (e.g., spot checks, role rotation)?

• Has the board reviewed risk factors and set a risk management policy for the fiscal year?

• Are all income streams tracked; is there overreliance on a single donor or grant?

• Does your dashboard show real-time balances and expense ratios by fund?

• Are grant deliverables linked in your accounting system for easy reporting?

• Is restricted versus unrestricted revenue and spending transparently tracked?

• Are donor data and fundraising progress tracked with clear KPIs (retention, average gift, recurring)?

• Are your assets (fixed, intangible) inventoried and periodically reviewed?

• Are audit trails maintained for all financial transactions?

• Does your organization complete an annual external audit, or regular internal audits?

• Is there an investment policy for onboarding or growing capital and assets?

• Do you produce and review quarterly financial statements (income, balance sheet, cash flow)?

• Are board members educated about financial management basics, KPIs, and their governance role?

• Are conflict-of-interest and whistleblower policies in place and followed?

• Is there a transition plan for staff turnover (access controls, data migration, process documentation)?

• Are payroll, employment, and contractor policies in compliance with employment law and grant requirements?

• Do you benchmark your performance against peers (Charity Navigator, Candid, Oliver Wyman, etc.)?

The Role of Transparency, Data, and Community

Transparency is more than a buzzword: stakeholders, donors, and watchdogs expect clear, consistent financial information. Clean books, up-to-date dashboards, and open reporting strengthen your nonprofit’s reputation and sustainability, and help your community, board, and funders feel true ownership of your work.

Integrations, Flexibility, and Real-World Impact

Financial health doesn’t mean complexity. Holdings, for example, can support a startup nonprofit managing its first grant, a grassroots organization segmenting restricted funds, or a large nonprofit with Sage Intacct needing tight expense controls and audit trails. Flexibility is key—plug Holdings in to supercharge what already works, or rely on our platform for a full-stack solution.

Learn More & Stay Audit-Ready

However your nonprofit tracks, manages, or audits financial health, make sure you have the right checklist, metrics, and tools in place. You’ll set your team up for mission success, keep funding partners happy, and focus on what matters—your impact.

Ready for easier, healthier nonprofit financial management? Discover more, book a demo, or ask real experts at www.holdingsforgood.com.[9