1. Financial Concerns for
Board Members
CARYN RYAN
FOUNDER AND MANAGING MEMBER
MISSIONWELL LLC

2. Today’s workshop:
One key to strong board governance is making decisions regarding your organization’s finances.
Board members have to help navigate through different life cycles and varying levels of
complexity during their tenure. By the end of this session, attendees will (1) identify the life
cycle and state of complexity their organization currently finds itself (2) make educated
predictions of financial concerns that may arise and (3) draft strategies to begin or continue
strong financial management.

3. Roles of the Board Member: All these roles are
enhanced by applying a financial lens (and hurt
if that lens dominates the discussions)
Fiduciary Role
◦ Good faith, Loyalty, Care
◦ Succession planning, CEO performance management
Strategic Role
◦ Mission, Vision, Values
◦ Priorities and goals
Generative Role
◦ Perceiving, discerning
◦ Envisioning alternatives to the present

4. Fiduciary role:
Financial knowledge is key component
Attendance and preparation
Ask questions until you understand the organization’s financial statements
Financial transparency policies
◦ GAAP - standard for preparation of financial statements
Financial governance policies
Expertise in audit and finance on the board

5. Strategic and Generative Roles:
Financial lens strongly supports both
Examples of Support to Strategic role:
Business model clear in your mind
Resourcing decisions tied to mission, impact strategy
Financial projections tied to strategy
Examples of Support to Generative role:
Can’t happen if organization is in financial crisis
Sense of self enhanced by clear understanding of business model
Planning for uncontrollable risks often encompasses policy issues on reserves
Translating big ideas to financial impact can spur creative thinking

6. Table Discussion Question
A fellow board member expresses to you that his/her giftedness is not in the area of finances
and asks if he/she can just rely on the financially-oriented board members.
What is your advice and why?

7. Understanding financial statements: Your
actions TRANSLATE into the financials
• Mission focused
• Policies
• Alternatives
• Risks vs. Benefits
Make
Decisions
• Securing
resources
• Implementing
programs
Perform
Activities • Revenue and
expense
• Assets and debts
• Cash flow
Financial
Results
ASK if they translate mysteriously!

8. Your concerns revolve around those actions
and how they translated financially
The only real question: Are you
making a difference?
Your review of the financial results
and projections is actually asking:
◦ Were decisions good?
◦ Were they well implemented?
◦ Helps answer the “real” question –
though not the whole answer
This doesn’t require detailed
knowledge as a board member.
◦ Find the large value issues - Not that
many, stay out of the minutiae
◦ Wisdom more important than
specific expertise
Areyoumaking
adifference?
Are you profitable?
Are you doing better
or worse?
Can you survive the
coming storm?

9. Board questions are quite different based
on lifecycle of the organization
Focused questions and acceptable answers vary by life cycle
What is normal in one stage can be abnormal in another stage
◦ As an example, for an organization in its infancy, a severe shortage of cash is normal whereas for an
organization in its prime this could be a very negative indicator
Board members require clarity on where the organization is in the life cycle, in order to:
◦ Ask the right questions
◦ Spot when times are changing and new questions are required
◦ Target moving the organization backwards or forwards in the life cycle to a better place
This understanding of financial issues based on lifecycle will make you a more impactful board
member

10. Lifecycle of the organization
Source: Managing
Corporate Lifecycles,
Adizes

11. Participant Question:
Where is your organization in the lifecycle?

12. Understanding financial basics is critical
to being an effective board member
Irrespective of where organization is in life cycle
Next series of slides show financial concerns of organization in its prime
◦ This assumes all the information you have to work with is what is in the board package and your general
knowledge and understanding of the organization
◦ We’ll come back to other parts of the life cycle
◦ Everyone is driving to get to Prime so this is still applicable to you if you are in a different part of the life
cycle

13. I get a lot of material in my board packet –
which documents are financial statements?
FINANCIAL STATEMENTS
Financial plan within business plan “pro
forma”
Budgets and projections .
Financial results in fiscal year
Audited financial statements
Form 990
HOW DO THESE ASSIST YOU WITH YOUR
DUTY OF CARE?
Understand prior to approving strategy,
including “what ifs” testing for risks
Ensure resources “in” match expenditures
“out”
Accountability for decisions made
Transparency and assurance, attract resources
Benchmarking, transparency, compliance with
exempt status

14. Statement of financial position
What is it?
◦ Snapshot in time
◦ “Balance Sheet” in for profit language
◦ Assets – Liabilities = Net Assets (Net Assets replaces Equity section)
◦ Unrestricted (Board Restricted)
◦ Temporarily Restricted
◦ Permanently Restricted

15. Key Questions of the Board Member
Statement of Financial Position
Are you
profitable?
Restricted fund
balances
positive?
Working capital
positive?
Are you doing
better or worse?
Net assets stable
or growing year
over year ?
Are you prepared
for the next
storm?
Unrestricted
cash adequate?
Debt not
excessive?
Areyoumakingadifference?

16. Statement of Activities
What is it?
◦ Revenue – Expenses = Change in Net Assets
◦ Revenue may be earned fees or support/gifts
◦ “Income statement” in for-profit language
◦ Over a period of time
◦ Explain change in net assets by category

17. Key Questions
Statement of Activities
Are you
profitable?
Positive bottom
line? Positive
margin?
Profitability by key
activity acceptable?
Balance of
unrestricted vs.
restricted income?
Are you doing
better or worse?
Expenses pacing
with revenues?
Vs budget and prior
year, strengths and
soft spots?
Trend of deficits?
Are you prepared
for the next
storm?
Diversification of
revenue?
Managing cost of
“Heart” projects?
Areyoumakingadifference?

