financial leadership development: tools for board, executive leadership, fiscal, and program staff...
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Financial Leadership Development: Tools for Board, Executive Leadership, Fiscal, and Program Staff
Denise Harlow, CCAPCommunity Action Partnership202-595-0660dharlow@communityactionpartnership.com
A special thank you to Kay Sohl and CAPLAW for your role in the development of the Financial Leadership curriculum presented here today.
Region 8/10 Conference: Celebrating the Past... Looking to the Future...
May 13-15, 2014Boise, ID
Agenda
Current Environment Financial Leadership Development Program Dashboards for Reporting Joint Development for Program and Fiscal Staff Financial Calendar for the Board
Current Challenges
Increased need Federal and state budget cuts Political environment Head Start competition Negative publicity Heightened funding source
expectations
Current Challenges
Increased emphasis on: High-performance organizations
Directing resources to organizations that can most effectively serve high-need communities
Evidence-based practices
Accountability
Outcomes
Financial and governance
Proposed CSBG Organizational Standards
Integrity
Financial Leadership
BoardEver-increasing pressure to provide oversightFinance CommitteeAudit CommitteeTreasurer
StaffCEO/ED
Fiscal Staff
Program Staff
Emerging Leaders
Sustainability???
Your CAA’s sustainability on a scale of 1 to 5
1 2 3 4 5
Signs of Financial Health & Sustainability
Achieve mission Liquidity – cash when needed Positive Net Assets
Especially Liquid Net Assets Compliance
Maintain & document
Sustainability Factors
Effective leadership Community support Effective risk management Compliance Viable business model Timely access to key info Clear, timely decision-making process
CAA Sustainability Roadblocks
Compliance-focused budgeting Use or lose it funding Multiple grant period complexity Arbitrary limits starve infrastructure Business model analysis distorted by focus on
compliance
Your CAA’s Sustainability Rating
Preliminary sustainability rating Your most significant financial strengths Most significant sustainability limitations or threats Impact of related entities on your financial health
& sustainability
What is the Financial Leadership Program?
The Financial Leadership Program (FLP) provides a structured curriculum, self assessment tools, and a peer-to-peer discussion process to help CAA Executive Directors, CFOs, and Board Leaders to work together to improve the financial health of their organizations and develop effective dashboards to measure progress.
Initial curriculum developed by CAPLAW and Kay Sohl in 2012 Piloted via video training by the Community Action Partnership
in collaboration with Kay Sohl and CAPLAW in 2013 Round two of the pilot in 2014
Goals of the Financial Leadership Training Curriculum
Increase sustainability & resiliency of CAAs Increase effectiveness of Board/staff financial
leadership Identify financial drivers & progress indicators Clarify context for evaluating indicator Support the development of effective dashboard
for your CAA
Training Process
Webinar presentations Structured discussions:
With your team With other teams
Follow-up work for your CAA Follow-up support
Brilliant dashboard emerges!
At the end of the process…..
Dashboard
Strategic Information
Program InformationFinancial Information
Why Use Dashboard Reports?
Draw attention to key information Bring focus to priorities
Draw attention to key information Bring focus to priorities
Strategies to Build Sustainability
• Why net assets matter• Restrictions on net assets• Setting net asset goals• Key net asset progress indicators
2
Financial Health &Sustainability
Indicators
• Net assets• Cash position• Income diversification• Key business drivers• Net income
Improving Cash Position
• Key cash indicators• Cash position drivers• Understanding your cash flow• Lines of credit• Impact of restrictions on use of cash• How much cash do you need?
3
Days of Cash
Annual Expenses ÷ 365 days
= 1 day of Cash
Cash Balance ÷ 1 Day of Cash
= Days of Cash
Sample Days of Cash
Annual Expenses $975,000
÷ 365 days
= 1 day of Cash 2,671
Cash Balance 160,000
÷ 1 Day of Cash
= Days of Cash 60 days of cash
Your Business Model
• Understanding your cost structure• Risks and rewards in your governmental funding
agreements• Private support & the cost of fund raising• Earned income & business ventures• Key drivers in your business model
4
Your Business Model
• Sources of income• Uses of resources• Financial impact of specific programs• Opportunities to generate surplus/profit• Risks for generating losses• Return on investment of unrestricted resources
Current Business Model ???
