How to Understand a Nonprofit Balance Sheet: A Guide for Leaders and Supporters
By Dr. Mark Smutny, President, Civic Reinventions, Inc.
A nonprofit balance sheet is a critical financial document that provides a snapshot of the organization’s financial health at a specific point in time. It lists the nonprofit’s assets, liabilities, and net assets (the equivalent of equity in a for-profit entity). Understanding a balance sheet helps leaders, board members, and donors assess the organization’s stability and its capacity to fulfill its mission.
Here, we break down the components of a nonprofit balance sheet, followed by an example of a nonprofit with a $1 million budget, a 10,000-square-foot building, and a staff of 6 full-time employees.
Key Components of a Nonprofit Balance Sheet
- Assets
Assets represent everything the organization owns or controls that has value.- Current Assets: Cash, accounts receivable, grants receivable, and prepaid expenses.
- Noncurrent Assets: Long-term investments, property, equipment, and other fixed assets.
- Liabilities
Liabilities include the organization’s obligations or what it owes to others.- Current Liabilities: Accounts payable, accrued expenses, and the current portion of loans.
- Noncurrent Liabilities: Long-term debt or loans payable beyond the current fiscal year.
- Net Assets
Net assets are the difference between total assets and total liabilities. Nonprofits categorize net assets into:- Without Donor Restrictions: Funds that the organization can use for any purpose.
- With Donor Restrictions: Funds restricted by donors for specific uses or purposes.
Example Nonprofit Balance Sheet
Let’s consider an example of a nonprofit with the following details:
- Annual budget: $1 million
- Building: 10,000 square feet, valued at $750,000
- Staff: 6 full-time equivalent (FTE) employees
- Operating loan: $100,000 at 4% interest
Here’s how the balance sheet might look:
Nonprofit Balance Sheet
As of December 31, 2025
| Assets | Liabilities and Net Assets | ||
| Current Assets | Current Liabilities | ||
| Cash and Cash Equivalents | $150,000 | Accounts Payable | $30,000 |
| Accounts Receivable | $50,000 | Accrued Expenses | $20,000 |
| Grants Receivable | $100,000 | Current Portion of Loan | $10,000 |
| Prepaid Expenses | $10,000 | Total Current Liabilities | $60,000 |
| Total Current Assets | $310,000 | ||
| Noncurrent Assets | Noncurrent Liabilities | ||
| Property and Equipment (Net of Depreciation) | $750,000 | Long-Term Loan | $90,000 |
| Total Noncurrent Assets | $750,000 | Total Noncurrent Liabilities | $90,000 |
| Total Assets | $1,060,000 | Total Liabilities | $150,000 |
| Net Assets | |||
| Without Donor Restrictions | $660,000 | ||
| With Donor Restrictions | $250,000 | ||
| Total Net Assets | $910,000 | ||
| Total Liabilities and Net Assets | $1,060,000 |
Key Insights from the Example
- Asset-Liability Balance:
The organization’s assets exceed its liabilities, reflecting financial stability. A healthy nonprofit typically maintains a positive balance to ensure sustainability. - Liquidity:
With $310,000 in current assets and $60,000 in current liabilities, the nonprofit has a healthy current ratio of over 5:1, indicating it can cover its short-term obligations comfortably. - Net Assets Composition:
The nonprofit has $250,000 with donor restrictions, emphasizing the importance of managing funds earmarked for specific purposes alongside unrestricted funds. - Debt Management:
The nonprofit’s operating loan, though manageable, represents a liability that needs ongoing attention. At 4% interest, the loan impacts cash flow but also supports operational needs.
Why This Matters
Understanding a nonprofit balance sheet helps stakeholders:
- Evaluate Liquidity: Can the organization pay its short-term bills?
- Assess Financial Health: Does the organization have sufficient reserves?
- Understand Restrictions: Are donor-restricted funds managed effectively?
- Plan Strategically: Does the organization have the resources to expand its mission?
A well-maintained balance sheet, combined with regular financial reviews, strengthens a nonprofit’s ability to thrive and serve its community effectively. Leaders, board members, and supporters who understand these basics can make informed decisions that contribute to the nonprofit’s mission and sustainability.
Would you like additional guidance or tools to understand nonprofit financial documents? Feel free to reach out!
Dr. Mark Smutny
Founder and Principal Consultant, Civic Reinventions, Inc.
Phone: 626-676-0287
Email: mark.smutny@civicreinventions.com
Website: https://civicreinventions.com
LinkedIn: linkedin.com/in/marksmutny
Author – Thrive: The Facilitator’s Guide to Radically Inclusive Meetings, 2nd ed.
