February 4, 2011 | Read Time: 3 minutes
Last Wednesday, in a snowstorm, I spent more than four hours driving the eight miles from the train station to my house.
It should have been a 15-minute trip, and I had less than a quarter of a tank of gas. As the hours ticked by, I became increasingly grateful that my car had an accurate gas gauge. And that I knew how to read it.
Which leads, believe it or not, to the subject of financial management and nonprofit financial statements.
If money is the fuel that allows nonprofits to accomplish their mission, then financial statements (especially the neglected balance sheet) are the gas gauge.
Since the board is ultimately responsible for making sure the organization doesn’t run out of gas, you’d think boards would be more attentive to the gas gauge. But boards are notorious for their distaste for reviewing financial information and their inability to interpret financial statements or to use them to make decisions.
In all fairness, it’s not all their fault. Some executive directors give boards poor information.
Often financial statements shared with boards are far too detailed for board members to absorb, they omit important benchmarking information such as a comparison to the budget or to the previous year, and they don’t include explanatory notes or a cover memo that highlight important issues and put the financials in context.
As a result, boards often do a poor job of financial oversight and may not recognize that a financial crisis is looming until the organization is about to miss a payroll.
When I’ve talked with executive directors and board members about these problems, they offer several common explanations.
Many board members are intimidated by numbers and lack confidence. Finding board members with financial-management skills can be challenging. Boards with limited financial-management bench strength often defer to the treasurer or the lone accountant on the board, assuming that they understand the finances even if no one else does.
Many nonprofits, especially organizations with budgets under $1-million, can’t afford to hire a chief financial officer who could strengthen financial management and help the board do a better job. And many executive directors don’t have a strong background in financial management and are themselves intimidated and under-confident in their financial-management skills.
All these things are true enough. Yet sometimes these conversations make me wonder whether some executive directors don’t view weak financial management as a point of pride or a badge of honor–proof that they are not bean counters or heartless corporate suits but rather warriors for social justice who don’t have the time or patience for anything that’s not core to mission.
But money is core to mission. And in the “perfect storm” operating environment of recent years, nonprofits and their boards need crystal clarity about their financial situations. Executive directors need to make strengthening financial management a priority. And boards that aren’t getting good information need to demand better.
If they don’t, they risk running out of gas.
