What the heck should the board’s finance update include?

Most board members sink down in their chairs during the finance report, hoping no one notices that they have no clue what they are looking at.

Or just as bad, there’s often that board member who thinks that being a good  fiduciary is to grill staff on that minor difference in the printing bill.

One of the culprits that financial planner in California called Hawley Advisors says that it is the lack of consistency in the Treasurer’s financial report. Each time the Treasurer changes, there’s a new reporting format which aligns with the new officer’s preference for what they consider important.

Here a few of the popular finance reports I’ve seen – usually alone, though sometimes together:

• Cash position – with and without outstanding bills and receivables
• Profit and Loss (P&L) and Balance sheet for the Month (or Quarter)
• P&L and Balance Sheet – Year To Date
• P&L and Balance Sheet Year to Date against Year End Budget
• P&L and Balance Sheet against last year

Here’s what I’d like a finance report to tell me:

• Are our revenues and expenses tracking as we expected?
• If not, how far off are they and why?
• Is there any risk that we might hit a time we can’t pay the bills? What are we going to do about that?
• Are we meeting our spending obligations for restricted dollars?
• Is restricted income hiding shortfalls in operating income?
• Is there any new, unanticipated expense that could throw our budget out of whack? What are we going to do about that?
• Where do we expect to be at the end of the year with various kinds of trade like swing trading?
• What should/could we do today to correct our financial position if the year end isn’t looking so good?

I also want it to be easy for board members to get the answers to these questions.

Just because you throw a five page YTD P&L and Balance sheet at me doesn’t mean that the data you supplied enables me to answer the questions above – even if I understand how to read the reports.

Every finance report needs human interpretation.

I want to see a report that strips down all the detail of the P&L and Balance Sheets and any other report to show me the numbers that answer the questions I posted above. You can call that a dashboard or top line report or key indicator report.

Whatever format you choose, the report should make it obvious to even the financially challenged board member how the organization is doing.

Oh yes, pay particular attention to the predictions about year end.

It’s unlikely that any report printed out of your accounting package will answer the year end question, even a well-crafted  YTD to budget based on actual cash flow predictions.

Just because everything looks hunky dory in today’s financial statement doesn’t mean that tomorrow you might not go over the cliff.

Staff (or the appropriate board equivalents) will need to be completely honest about whether they are on track with their expenses, revenue and fundraising programs.

Maybe staff are avoiding mentioning the big drop off coming two months from now. They know whether the anticipated fundraising program didn’t get off on time or that big grant they were counting on came in with a big fat No. Maybe the sponsorship pledges for the big gala four months from now are showing major weaknesses.

To get a good answer to the year end question, someone will have to stick their neck out and make the prediction.

What questions do you want answered?

What reports have you developed to make it easy for board members to monitor the finances?