Avoiding Pathways to Failure – Financial Cracks
My wife and I decided to read the One Year Bible together this year. It’s been really good. Almost daily something jumps out at us as new or interesting. We have some really great conversations. Until we got to one part of the Bible. Numbers. Lists and lists of people, counts and numbers. Borrrring! Even for me as a CPA! It’s really hard to ask God to illuminate our mind and give us a practical application for numbers when we really just don’t care.
Unfortunately, that attitude about financial numbers is also prevalent in a lot of ministries today. Leaders just don’t care. Boards just don’t care. Organizations just don’t care. You may be about to stop reading this article now – because you just don’t care.
At that’s the risk! People don’t care until it’s too late.
Here’s what I have seen happen . At board meetings, monthly financial reports are either not presented, or presented in a hurry so that the ministry can get on to the “good stuff.’ Brief financial reports are celebrated. However, if leadership understood the numbers or caught the problems early, the CEO and board could make changes, but sadly it’s often too late. I know of one organization that was in the middle of a building project and had to stop, because they didn’t have any more money in the bank. They had no idea where they were financially. I know of another small organization whose board chair told me he really didn’t look at the numbers because he trusted the leader. They were losing hundreds of thousands of dollars each year. I know of another that was using donor money which was raised for a specific purpose to pay the monthly bills which is a significant violation and could give rise to a major lawsuit. All of these things can destroy an organization. When I have asked “where was the board” or “did the treasurer not know,” I hear a lot of – “well, the board wasn’t really very engaged” or a guilty treasurer say “I just didn’t have the time.” Again, I am not talking about one-offs, this attitude is a significant problem for many nonprofits today. So, as a CEO, what do you do?
Here are some recommendations.
-Care about finances. Ministry and mission are still the top priority, but as a leader you have got to care about where you are financially. If you don’t care, no one else will either.
-Assess where you are now. Do you know your current financial condition? Are you bringing in more money than you are spending each month? What are the trends showing? What is your cash position? Do you have reserves if you had a financial crisis?
-Have a qualified person help you understand the finances. There are four main “departments” of most radio stations – Programming, Development(Sales), Technology/Engineering and Business. CEO’s should have a good working knowledge in all four areas. As a CEO I knew my weakest area of the four was engineering so I had to spend extra time learning about how engineering works. I trusted the engineer’s knowledge (and at least knew every problem wasn’t an “impedance mismatch”) but I also knew that I had to understand what they were saying. I asked a lot of questions. Don’t be afraid to ask financial questions. If you don’t know what to ask, then ask someone you trust to help you. I had one GM I was mentoring years ago tell me he was embarrassed to say he didn’t know finances because he didn’t want to look bad. It’s okay not to know everything, but it’s not okay to stop there and just be ignorant. Get some help.
-Engage your board. All problems can really be traced back to the board. The old cliché is true. A fish stinks from the head down. If the organization is having problems, then it’s time to look at the board leadership. Sadly, I have found that many boards are not financially savvy or they aren’t giving proper oversight to this area. Board members were recruited based on friendship or elected to positions due to popularity – not based on current and future needs of the organization. Treasurers don’t read the bylaws to see what their job is. Change that! In orientation, make it clear what all the officer positions involve including the treasurer. Boards have a fiduciary responsibility and failure to do so can cause irreversible damage to the organization. Make sure that is understood. If you are weak in this area, recruit people who are strong and can help you with trends, analysis and wise cash management. Your board should be engaged in all areas of your ministry and this is one area that can’t be overlooked.
-Present meaningful reports at meetings. I know some organizations that have presented volumes of useless financial information at board meetings. Board members have told me they don’t have time to look at all the data – so they look at none of it. Instead, meet with your board (or finance committee if you have a larger board) and narrow down what data is needed to give the key stakeholders a good picture of what is happening at your organization. I recommend always presenting the Income Statement, Cash Flow Statement and Balance Sheet in addition to a summary of Donor Giving Trends. A Cash Fund Balance Statement is a great tool to manage Cash Funds. Less is more financially, so present meaningful numbers.
With over 40 years of leadership experience, Tim has been consulting radio and nonprofit organizations. He can be reached at Tim@TimMcDermottConsulting.com.