Integrate Financial Thinking into all Aspects of Board Work
By Andy Robinson and Nancy Wasserman
Fiduciary responsibility is a board members most important job, and that doesnt mean simply approving a budget or signing off on an audit. In the deepest sense, accepting fiduciary responsibility means integrating financial thinking into every aspect of board governance.
Andy Robinson and Nancy Wasserman
If you dont know the basic financial information by heartif youre not steeped in the numbers and understand why theyre importantits very hard to exercise that responsibility.
Not surprisingly, financial management is a weak link in many, many organizations. Planning and budgeting combine all the money taboos with that common disorder, math phobia. Put a spreadsheet in front of many nonprofit leaders and theyll run screaming from the room, or try to escape without being noticed.
So imagine we bump into each other and I start asking about the organization you serve as a board member. Could you answer the following questionsor would you turn and run?
- Whats your annual budget?
- What is your current income mixand what would be the best mix of income for your organization?
- What are your largest expenses? How much of the budget do they consume?
- Do you have a policy about building a cash reserve? How much money do you need in your reserve fund? How would you use it?
- What are your organizations biggest financial risks?
- How do you use financial management tools to measure your impact? Does your organization compute the cost per unit of service? For example, for each client you serve, audience member you entertain, acre you protect?
Four Myths of Financial Management
- Myth 1. Attention to finances detracts from the real work. So many nonprofit advocates and program managers, not to mention board members, have bifurcated brains: program work and advocacy on one side, fundraising and finance on the other. Our goal is to break down that barrier and help board members to integrate their thinking.
Skilled staff members use financial data to track program results and assess their cost-effectiveness and overall effectiveness compared to other options. Sharing these data with trustees helps them provide appropriate oversight. If you cant track and measure your impact, how will you know whether youre doing the real work? How will you know if your work is working, or if youre using the funds as effectively as youd like?
- Myth 2. Only people who understand finances need to look at the numbers. Maybe you dont know anything about electricity, but youre smart enough to call an electrician when the lights go out. Throwing a party for 50 people? Find a good caterer. Planning your retirement? Hey, professionals can help with that.
In each of these situations, you dont have to solve the problem yourself, but you need to know enough to be concerned, be engaged, and ask good questions. For example: Am I using too many appliances at the same time? If we feed everyone hamburgers, how much will it cost? How much money do I need to save and invest each month?
You dont need to be a CPA or a financial genius to be an effective trustee. However, youll want enough basic wisdom to participate in the financial discussions, affirm good decisions, and raise concerns. Several good questions are outlined earlier in this article; for example, What are our biggest financial risksand what are we doing to manage those risks?
- Myth 3. My questions are so basic (and dumb). Ill look foolish asking them. Effective leaders dont know all the answers, but they insist on asking the questions necessary to get those answers. Organizations fail for a multitude of reasons, but never because someone asked too many questions. Sometimes they fail because no one asked enough questions early enough to uncover and address the underlying problems.
Everyoneeven the financially phobiccan (and should) learn the basics of financial management. As Terry Miller says in his book, Managing for Change: If you try to avoid financial management, the ironic thing is that you may spend more of your time on it than you would otherwiselike any good discipline, good financial management makes life more systematic, easier to get the work done.
- Myth 4. I dont understand the language; therefore I cant understand the concepts. You know more than you realize. If you know you dont have enough money to pay the rent or staff salaries until that major donor pledge is received and deposited in the bank, then you understand the principle of cash flow. You know Dad will send you $50 every year on your birthday; thats an account receivable. The $1200 you owe on your credit card (and why did you buy that new sofa)? Accounts payable. How about if your expenses are greater than the money you bring in each month? Thats what you learn from a statement of activities.
This article is adapted from the January /February issue of Grassroots Fundraising Journal. Andy Robinson and Nancy Wasserman are Vermont-based consultants and trainers. They can be reached through their websites, www.andyrobinsononline.com and www.sleepinglion.net, respectively.