18. Statement of Cash Flows
What is it?
◦ Converts results to cash basis
◦ Cash broken down into three activity sources:
◦ Operations
◦ Change in Net Assets + non-cash items + change in working capital
◦ Investing
◦ Financing

19. Key Questions
Statement of Cash Flows
Are you
profitable?
Positive
change in cash
this year?
Positive cash
flow from
operations?
Are you doing
better or worse?
Vs. Prior year,
spot risks and
opportunities?
Cash balances
trending up?
Are you prepared
for the next
storm?
Cash operating
reserve
adequate?
Able to fund
growth/
investments?
Areyoumakingadifference?

20. All the other financial statements are just
variants of these basic ones
Financial plan within business plan “pro forma”
• Projection going out multiple years, not actual – might be incremental for project
• There should be a good reason if formatted differently than financial statements
Budgets and Financial Outlooks
• Projection, not actual – shorter term, typically 3-24 months
• There should be a good reason if formatted differently than financial statements
Audited Financial Statements
• More formal format (GAAP) – ASK to see how items map if differences material
Form 990
• Functional breakdown of statement of activities with allocations
• Ask if the basis for any items is different

21. Exercise
Sample financial statements
Take 10 minutes at your table and come up with your concerns and questions

22. Organizations often create a Finance
Committee when risks get significant
Function
Role of
Finance
Committee
Role of
Board of
Directors
Annual financial statements (may be audited) Recommend Approve
Interim financial statements Review n/a
Fiduciary reviews of benefit/pension plans Approve Information
Selection of auditors (if audit performed) Recommend Approve
Annual Budget Recommend Approve
Long range financial plan Recommend Approve
Investment management Approve Information
Financial policies Approve Information
Corporate policies Recommend Approve

23. Organizations somewhere else on the
lifecycle
Next slides detail financial concerns in other phases

24. Courtship
Description
An idea or a passion and a commitment to make it into something
Financial Concerns
Where’s the cash?
Reality testing: There is never enough cash but are there identified investors?
◦ Why not enough investors? Product or service issue?
◦ Does the founder have the ability to attract the necessary resources?
◦ Appropriate risk taking, eg, avoid overinvesting and underinvesting
Is there sufficient separation of founder’s personal finances from organizations’ finances?
◦ Count loans, start up capital, early gifts from family and close friends as “personal”
◦ Check ratio of personal to unrelated
Policies:
Conflict of Interest

25. Infancy
Description
◦ Passionate focus on a mission (“why”)
◦ Shoestring operation with insufficient capital
◦ Passion extends across those involved in organization
Financial Concerns
◦ Setting expectations - Business plan reality testing
◦ Weekly cash flow monitoring – balancing growth with cash availability?
◦ Evidence there are users or buyers of the product/service?
◦ In a reasonable quantity?
◦ At a reasonable price?
◦ Evidence of UNANTICIPATED negative cash flows
Policies:
Gift Acceptance
Travel/Entertainment
Accounting Policy
Executive Compensation
Compensation

26. Go-go
Description
◦ Momentum achieved - The organization is building programs, bringing in
new clients/customers.
◦ No such thing as problems, only opportunities
◦ Significant growth in deployment of products and services – add more and more
Financial Concerns
◦ Growing but so is the deficit?
◦ Are cost controls adequate?
◦ Extending reach beyond resources?
◦ What’s the right pace of growth?
◦ Are revenue streams properly identified (business model) for each product/service?
◦ Are revenue forecasts consistently met, or learned from?
◦ Is the budget sufficiently detailed and accurate to force problems to surface when/if not meant?
Policies:
Human Resources
Document Retention

27. Adolescence
Description
◦ Life apart from founder(s)
◦ Focusing the products and services
◦ Still growing products and services
◦ Inadequate infrastructure – people, processes, systems, policies
Financial Concerns
◦ The THREE QUESTIONS now apply! In addition:
◦ Does this organization have the appropriate boundaries and empowerment?
◦ Delegation of authority, Financial controls, Accountability systems
◦ Is a Finance Committee, Investment Committee or Audit Committee needed?
◦ Emerging squeeze on margins may indicate need for renewal strategies
Policies:
Investments
Banking
Risk Management

28. Prime
Description
◦ Vision and values, sense of purpose, integration beyond organization
◦ Institutionalized governance
◦ Conscious goals, focus, priorities
◦ Functional systems and structure
◦ Focus on growing services/products AND profit
Financial Concerns
In addition to the three questions:
◦ Is there adequate focus on efficiency?
◦ If not in place, is a Finance Committee, Investment Committee or Audit Committee needed?
◦ Emerging squeeze on margins may indicate need for renewal strategies

29. Declining years
Description
◦ Cautious, risk avoidance, respect for rules, authority
◦ Focus on rewarding “how” not “what”
◦ Decreased flexibility
◦ Fear replacing faith
◦ Asking permission replacing asking forgiveness
Financial Concerns
◦ How is organization investing the surplus cash? Why?
◦ Ratio of administrative to direct service providers
◦ Indicators of adequate risk taking – declining investments relative to cash and profit
◦ Too much focus on finance and legal at expense of mission
◦ High ROIs symptomatic of end of program and need for rebirth?
◦ Delicate but honest conversations on endings
“When things stop growing
they start to die.”
Charles Gow

30. Reflection & Moving Forward
Are you feeling better equipped to ask the right questions?
What else would you need to do so?
What resources might help you get there?

31. Resources/References
Good Governance for Nonprofits, Frederic L. Laughlin and Robert C. Andriga
Boards That Make a Difference, John Carver
Nonprofit Sustainability, Jeanne Bell, Jan Masaoka and Steve Zimmerman
The Five Most Important Questions, Peter Drucker et al
Managing Corporate Lifecycles, Ichak Calderon Adizes
Great by Choice, Jim Collins and Morten T. Hansen