• Lines of business/cost centers making positive financial contribution
• Lines of business/cost centers making negative financial contribution
• Cash flow impact of each line
Beyond Programs. . .
• Fund Raising, as well as Programs, functions as a line of business
• Need clarity on the contribution of each line of business to overall financial condition
Discussion ???
• Does your CAA have clear strategies to increase Unrestricted Net Assets?
• Does your CAA have any funding agreements that allow generating a surplus?
• Does your accounting facilitate determining the full cost of each service?
• What are the key drivers that have the greatest impact on your financial success?
Risk Management & Compliance
• Impact of risk management on sustainability• Risk identification • Risk management strategies• Key indicators of effective risk management
5
Building Your Dashboard
Board roles and info needs Why less is often more Identifying significant indicators Compared to what? Graphic strategies and pitfalls
Potential Dashboard Audiences
Board Finance Committee Executive Committee Executive Director Top Management Team Program Teams
Board Roles
Set mission & priorities Oversight Liaison with the community Resource availability
Core Board Concerns
Financial health & sustainability Progress toward strategic goals Risk management Hot spots
Nonprofits Assistance Fund
Board Financial Engagement Functions
Compliance- maintain accountability Evaluation- ask ???, understand info Planning- use info, ahead Action - decision-making
Financial Leadership Roles
Executive Director
Ensure effective operation & compliance Identify & communicate key financial drivers
for the CAA Identify risks & opportunities Identify & evaluate strategic options Engage Board, staff, and community in setting
direction & evaluating progress
Financial Leadership Roles
CFO / Fiscal Director
Communicate financial health & trends Ensure compliance Identify financial drivers, risks, opportunities Support strategic engagement of Board,
CEO, Management team Develop, analyze, & recommend financial
strategies
Financial Leadership Roles
Finance Committee
Strategic review of financial statements Monitor overall financial health Analyze risks & opportunities Partner with management to develop
sustainability strategies Recommend financial strategies, policies, and
priorities to full Board
Great Dashboards
Highlight key issues for specific audiences Make trends visible Identify issues for exploration Focus discussions
Bummer Dashboards
Too many indicators Mismatch info to audience Graphic distortion Meaningless comparisons Never get finished
Jan
Feb
Mar AprMay Ju
n JulAug Se
pOct
Nov Dec$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
Cash Flow
ActualProjectedTarget = $615,000 minimum
Individual Contribu-
tions4%
Corporate/Foundation
Grants16%
Govern-ment
Grants & Contracts
56%
United Way14%
Program Fees10%
Income by Type Financial Indicators
TargetThis
monthLast
monthLast
year end
Income Statement
Surplus/(deficit) YTD $270,000 $390,842 $340,908($570,240
)
Surplus/(deficit) year-end forecast
$270,000 $30,937 $250,987($570,240
)
Earned income ratio 11.5% 10.3% 11.8% 13.0%
New grants success ratio 50.0% 35.0% 33.0% 50.0%
Balance Sheet
Days cash on hand (unrestricted)
45 43 28 51
Reserve funds balance (1 month payroll)
$250,000 $200,000 $150,000 $250,000
Current ratio 2 to 1 5.8 4.2 6.2
AR aged over 90 days 15.0% 22.3% 23.5% 20.0%
Program Indicators
TargetThis
monthLast
monthLast
year end
Weatherization Contracts (monthly goal)
20 21 22 15
Head Start enrollment 100 60 58 109
Monthly job placements 30 11 14 32
Financial Health & Sustainability Indicators
Cash position Net assets Income diversification Net income Key business drivers
Income Distribution- Compared to What?
