3 MD&A Preparation Tips for Nonprofits

By May 11, 2023Nonprofit
tips and tricks on notebook on desk

Management’s discussion and analysis (MD&A) explains how an organization performed financially as well as how it has furthered its mission from a management perspective. In addition to providing a strategic context for the financial statements, it promotes transparency and enhances readers’ understanding of the organization’s finances, stewardship, and prospects. Although MD&As are not required of not-for-profit entities (NFPs), they can provide valuable information about their financial and non-financial performance. 

MD&As do not have a specific format, so you don’t have to write a long, detailed essay. Ideally, an MD&A should be written clearly and concisely, focusing on the most critical aspects of the NFP’s mission and purpose. Consider these three preparation tips before you begin, particularly if this is your first time assembling an MD&A.

#1 Development Planning

The first step to successful MD&A preparation is planning how it will be developed. Planning ensures efficiency in the process and allows for more effective delivery. To begin planning, you should first decide who will be part of the core group putting this analysis together. Your team should include people from all important areas of the organization, such as HR, legal, and program services.

Once you have your team, decide together on the project’s purpose and goals. Finally, part of your planning should be deciding if this project will be part of your annual report or if it will be a stand-alone report.

#2 Structure Your Content

Once you have a game plan in place, it’s time to structure your content to showcase your vision and strategic focus in an engaging manner. To do this, you must consider the perspective of your readers. Consider who your readers will be, what they need to understand, and which questions they may have after they review your report.

Your introduction should cover the organization’s mission, structure, and strategic objectives. You might also want to include Key Performance Indicators (KPIs) and how they reflect progress toward the organization’s goals. Then delve into qualitative insights that explain the results of your NFP’s operations and financial position, and any additional details and analysis for selected areas.

Your overall structure should focus on three things: 

  • Results that are relevant to the NFP’s ability to fulfill its goals.
  • Qualitative discussions that may add to what is found in the financial statement.
  • Strategic insight into why the organization did or did not achieve its goals and how those factors may affect the NFP’s ability to achieve its objectives. 

Other items to include are charts and graphs, excerpts from the financial statement, historical trends, benchmark data, and other helpful data. Follow this by highlighting key risks and opportunities that your NFP may encounter, and then wrap up with a concluding statement summarizing the overall outlook of the organization.

#3 Review the MD&A

To ensure that all your bases are covered, reviewing the MD&A once it’s finished is critical. Enlist the help of your external auditor, board and audit committee, senior leadership representative, legal counsel, and chief communication officer. These key people can assess the clarity of your MD&A from the perspective of people who are not financial professionals and can advise you on areas that need improvement.

A well-written and informative MD&A provides clarity and insight into the organization’s financial performance and mission-related impacts. Ensure that your MD&A has a strategic purpose, is easy to understand, and is practical and relevant for your organization’s audience.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.