Financial Leadership Development: Tools for Board, Executive Leadership, Fiscal, and Program Staff Region 8/10 Conference: Celebrating the Past... Looking to the Future... May 13-15, 2014 Boise, ID Denise Harlow, CCAP Community Action Partnership 202-595-0660 [email protected] A special thank you to Kay Sohl and CAPLAW for your role in the development of the Financial Leadership curriculum presented here today. 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 Board Ever-increasing pressure to provide oversight Finance Committee Audit Committee Treasurer Staff CEO/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 peerto-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….. Program Information Financial Information Strategic Information Dashboard Why Use Dashboard Reports? Draw attention to key information Bring focus to priorities Draw attention to key information Bring focus to priorities 2 • • • • Why net assets matter Restrictions on net assets Setting net asset goals Key net asset progress indicators • • • • • Net assets Cash position Income diversification Key business drivers Net income 3 • • • • • • 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? Annual Expenses ÷ 365 days = 1 day of Cash Cash Balance ÷ 1 Day of Cash = Days of Cash Annual Expenses ÷ 365 days = 1 day of Cash Cash Balance ÷ 1 Day of Cash = Days of Cash $975,000 2,671 160,000 60 days of cash 4 • 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 • • • • • • 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 • Lines of business/cost centers making positive financial contribution • Lines of business/cost centers making negative financial contribution • Cash flow impact of each line • 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 • 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? 5 • • • • Impact of risk management on sustainability Risk identification Risk management strategies Key indicators of effective risk management 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 Income by Type Financial Indicators Balance Sheet Income Statement Target Surplus/(deficit) YTD This monthLast month Program Fees 10% Last year end $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% 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% United Way 14% Individual Contributi ons 4% Governme nt Grants & Contracts 56% Corporate / Foundatio n Grants 16% Cash Flow $800,000 $700,000 $600,000 Program Indicators Target $500,000 This monthLast month Last year end $400,000 $300,000 Weatherization Contracts (monthly goal) 20 21 22 15 Head Start enrollment 100 60 58 109 Actual Projected Monthly job placements 30 11 14 32 Target = $615,000 minimum 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 overhead Drain 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 Information Graph 2: Net Assets Unrestricted Temporarily Restricted 6-30-11 9-30-11 $1,121,100 $1,131,100 $100,000 $250,000 Unrestricted vs. Temporarily Restricted Assets 1,200,000 1,000,000 800,000 Unrestricted 600,000 Temporarily Restricted 400,000 200,000 0 6-30-11 9-30-11 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 Training The training participant works through the exercise on their own The help of financial facilitator is still recommended The 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 pace Re-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 team With 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 months This 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 Position Balance sheet Statement of Activities Statement of Cash flows Budget to actual comparison Narrative financial report Additional Information Current agency-wide Budget Format used to present to the Board More detailed format used by staff Financial Information from related entities like affordable housing entities or business ventures Applies to CAA work done through separate business or partnerships Examples include a separate non-profit corporation or tax credit partnership Any 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 projectio 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 CAA How sustainable is your CAA What are your current indicators of your financial health Do 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 sustainability Usefulness of current financial information Other information they would find helpful Other 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 meet Multiple meetings will be necessary as participants work through videos Follow-up time should be included as part of moving through the self-directed training Multiple 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 Facilitator Keep it lively & comfortable Clarify discussion questions/assignments Facilitate full group discussions Financial Expert Help apply the concepts to your financial info Deal 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 expert Community Action Partnership Broader Sustainability Resource Nonprofit Sustainability: Making Strategic Decisions for Financial Viability (2010) Jeanne Bell, Jan Masaoka, Steve Zimmerman Fiscal Oversight combined with programmatic oversight www.josseybass.com Matrix Map Analysis Decision Making The Sustainable Nonprofit Business Model Know Your CAA’s Impact/Profitability Quadrants High Mission Impact High Mission Impact Low Profitability High Profitability Low Mission Impact Low Mission Impact Low Profitability High 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. 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 © 2013 Community Action Legal Services, Inc. & Community Action Partnership 82 Webinar 2 Webinar 3 Wipfli Resources Webinars Toolkits Annual Training Conference Pre-Convention Session at the August Convention Soon to Come toolkit: Fiscal Fundamentals for Executive Directors Fiscal Management Activities CalendarFiscal Management Associates Summary Calendar The Summary Builds on the Subsequent Pages-Budget Development Community Action Partnership Annual Convention Contacts and Resources Denise Harlow [email protected] Andy Cruz [email protected] CAPLAW www.caplaw.org Kay Sohl [email protected] WIPFLI www.wipfli.com Fiscal Management Associates www.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.