Government
Earned
Foundations
Individuals & Business gifts
Income Distribution Comparisons
Trends Targets Benchmarks Earned/ Contributed ratio
Net Income
Unrestricted & Temp Restricted Cost Center focus
Contribution to overheadDrain on unrestricted resources
Key ratios: Units of service compared to personnel costs
Cost to raise $1
Planning and Forecasting Indicators
Cash flow projections Budgeting process benchmarks Spend-down projections by funding source Strategic planning goals
Related Entity Indicators
Financial health Cash position Key drivers
Occupancy Collections
Debt coverage ratio Compliance Reputational risk
Strategic Goals: Progress Indicators
Program Financial Infrastructure Identity & visibility Leadership transition
Program by Program Indicators
Units of Service Demographics Quality Comparisons
Trends Targets
Individual Donor Indicators
# of donors Average gift size % of donors retained New donors Tiered donor giving trends
Infrastructure Indicators
% of completion on major improvement projects
# of days without accident # hours of system down time
Identity/Visibility Indicators
Website analytics Facebook friends Posts Open rate for e-news Media coverage
Leadership Transition Indicators
Leadership demographic trends Recruitment targets Transition preparation timeline
Governance and Board Engagement Indicators
Committee Participation Giving/Fundraising Participation Most Recent Executive Director Evaluation Most Recent Board Self-Assessment
Achieving Visual Impact
Less is more Font & color matters Match graph format to info conveyed Multiple dashboards for different audiences
Dashboard Graphic Strategies
Stoplight – red, yellow, green Pass/fail Grades & scales Pie Chart Line Graph Scorecard
Community Action Partnership Dashboard Tool
Entering InformationGraph 2: Net Assets 6-30-11 9-30-11Unrestricted $1,121,100 $1,131,100Temporarily Restricted $100,000 $250,000
6-30-11 9-30-110
200,000
400,000
600,000
800,000
1,000,000
1,200,000
Unrestricted vs. Temporarily Restricted Assets
UnrestrictedTemporarily Restricted
Discussion ???
Most significant indicators for your Board? Comparison strategies for key indicators? Graphic approach? Separate dashboard for Board Committees &
Management Team?
Financial Leadership Development Curriculum
As a Statewide Cohort Involvement of State Association
Self Directed Team Facilitator Timeframes Outcomes
FLP Components
One-day training for CAA Teams including Executive Director, CFO, & Board Leader
7 training segments Workbook & structured exercises for each participating CAA to
assess their own sustainability & develop new strategies & tools to strengthen their financial health
Discussions with other CAA Teams (Only in State Cohort situations)
Guidance in developing Dashboard tools
Financial Leadership Self-Directed Training
Self-Directed TrainingThe training participant works through the exercise on
their ownThe help of financial facilitator is still recommendedThe Partnership will provide additional support in the
form of training materials, dashboard examples, and implementation checklists
Advantages of the FLP Self Directed-Training Format
Allows for agencies to tackle difficult financial concepts at their own paceRe-watch videos, or re-wind portions for clarification
Allows for continued refinement of the financial dashboard based on the participating agency’s needs
Based on a wealth of experience from other community action agencies and subject matter experts.
Limited investment to implement the FLP will yield significant help with difficult financial challenges
Both Formats Engage CAA Teams
Executive Director CFO/ Fiscal Director Board Treasurer/Finance Chair
FLP State Association Roles in Self-Directed Format
Locate and suggest a financial expert Facilitate participant implementation Provide follow-up support Conduct participant evaluation
Before the Self-Directed Training
Establish the financial dashboard teamWith the help of the State Association obtain the services of a
financial expert that can assist in evaluating the financial documents and dashboard drafts
It might be necessary to find a person that can “champion” this project to ensure that it doesn’t get buried under competing priorities
Establish Time-Frame that does not extend beyond three monthsThis process requires a good deal of work from everyone involved and
as the time extends it becomes easier for other project tasks to take precedence
Obtain the necessary financial information and place in a format that can be shared with the financial team
Key Financial Documents for both the Self-Directed and Group Methods
Most recent audit – full report Recent Board Financial Statements
Statement of Financial PositionBalance sheetStatement of ActivitiesStatement of Cash flowsBudget to actual comparisonNarrative financial report
Additional Information
Current agency-wide BudgetFormat used to present to the BoardMore detailed format used by staff
Financial Information from related entities like affordable housing entities or business venturesApplies to CAA work done through separate business or
partnershipsExamples include a separate non-profit corporation or tax
credit partnershipAny other ongoing financial information from related entities
Uses of Key Financial Documents
Statement of Financial Position Used in general discussion of net assets and defining net worth Portion of net assets available for operation Invested in fixed assets Board designated reserves
Balance Sheet Discussion on cash flow Calculating days of cash Current Ratio
Statement of Activities A detailed look at increases and deceases in net assets Examples of alternate formats Statement of Activity formats that show actual to
budget and year end projections A detailed look at the how to calculate unrestricted net assets Indirect Cost Rate
Uses of Key Financial Documents Statement of Cash flows
Calculating days of cash
Trends in Days of cash
Budget to Actual Comparison
Trends in Days of cash
Budget Narrative
Context for expenses
Agency Wide Budget
Cost Allocation
Indirect Cost Rate
Financial Information from related entities like affordable housing entities or business ventures
Discussion on the impact of the related entities can impact the sustainability of an organization
Getting in the Right Mindset Conversations to have with your Board finance committee
How financially healthy is your CAAHow sustainable is your CAAWhat are your current indicators of your financial healthDo most Board Members feel comfortable in their understanding
of financial reports?
