Keys to helping your organization thrive — not just survive
If you have a leadership role in a nonprofit — as a program manager, a board member, or an executive — you probably came to it with little financial background.
Yet here you are, learning to make sense of the month's balance sheet, cope with cash flow, set budget assumptions, whatever. If it has a dollar sign attached, you wind up looking at it in some form.
For too many of us, financial details are a recipe for heartburn.
That's too bad, because finance should be a tool for fueling social change.
Enter Financial Leadership for Nonprofit Executives: Guiding Your Organization to Long-term Success, a wonderful new book by Jeanne Bell Peters and Elizabeth Schaffer, which has been co-published this with our partners at CompassPoint Nonprofit Services.
The book defines your role as financial leader — a person running a nonprofit business in a way that balances the organization's deep passion for mission with a pragmatic concern for the role of money in accomplishing that mission.
It shows you how to use finance as a tool for protecting and growing your nonprofit's assets, so that you can accomplish as much mission as possible with those resources.
The authors, both longtime financial trainers and consultants, observe, "We have seen the difference a financial leader can make in the health and impact of a nonprofit organization over time. Indeed the most dangerous thing a nonprofit executive can do is to put his or her head in the sand about money."
Assess your financial leadership
Peters and Schaffer note four essential components of financial leadership:
- Ensuring that decision makers have timely and accurate financial information
- Using that data to assess the financial condition of your organization's activities
- Planning that involves meaningful financial goals
- Communicating progress on these goals to staff, board, and external stakeholders.
There's a chapter devoted to each of these components, and a running example, complete with multiple spreadsheets, helps you learn how to read, interpret, and act on financial information.
At the end of each chapter, you'll find a "Red-Yellow-Green" evaluation to see how you and your organization rank among various categories of performance. This evaluation helps you pinpoint steps you should take to move your organization to optimal financial performance.
The book's case example shows how the executive director of a violence intervention program ranked herself around 10 key indicators, including funder accountability, teamwork, and information sharing. (I have to admit that I did some serious thinking about my financial acumen after using the evaluation. Fortunately, the authors do an excellent job of helping you expose your foibles in a constructive manner!) (View case example of the "Red-Yellow-Green" evaluation on overall financial leadership.)
Peters and Schaffer go into quite a bit of detail on overarching financial leadership principles, as well as specific approaches to the use of ratios, staffing patterns for nonprofit accounting departments, accounting practices, annual budgeting, and more. There's too much to describe here, but I will focus on one of the easily understood tools: The Dual Bottom-Line Matrix, shown below.
Adapted from Boston Consulting Group's well-known Growth-Share Matrix, this is a tool that you can apply today to an analysis of your nonprofit's programs. The matrix places mission impact on the x-axis and financial sustainability on the y-axis. The four quadrants are then labeled as follows:
- Star — High Mission Impact and High Sustainability: Keep and strengthen these activities.
- Heart— High Mission Impact and Low Sustainability: Keep and build the sustainability of these activities.
- Money Sign — High Sustainability and Low Mission Impact: Keep and increase the mission impact of these activities.
- Stop Sign — Low Sustainability and Low Mission Impact; Close or transfer these activities.
So, a program in the lower left corner has low mission impact and low financial sustainability — and is something you'll want to close down soon. Meanwhile, a program in the upper right corner has both high mission impact and high sustainability. That's a sure keeper. Simple though it is, the matrix can help bring clarity to some confusing situations.