Financial Leadership Development: Tools for Board, Executive Leadership, Fiscal, and Program Staff

1. 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 dharlow@communityactionpartnership.com A special thank you to Kay Sohl and CAPLAW for your role in the development of the Financial Leadership curriculum presented here today.

2. Agenda • Current Environment • Financial Leadership Development Program • Dashboards for Reporting • Joint Development for Program and Fiscal Staff • Financial Calendar for the Board

3. Current Challenges • Increased need • Federal and state budget cuts • Political environment • Head Start competition • Negative publicity • Heightened funding source expectations

4. 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

5. Financial Leadership • Board • Ever-increasing pressure to provide oversight • Finance Committee • Audit Committee • Treasurer • Staff • CEO/ED • Fiscal Staff • Program Staff • Emerging Leaders

6. Sustainability??? Your CAA’s sustainability on a scale of 1 to 5

7. Signs of Financial Health & Sustainability • Achieve mission • Liquidity – cash when needed • Positive Net Assets • Especially Liquid Net Assets • Compliance • Maintain & document

8. Sustainability Factors • Effective leadership • Community support • Effective risk management • Compliance • Viable business model • Timely access to key info • Clear, timely decision-making process

9. CAA Sustainability Roadblocks • Compliance-focused budgeting • Use or lose it funding • Multiple grant period complexity • Arbitrary limits starve infrastructure • Business model analysis distorted byfocus on compliance

10. Your CAA’s Sustainability Rating • Preliminary sustainability rating • Your most significant financialstrengths • Most significant sustainabilitylimitations or threats • Impact of related entities on your financial health & sustainability

11. What is the Financial Leadership Program? • The Financial Leadership Program (FLP) provides a structured curriculum, self assessment tools, and a peer-to-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

12. 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 ofeffective dashboardfor your CAA

13. Training Process • Webinar presentations • Structured discussions: • With your team • With other teams • Follow-up work for your CAA • Follow-up support • Brilliant dashboard emerges!

14. At the end of the process….. • Financial Information • Program Information • Strategic Information • Dashboard

15. Why Use Dashboard Reports? • Draw attention to key information • Bring focus to priorities • Draw attention to key information • Bring focus to priorities

16. Strategies to Build Sustainability 2 • Why net assets matter • Restrictions on net assets • Setting net asset goals • Key net asset progress indicators

17. Financial Health &SustainabilityIndicators Net assets Cash position Income diversification Key business drivers Net income

18. Improving Cash Position 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?

19. Days of Cash Annual Expenses ÷ 365 days = 1 day of Cash Cash Balance ÷ 1 Day of Cash = Days of Cash

20. Sample Days of Cash Annual Expenses $975,000 ÷ 365 days = 1 day of Cash 2,671 Cash Balance 160,000 ÷ 1 Day of Cash = Days of Cash 60 days of cash

21. Your Business Model 4 • Understanding your cost structure • Risks and rewards in your governmental fundingagreements • Private support & the cost of fund raising • Earned income & business ventures • Key drivers in your business model

22. 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

23. Current Business Model ??? • Lines of business/cost centers making positivefinancial contribution • Lines of business/cost centers making negativefinancial contribution • Cash flow impact of each line

24. Beyond Programs. . . Fund Raising,as well as Programs, functions as a line of business Need clarity on the contributionof each line of business to overall financial condition

25. Discussion ??? 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?

26. Risk Management & Compliance 5 • Impact of risk management on sustainability • Risk identification • Risk management strategies • Key indicators of effective risk management

27. Building Your Dashboard • Board roles and info needs • Why less is often more • Identifying significant indicators • Compared to what? • Graphic strategies and pitfalls

28. Potential Dashboard Audiences • Board • Finance Committee • Executive Committee • Executive Director • Top Management Team • Program Teams

29. Board Roles • Set mission & priorities • Oversight • Liaison with the community • Resource availability

30. Core Board Concerns • Financial health & sustainability • Progress toward strategic goals • Risk management • Hot spots

31. Nonprofits Assistance FundBoard Financial Engagement Functions • Compliance- maintain accountability • Evaluation- ask ???, understand info • Planning- use info, ahead • Action - decision-making

32. Financial Leadership RolesExecutiveDirector • 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

33. 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

34. 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

35. Great Dashboards • Highlight key issues for specific audiences • Make trendsvisible • Identify issues for exploration • Focus discussions

36. Bummer Dashboards • Too many indicators • Mismatch info to audience • Graphic distortion • Meaningless comparisons • Never get finished

39. Financial Health & Sustainability Indicators • Cash position • Net assets • Income diversification • Net income • Key business drivers

40. Income Distribution- Compared to What? • Government • Earned • Foundations • Individuals & Business gifts

41. Income Distribution Comparisons • Trends • Targets • Benchmarks • Earned/ Contributed ratio

42. 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

43. Planning and Forecasting Indicators • Cash flow projections • Budgeting process benchmarks • Spend-down projections by funding source • Strategic planning goals

44. Related Entity Indicators • Financial health • Cash position • Key drivers • Occupancy • Collections • Debt coverage ratio • Compliance • Reputational risk

45. Strategic Goals: Progress Indicators • Program • Financial • Infrastructure • Identity & visibility • Leadership transition

46. Program by Program Indicators • Units of Service • Demographics • Quality • Comparisons • Trends • Targets

47. Individual Donor Indicators • # of donors • Average gift size • % of donors retained • New donors • Tiered donor giving trends

48. Infrastructure Indicators • % of completion on major improvement projects • # of days without accident • # hours of system down time

49. Identity/Visibility Indicators • Website analytics • Facebook friends • Posts • Open rate for e-news • Media coverage

50. Leadership Transition Indicators • Leadership demographic trends • Recruitment targets • Transition preparation timeline