One of the biggest warning signs is recurring operating deficits. While a planned deficit tied to a strategic investment may be appropriate, ongoing deficits year after year are not sustainable. Organizations need periods of surplus to build financial stability and invest in future growth.

Deanna also emphasized the importance of timely financial reporting. Without current financial information, management and board members cannot effectively monitor performance or make informed decisions.

Other key areas to watch include declining unrestricted reserves, revenue concentration, and liquidity. Relying too heavily on a single grant, donor, or funding source can create significant risk if that support suddenly disappears. Likewise, having cash in the bank doesn’t always tell the full story. Boards should understand cash flow, cash runway, seasonal fluctuations, and how the organization would respond if expected revenue falls short.

Perhaps the most important takeaway is that these metrics shouldn’t only be reviewed when problems arise. By tracking them as ongoing board KPIs, nonprofits can identify risks earlier, strengthen oversight, and make more proactive financial decisions.

When boards know what to watch, financial oversight becomes a routine practice rather than a crisis response.

5 Financial Red Flags Your Nonprofit Board Can’t Ignore from American Nonprofit Academy on Vimeo