July 2019: Financial Management for the Non-Financial Leader

Contributor: Gene Gregory, Warren Whitney Finance & Accounting Director

Financial Management for the Non-Financial Leader

Whether you have just bought the company or have risen through the ranks, as the CEO, President, or Executive Director, you are responsible for overseeing operations, ensuring financial sustainability, and managing the organization.

If your career path has been in operations, business development or fundraising, you may feel your financial acumen is insufficient.  With this lack of experience, you question how can you be confident in your role and responsibility for financial sustainability.

This is not an unusual scenario.  The non-financial leader often carries this burden and can feel inadequately trained.  If this is what you face, below are recommendations to follow for your organization’s financial health.

  1. Internal Controls

Spend some time to make sure you understand how financial transactions flow through your organization.  Look for any concentration of duties or conflicts of interest that create risk.  Make sure there are clear lines of authority for all financial affairs; consider both the physical and virtual security of the organization’s assets. Remember assets may be “virtual”.

KEY POINT

“Cash is King”!  Embezzlement of cash is the most frequent means of misappropriation of an organization’s assets.  A simple monthly review of the bank statement might identify issues and, at a minimum, puts your staff on notice that you are paying attention to the details.

  1. Financial Reporting

Financial reports summarize your organization’s financial activities and position.  Your accounting department should produce consistent and accurate financial statements.   At a minimum, receive and review:

  • The monthly income statement that measures revenue and expenses.
  • The balance sheet that highlights assets owned, debts owed, and net equity.
  • The cash flow statement that shows how cash is being earned and used.

If your organization has significant accounts receivable, large capital expenses (building, equipment, etc.), or debt service requirements, the cash flow statement may tell a different story from the income statement.

Reviewing monthly and YTD income and cash flow statements will explain how the organization is progressing (or regressing).  Comparative statements showing current results and positions compared to past results and positions will identify trends.  Comparison to budgeted activities (see #3 below) will show how closely you are following your plan.  Ideally, your staff and system(s) can report activity at the “business unit” level that is important to your organization (i.e., division, location, department, program).

Make sure your reports are relevant to your needs.  External reporting likely requires financial statements prepared in accordance with the Generally Accepted Accounting Principles (GAAP); however, you may need a different view or format to make good business decisions.

  1. Budgets

Budgets are essential to good financial management because they project future revenue and spending.  Your budget should be your roadmap to operations.  Even if your operational managers lack budgeting experience, have them participate in the process.

Without a budget, your organization will “fly blind.”  The budget outlines your operational plan in terms of revenues and expenses.  How do your operations generate revenue? What is the expense structure of your organization?  Asking yourself these questions and reviewing the company’s past expenditures will help guide the process (Note- Units of sales or services usually have predictable revenue values).

As mentioned above, reporting financial results versus the budget shows how you are doing against your planned operation.  This comparison may indicate a need for greater skill in planning and budgeting or for a change in operations.

KEY POINT

  • Admit what you don’t know and seek help. Learn how to relate basic financial statements to your operation, mission, and financial health.
  • Make sure your leadership team and program managers can relate basic financial statements to the operation, mission, and financial health.
  • Your accounting staff must understand how operations work and why they are relevant.
  1. Outside Resources

Learn from the advisors who support your organization.

  • Your banker can share observations about your financial position. Banks offer many financial services, and you can learn a lot by investigating those services (even if you don’t adopt them).
  • Your audit firm will have a good financial perspective because they work with other similar organizations. While the practices of their other clients are confidential, they will have general observations they can share.  Many CPA firms offer newsletters and seminars on financial topics that impact industry, businesses, and operations.
  • Your payroll service provider (if you use one) is a good source for employment regulations.
  • Your benefits broker understands market trends for health, retirement, and other benefits. They may also be a resource for employment laws and regulations.
  • Your property, casualty, and liability insurance broker can provide a profile of organizational risk and suggest ways to mitigate it.
  • Investment managers have a perspective on the economic outlook that may be useful in organizational planning.
  • Peers from other organizations can provide their point of view and you may find shared solutions to issues.
  • Industry and community organizations may provide “capacity building” assistance for smaller organizations.
  • Professional associations offer industry learning opportunities.
  • Many, many more resources exist. Think about opportunities within your community.

Warren Whitney

Many of our clients have found that our accounting and finance professional offer an efficient and effective solution to financial management.  Our professionals work on an ongoing, part-time, fractional basis to provide a cost-effective way to supplement your finance function and build for the future. To learn more about financial management, please contact Gene Gregory at 804.977.6693 or ggregory@warrenwhitney.com