Getting in the Right Mindset Financial Leadership Team
Ask top management to discuss: perceptions of financial health and sustainabilityUsefulness of current financial informationOther information they would find helpfulOther information they would like the board to see on a regular
basis
Getting the Most Out of the Self-Directed Training
Create a time for your financial leadership team to meetMultiple meetings will be necessary as participants work
through videosFollow-up time should be included as part of moving
through the self-directed trainingMultiple revisions of the dashboard may be necessary and
can be included as part of the allotted follow-up time
Training Guides
Training Guides and Videos Combine to Create a Multi-media Training Environment
Review of Key CAA Commitments for Both the Group and Self-Directed Learning Models
Submit needed financial info in advance Hold Board & Management assessment discussions Clear their schedules to participate fully in the training
discussions Schedule follow-up time to prepare the info needed for
their dashboard Schedule time for Board discussion of their draft
dashboard
Facilitator & Financial Expert Roles
FacilitatorKeep it lively & comfortableClarify discussion questions/assignmentsFacilitate full group discussions
Financial ExpertHelp apply the concepts to your financial infoDeal with accounting & reporting differences
Follow-up Assistance Process
Your team works with your CAA to identify key indicators & comparisons:
Get hands-on help to develop your CAA’s dashboard from:Your facilitator & financial expertCommunity Action Partnership
Broader Sustainability Resource
Nonprofit Sustainability: Making Strategic Decisions for Financial Viability (2010)Jeanne Bell, Jan Masaoka, Steve
ZimmermanFiscal Oversight combined with
programmatic oversightwww.josseybass.com
Matrix Map Analysis
Decision Making
The Sustainable Nonprofit Business
Model
Know Your CAA’s Impact/Profitability Quadrants
High Mission Impact
Low Profitability
High Mission ImpactHigh
Profitability
Low Mission Impact
Low Profitability
Low Mission ImpactHigh
Profitability
Source: Nonprofit Sustainability: Making Strategic Decisions for Financial Viability, by Jeanne Bell, Jan Masaoka, Steve Zimmerman
Financial Leadership Development for Staff
Done in cooperation with CAPLAW and Washington Morgan Community Action in Ohio
Series of three webinars
Meant to be watched as a team
Increase Program Staff’s understanding of the fiscal perspective
Increase Fiscal Staff’s understanding of the program perspective
Walks through Grant development, reporting, and monitoring functions.
© 2013 Community Action Legal Services, Inc. & Community Action Partnership© 2013 Community Action Legal Services, Inc. & Community Action Partnership
Team Approach CFO/Finance Director
Program Director
Planning Director
Budget Proposal
Program &Tracking Budgets
Budget Revisions
Reports
© 2013 Community Action Legal Services, Inc. & Community Action Partnership
Webinar 282
Webinar 3
Wipfli
ResourcesWebinarsToolkitsAnnual Training ConferencePre-Convention Session at
the August ConventionSoon to Come toolkit: Fiscal
Fundamentals for Executive Directors
Fiscal Management Activities Calendar-Fiscal Management Associates
Summary Calendar
The Summary Builds on the Subsequent Pages-Budget Development
Community Action Partnership Annual Convention
Contacts and ResourcesDenise Harlow
dharlow@communityactionpartnership.com
Andy Cruzacruz@communityactionpartnership.com
CAPLAWwww.caplaw.org
Kay Sohl kay@kaysohlconsulting.net
WIPFLIwww.wipfli.com
Fiscal Management Associateswww.fmonline.net
This presentation was created by National Association of Community Action Agencies – Community Action Partnership in the performance of the U.S. Department of Human Services, Administration for Children and Families, Office of Community Services Grant Number 90ET0428. Any opinion, findings, and
conclusions, or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of the U.S. Department of Health and Human Services, Administration for Children and Families.
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