Six Steps to a Financially Savvy Board

Governance Associations Now September/October 2014 By: Kim Robinson, CAE

Even the most business-minded board members who know their way around a balance sheet can be stymied by your association's finances. Here are some ways to help them understand your most important financial data.

Your association's financial reports may be the most important data that you ask your board members to review. But even board members who run successful businesses and deeply understand their own complicated finances may struggle to grasp their association's unique balance sheet or chart of accounts. Your volunteer leaders may be reluctant to admit that they don't get it or be wary of slowing down a meeting by asking too many questions.

It's essential that board members understand the documents they're looking at, because interpreting your association's financial data is critical to sound decision-making. These simple steps can help:

1. Provide a sufficiently detailed chart of accounts. Review your chart of accounts to make sure it provides enough detail that board members will understand how the organization is receiving and spending funds every month, but not so detailed that it becomes unwieldy. Avoid too many "miscellaneous" categories, and use a subaccount structure where it makes sense.

2. Organize your chart of accounts by major program areas. This will help board members quickly analyze income and expenses for key programs and can be useful for strategic planning purposes.

3. Put your accounting software to work. Most accounting software allows you to produce a wide variety of financial reports so that you can tailor information in a way that makes sense to your board. More reports seldom lead to more understanding, so identify the reports that provide adequate information concisely.

4. Establish regular reporting periods and standardized reports. For some organizations, monthly financial reports are critical. For others, quarterly reports are sufficient. Be sure to provide the same reports every time so that board members become familiar with the data and the reporting periods.

5. Anticipate board questions and annotate when needed. Did the board approve an off-budget item? Is a large payment delayed? Did a program change skew the numbers? Note those items as footnotes or in the margin where possible. If the same questions routinely recur, prepare a brief summary to accompany the reports.

6. Incorporate a financial overview into your board orientation. It's easier for new board members to ask financial questions before they are sitting at the board table.

Like most of us, board members make better decisions when presented with the best facts in an understandable format.

[This article was originally published in the Associations Now print edition, titled "On the Money" in the print edition.]

Kim Robinson, CAE

Kim Robinson, CAE, is president of Frontline Association Management in Springfield, Illinois.