Do You Equip Your Board for Financial Strategy?

Would you serve your friends a bowl of cake batter and then wonder why they don’t rave about your beautiful cake? Probably not. You’d pour the batter in a pan, then bake and frost it before you serve the cake at a party. Too often, nonprofits give their board members the financial information equivalent of the bowl of batter rather than the finished cake. Sure, the ingredients are all in the bowl, but many financial reports need to be prepared, frosted, and sliced before they can be served.

The basic ingredient for board financial reports is financial data – income, expenses, budgets, assets, liabilities, and net assets. But raw ingredients aren’t enough. For boards to perform their roles in governance, strategy, oversight, and planning, they need more than financial data. They need insight into the organization’s current financial condition and future opportunities and risks.

Turning financial data into insight is a process with six steps:

1. Generate reliable, timely, accurate financial reports.
2. Understand the purpose, format, and terminology of the reports.
3. Analyze the data through review of changes, variances, ratios, and trends.
4. Interpret this analysis in the context of the organization’s condition, benchmarks, plans, and external factors.
5. Communicate the financial information with contextual background and assessments.
6. Use the information for discussion, planning, and decisions.

Step one is critical, of course. But when you skip the steps between financial data and decision making, board members must apply their individual understanding, analysis, and interpretations of the reports. That explains why some board members dive into the details and others gloss over the top. Without clear communication of trends to notice or changes in financial health ratios, board members may get caught up on the costs of the new copier rather than have a needed conversation on the indicators that your revenue model is changing. Good questions and decisions come from appropriate level of data and context.

There is no one-size-fits-all financial report; the financial trends and assessments needed by your internal leadership and program staff when budgeting are not necessarily those needed by your board when embarking on organizational strategic planning. When confronted with a 7-page report, your board members will use a lens that feels comfortable to them, which may not be the same one that’s useful for the board.

Whether you’re the CFO/Finance Director, Executive Director, or a board member, ask “what financial information is critical for board to know?” Do your current reports equip the board for the strategic discussions and actions that the organization needs, or pull them too far into the weeds? If the latter, how can you better communicate the financial data to provide meaningful financial insight? What’s needed to build the six steps listed above into your financial process? Who will be responsible for each step?

I’ve been known to sample some batter right out of the bowl, but a slice of the beautiful finished cake is definitely more satisfying. You can expect the same when you equip your board with the right financial reports and offer a frame for strategic analysis.

Propel Nonprofits can assist. Visit our nonprofit resource library for a guide on reporting financial information to your board or for a guide on creating useful financial ratios.