Nonprofit financial red flags can appear long before a financial crisis, and boards need to know exactly what they’re looking for. Deanna Peterson, Director at Your Part-Time Controller (YPTC), identifies five important warning signs nonprofit leaders can build directly into board financial oversight.

During this special Nonprofit Power Week conversation, Deanna turns nonprofit finance from something reserved for “the finance people” into a management and governance discipline everyone around the board table can understand.

Start with recurring deficits. A planned deficit associated with a strategic investment may make perfect business sense. But year after year of operating deficits is different. As Deanna explains, organizations generally need surplus years so they have resources available when strategic investments are necessary. “A consistent deficit year over year is not sustainable.”

Then comes financial reporting. Deanna recommends organizations generally have monthly financials (or at least a draft) within approximately two to three weeks after month-end. Without timely information, management and the board may effectively be running the organization blind.

The conversation moves into shrinking unrestricted reserves, funder concentration and liquidity. Deanna’s warning about revenue concentration is refreshingly simple: “Any one funder can go away at any time.” Depending year after year on a single $500,000 grant, donor or government source can leave an organization dangerously exposed.

She also discusses capacity-building grants that may intentionally last only three to five years, making those dollars an opportunity to build systems and sustainability rather than create permanent dependency.

And cash in the bank isn’t enough. Boards should understand days cash on hand, cash runway, seasonality and future liquidity scenarios—including what happens if expected revenue never arrives.

The biggest shift? Turn these five financial red flags into recurring board KPIs. When boards know what they are watching every month, financial oversight becomes a habit instead of a reaction.

Key Takeaways

Recurring deficits are a warning; strategically planned one-time deficits can support growth.

Monthly financials should generally reach leadership within roughly two to three weeks after month-end.

Shrinking unrestricted reserves can signal operating problems before a crisis appears.

Measure funding concentration rather than assuming major donors or grants will continue indefinitely.

Track liquidity through cash runway, days cash on hand and scenario forecasting.

Build financial red flags into recurring board KPIs so the entire board shares financial responsibility.

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