How is your financial health?
By Angela Byrne
November 18, 2002
If you are like most nonprofit agencies today, you are finding it is more
and more difficult to make ends meet. You have probably experienced funding
cutbacks that have forced you to reconsider your activities and do things
differently. In addition, when you reach out to community resources you discover
there is more and more competition for the same dollars.
However, even in these difficult times, it is essential to continue to strengthen or maintain your financial health. The future of your organization depends on it!
The financial health of an organization can be assessed using three components
ð controllership, resources and planning. Strong financial health is evident
when controllership is strong, resources generate the greatest value, and
plans reflect foresight and financial flexibility. These elements combine
to strengthen the financial health of the organization and provide a solid
foundation for future growth.
Let's take a closer look at each of these components.
The first element, controllership refers to all the activities in your organization that ensure that the organization fulfills it role of stewardship. Familiar controllership activities include two signatures on cheques, locking doors, reconciling petty cash, and counting inventory.
There are two effects of strong financial controllership. First, strong controllership provides assurance that financial resources are safe and secure. Second, strong controllership ensures the accuracy and integrity of financial information. Conversely, when controllership is weak financial resources are at risk and financial information is compromised. The future is built upon the resources of today. Therefore, keeping financial resources secure ensures they will be there for use within the organization tomorrow. The importance of accurate and sound financial information becomes clear when you consider its role in decision making. Decisions based on flawed information can have severe consequences for the organization.
How do you ensure controllership is strong in your organization? The first step is to evaluate the current state of controllership. Once completed, your assessment will identify areas of exposure and identify level of risk. The final step is to minimize the risk by implementing control activities.
Several resources at your disposal to help you evaluate controllership in your organization include:
- Search auditing and accounting references for ideas on controllership practices.
- Enlist your accountant to assess controllership in your organization and make recommendations.
- Participate in a peer review by contacting another agency and each review
the other's controllership features and provides recommendations for improvement.
The second element refers to the use of resources as the means by which an organization
fulfills its mandate and attains its vision. Keep in mind that you will never
have enough resources to deliver the quality and quantity of service demanded
by the community. Also, maximizing your resources often requires some hard choices.
You may find that some programs need to be cut back or eliminated in order to
preserve the quality of core services. Therefore, it makes sense to use the
resources you have to the best of their ability in support of your vision and
mandate. In doing so, the quality and quantity of your service improves.
Before you begin to analyze the use of your resources you need to ensure a mandate
and vision is place and up to date. Without this direction, an organization
will find itself jumping from one priority to another. Assessing your resources
begins with a review of your financial information through the lens of your
mandate and vision and three measures. The three measures are: effectiveness,
efficiency, and economy. Effectiveness is the ability to use resources where
they will have the greatest impact. Efficiency is the ability to do more with
less, and economy is spending your resources wisely and saving money.
Taking the following three steps will reveal insights into the current use of resources and lead to suggestions for improvement.
- Identify and evaluate your current costs and look for trends of increasing
or decreasing costs.
- Evaluate spending in terms of the three measures and what it accomplishes
with the goal of aligning resources to the vision and mandate of the organization.
- Implement a continuous process of evaluation by periodically asking yourself,
"given our vision and mandate, is this the best use of our resources?"
Understanding the importance of how you use your resources goes a long way to
understanding the impacts on your organization. Furthermore, how you use your
resources today has a significant impact on the resources that are available
for your use tomorrow and into the future.
The final element is planning. Organizations are built on the belief of continued success. You believe that the services you offer are essential to the social fabric of the community and enhance the quality of lives. Therefore, it is critical that your organization continues to grow and thrive. Successful organizations plan today for their future viability.
There are two key actions you can take today that will strengthen the future viability of your organization. First, you can begin to assess the quality of the decisions you are making daily. Consider the decisions you are making today and consider the consequences for tomorrow. The key is identifying which decisions, or avoided decisions, have a positive impact and which result in negative impacts.
Review decisions from several perspectives, such as the impact on consumers,
service delivery, staff, financial health, other service providers, and the
community. Ideally, what is important to the organization is defined in the
vision or mission statement of the organization. Therefore, you are striving
for consistency between decisions and your vision of the future of the organization.
One of the key perspectives that should always be considered is the impact of the decision on the financial health of the organization. Which brings us to the second action, building financial flexibility in your organization. This is the ability to have access to financial resources that allow the organization to take advantage of opportunities as they arise, as well as provide a financial safety net for any unexpected changes in financial status.
Financial flexibility is not easy to do, but it is achievable for nonprofit
organizations even during times of fiscal constraint. Three key indicators of
financial flexibility are sources of revenue, relationship of assets to liabilities,
and current resource requirements. The more avenues the organization has to
access revenue the greater the financial flexibility. The greater the assets
of the organization exceed the liabilities, the greater the financial flexibility.
And finally, the closer the current resource requirements meet the available
funding, the greater the financial flexibility.
Understanding the link between what you do today and future operations provides
knowledge and understanding of future operations. If you can see the positive
relationship between action and future success then the organization reaps a
level of assurance that it will continue. If you see negative relationships
between what is happening today and future operations, then the organization
can take action and begin to turn things around. It is important to understand
that future success does not hinge on one key action. Rather, it is a series
of positive actions that build upon themselves that leads to organizational
success.
Angela Byrne is a Certified Management Accountant and an expert in
providing quality advice and solutions that strengthen the financial health
of organizations. She can be reached by e-mail at abyrnecma@rogers.com.
Angela Byrne, CMA & Associates are experts in helping private, public andÝnonprofit
organizations achieve their goals. Their philosophy rests on four cornerstones:
direction, resources, accountability and achievement. The services delivered
encompass this philosophy.
