Nonprofit Finance: Your Board Members Hate It. Help Them Love It.
Throughout my twenty-plus years in the nonprofit sector, I have encountered a lot of governing boards. I’ve served as a staff liaison to board committees, managed boards as an executive director, provided professional development consulting services to boards, and served on numerous nonprofit boards through my volunteer work out in the community. In each of these experiences, I have observed one very predictable reaction when it comes to organizations’ finance committees.
Friends, your board members do not want to be on your finance committee.
Of the various types of governance committees that a nonprofit may have, finance committees are usually the least in-demand when it comes to board members volunteering to serve. If you are blessed to have at least one CPA on your board, you can usually count on that person to serve as chair. But filling the committee with a variety of voices and perspectives is usually like pulling teeth.
What’s this all about?
Well, friends…fact is, finances can be intimidating! Assets, liabilities, pledges receivable, oh my! Revenues, expenditures, investment strategies, please help! It takes a special kind of mind to LOVE finance. But, at the end of the day, the finance committee is by far the most important committee a nonprofit organization has. Whether your board members love finance or hate it, they have a fiduciary duty to the organization, and it behooves them to understand the finances to be sure there are no fiscal surprises down the road.
And, as a nonprofit leader, it behooves YOU to give your board members the tools they need to be successful.
What Does Fiduciary Duty Mean, Anyway?
When a person agrees to serve on a nonprofit board of directors, they are agreeing to become fiscally, ethically, and legally responsible for the organization. In terms of financial responsibilities, this means board members must ensure the organization’s fiscal health in all aspects. This includes approving the organization’s budget, ensuring that organizational expenditures remain within the approved budget, keeping a close eye on bank accounts and investments to ensure proper handling and performance, and overseeing the annual audit and tax filing processes.
I know, it’s a lot. And the fact that it’s a lot reinforces the importance of the endeavor. Board members’ fiduciary duties simply cannot be overstated, and it is a big mistake to rely on the one CPA on your board to do all the heavy lifting in this area.
So, how can nonprofit leaders help bring more awareness to the importance of organizational finances and support board members who say “yes” to serving on finance committees? Here’s a few tips:
Training is Key.
Setting board members up to be impactful finance committee members is so important. Start by offering a training session so members can learn about the organization’s current financial position. Is your nonprofit financially healthy or are you operating with less than one month of operating expenditures in the bank? Either way, your board members should see and understand. They also need training on the types of reports they’ll be reviewing regularly, their role in the budgeting process, and any other financial issues that they’re responsible for overseeing. Take them through the annual audit process and discuss why it matters. All of this is important, you must never assume that board members understand it all the moment they join your finance committee.
If you’re lucky enough to have a CPA on your board (or other professional who is well-versed in finance), perhaps you can recruit this person to help with training, whether one-on-one with individual committee members or as a group. If you don’t have an in-house financial expert, spend a few hundred dollars to hire a consultant for this purpose. It’ll be well worth the expense, your board members will appreciate it, and your organization will be better off because of it.
Slow Down the Finance Discussions.
I can’t tell you how many board meetings I’ve sat through where the board treasurer sprints through their financial report as if it will self-destruct in 30 seconds. Other board members may try to follow along, but most simply zone out until the report is over. Is this familiar, friends? I know…
Nonprofit leaders can begin to deepen board members’ understanding simply by slowing down financial discussions during meetings. Give the treasurer ten minutes instead of five. Review the profit & loss and balance sheet reports in detail. Avoid too much financial jargon that board members outside of the finance committee won’t understand. Discuss the finances in context with the organization’s programs. Incorporate charts, graphs, etc. for the visual learners on your board. Encourage questions and spend whatever time it takes to get those questions answered. Seriously, friends, your nonprofit’s finances are too important to rush. Please, take it easy.
Be Clear About Annual Financial Cycles.
As your nonprofit’s leader, you are more likely to understand your organization’s financial fluctuations better than your board members. Do you have a major annual program that hits your balance sheet hard with expenses every June? Do you have a gala that replenishes your funds and enables you to build up your reserves at the end of each year? Are there two months out of every year when you barely meet payroll? Whatever these cycles look like for your organization, its important to be clear and transparent with board members so they don’t panic when a normal dip occurs. Helping your board members understand these cycles can also enable them to think strategically and offer solutions to help the organization through difficult times.
It’s Tricky But Not Impossible.
Sure, friends, nonprofit finance can be overwhelming, confusing, and outright boring for board members who are less numerically inclined. But this thing called “fiduciary duty” is real and helping your board members perform their important fiscal oversight duties is so important to your organization’s overall health and sustainability. So, spend the time giving your board members what they need to be successful in this area. Slow down the financial discussions at your board meetings. And don’t be shy about discussing normal fluctuations that occur throughout the year. You and your board are a team. The stronger they are and the more they understand their fiduciary duties, the better job they will do for the organization.
And that, my friends, is what we call a win-win!