Five Steps to Improve the Board’s Financial Intelligence

As I’ve mentioned in a previous post many boards lack an understanding of what it costs to operate the organization they have stewardship over. This lack of financial intelligence stems from many factors not the least of which is insufficient orientation and overall poor financial literacy.

As a board chair or nonprofit CEO you can create a more financially intelligent board. Consider the following five steps:

1. Understanding the organization’s financial statements. Many board members think because a Finance Committee exists there is no reason the rest of the board needs to understand the financial information. Invite the outside CPA firm or the Finance Committee chair to explain. Make sure both the audited (or reviewed) and the internal financial reports are explained.
2. Understanding the key metrics of the organization. Key metrics are operating and financial data that can quickly explain what is happening in the organization. Without having to analyze the financial statements, they can indicate a problem is developing.
3. Benchmarking the organization against industry standards for similar organizations and nonprofit organizations overall. Any significant variances need to be explained. From the explanation the governing body can decide if and what action needs to be taken.
4. Comparing multiple period operating results and key metrics to see what trends are developing. Understand what a trend is indicating. At a minimum compare this year month and year-to-date to the prior year month and year-to-date.
5. Talking to the front-line staff about what they are seeing or experiencing. You would be surprised what the people in the trenches can tell the senior staff and board about the “business.”

If you are an active and financially literate board member what information do you review?

Susan C. Hammond (principal of scHammond Advisors) consults with nonprofit organizations on board governance, strategic planning, improving financial intelligence, and the formation of advisory councils. She is a consultant, speaker, facilitator, and author. She previously served as the CFO for a museum and other nonprofit organizations. Susan is the author of the Advisory Board Kit: A Comprehensive Guide to Establishing an Advisory Board.

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