As most nonprofits are preparing for year-end and - more importantly - for the year ahead, they need to make plans for how they intend to achieve the goals that have been set by the Board. The goals for the year - growth, consolidation, new programs, cutbacks - must be underpinned by a financial strategy which is based on an understanding of the financial position of the organisation.
It's not reasonable to expect the organisation to know and accept where its going, if there is no clear picture of how it intends to get there. And this is more than simple budgeting. The financial roadmap relies on stakeholders being able to read and understand the financial reports and therefore monitor the performance of the organisation on a month-by-month basis. Can the Board or management challenge the reports and the underlying assumptions about the budget, the allocation of income and expenditure to cost centres, the drawdown of grants, and the treatment of debts?
Are the reports timely? If they are delivered to close to the end of a period, can they be relied upon to be accurate and accounted for all the accruals, etc.. but too late, are they of any value to make decisions and change spending behaviour in time?
Are the finance people members of the decision-making team? Are their views sought? is their expertise valued? And have they been resourced with the best technology, accounting software, and policies and procedures which the organisation can afford? Without due respect, the finance team will walk backwards out of the room... good staff will leave, and errors and false assumptions will be let slide, resulting in unreliable financial information, and the board making decisions in a fog.
A regular financial assessment is a necessary and responsible process for the board to instigate.
1. Are the processes the best they can be?
- Are the financial processes efficient, and do they explain how income and expenditure is recorded? Are the reconciliations accurate and timely, and does everything 'add up'. Do the financial reports reflect reality?
2. Are the financial systems the best the organisation can afford?
- Is the accounting software cumbersome and esoteric, such that it is inaccessible but for a few people? Could it benefit from automation? Could redundant workflows and duplication be eliminated?
3. Are the right people working on the finances?
- Separate the people from the tasks and assess whether this is the most effective team you could put together? Are people qualified? up-skilled? Do you have enough skills in the team to cover all the roles - from admin, bookkeeping, accounting, strategic advice, IT?
4. What will you do with this Assessment?
- Once the strengths and weaknesses of the finance team are assessed, formulate a plan to improve the financial support to the organisation... Prioritise what needs to be attended to urgently, and then schedule other changes for the year...
Financial assessments can be time consuming, expensive and sometimes painful for the people involved, but without one, the board is vulnerable to making decisions in blissful ignorance.