Building Your Financial Engine
I've had the good fortune of successfully starting a number of organizations, serving on their boards, funding them, and providing consulting to help them strive. Guess there is some benefit in being old!! 😊
Along the way, I've learned some fundamentals on how to best build (or rebuild) a strong financial engine to drive forward an organization's strategic aims. Here are a few critical learnings:
Build Your Rosetta Stone: Your chart of accounts is the foundation/ alphabet upon which your entire financial system is built. Develop it purposefully with your strategy in mind. Constructed well, it allows you to ensure all expenditures are driving toward your strategic aims. It also helps you quickly identify anything extraneous - and get to the bottom of anything that looks amiss.
Measure what Matters: As you build financial policies, accounting systems and reports, think carefully about what’s actually important for you to understand from a financial perspective – and then be hyper-focused on constructing systems designed to drive this understanding. As an example, in small organizations, I often see teams tracking revenues and expenditures in a detailed way that creates more headaches than insight. The number of transactions adds up, and – over a year –this drains a lot of time from your team, your accounting group and leadership with no real benefit. Build this efficiency across all parts of your financial engine, and you’ll soon get leaner and meaner.
Reports are your Friend: Anything done in your organization that is meaningful will ultimately require money and show up in your financial reports. So take the time to build useful reports and analyze them when they get sent to you. I find that many otherwise brilliant leaders get a bit nervous that they can't understand all the implications of their financial statements, so they do a less than thorough review. To the contrary, poke at the numbers, ask your accounting/CFO support what exactly they mean! If they can’t explain it well to you, there’s a problem you need to address. And with a few reps, you’ll be able to immediately identify areas of strength on both the revenue and expenditure side, as well as soft spots that need to be addressed.
Start Financial Reporting with a Strategy Refresh: Any financial report should begin with a quick but powerful reminder of organizational strategy and aims. Always remember that finances are only important in so far as they advance those aims! Make sure that your Board, Investors, Donors and your team are always centered on the “why” before getting into the numbers. This will keep their questions focused and centered. It will also force you to explain how the numbers are relevant to your overall strategy. Soon, you might even find that your finance meetings are valuable instead of onerous!
We’d love to hear your own thoughts and learnings in this area. We’ve seen over and over again that building a powerful financial engine can be one of the most effective ways to rev up your outcomes.
As part of the collaborative services offered between Yield Creative and Summit CPA, we’re sharing this blog (and more to come!) because we are hyper passionate about helping our clients - brilliant entrepreneurs, leaders and their amazing teams - execute on their strategies and reach new heights. If you have any questions about these areas or would like to discuss how to build and maintain your financial engine, certainly reach out.
Coming soon: A Non-profit Board Members’ Quick Guide to Reviewing Financials