Staying on Track— your financial GPS
Joan M. Renner, CPA, CGMA, Director 501(c)(fit!)
My husband is really good at road trips. He can drive a right-hand drive car on the left side of a narrow road, faced with an oncoming hay wagon and an upcoming roundabout. The only thing difficulty I can remember, had to do with the GPS. It was slow. We set our destination and drove off while the GPS was still finding the satellite. By the time it found our route, we had to make some adjustments to get back on course. It was fun to see the back roads, but we almost missed our train. We could have used more timely feedback from that GPS about where we really were, compared to where we were headed.
Your monthly financial reporting is just like that.
Your budget is the route line on the GPS. Your monthly financials tell you where you stand along that route, so you can see whether you’re on track. If you need to make adjustments along the way, you need to know on a timely basis. If your monthly financial reports are too late, it may be too late for you to change course and get back on track.
Sadly, this really happened to a number of high-profile nonprofits who ended up bankrupt, but never saw it coming. One nonprofit study said that weak financial reporting left the nonprofits unable to be alerted to short-term and long-term fiscal dangers early enough to address them. * Timely and accurate financial reporting would have helped them assess and monitor their financial sustainability.
What might be signs of difficulty in your financial reporting?
Late financial statements or incomplete financial statements indicate some unsustainable condition. Controllership is cumulative. Delays cause work to snowball. If there’s not enough time to complete the month now, there’s not going to be even more time to complete two or three or four months later.
Repeated excuses may indicate a larger problem. Is there a resource shortage that’s being masked by other conditions?
Late audits and extended amounts of time needed to prepare for the audit could indicate that too much straightening is being left to year-end.
What’s the obstacle?
Strained resources. If your finance function is understaffed, it’ll take longer to do the month-end close. If your finance staff is struggling with matters beyond their training and experience, things might not get truly straightened out until the audit. An efficient effective monthly close may take more manpower and more expertise and have a higher cost.
What can we learn?
Stand up for sufficient funding for your own sustainability. Budget enough resources to do the job right. Nonprofit studies have recommended that “private and governmental funders must underwrite the development of robust financial…monitoring systems necessary for long-term sustainability…” *
Set a realistic time line for monthly financial reporting. Expect statements for management review within three weeks after month-end. Plan your finance committee or Board review about a week after that. Schedule your meetings accordingly.
Once you agree on a realistic schedule, stick to it. Look into the cause of repeated delays.
We have a helpful session on The Power of Financial Reporting—making your finance function work for you at our upcoming financial leadership seminar, 501(c)(fit!)—Financial Leadership Training for Emerging Nonprofit Professionals.
There’s also a helpful session on Building Your Budget—and putting it to work.
Learn more about our live two-day financial leadership seminar, 501(c)(fit!)—Financial Leadership Training for Emerging Nonprofit Professionals.
Join our 501(c)(fit!) community for free weekly FIT! TIPS.
*Yes, it’s true, according to the Human Services Council, New York Nonprofits in the Aftermath of FEGS: A Call to Action.
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