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.