Reporting key financial statistics is a challenge for many EOs. Often, boards don’t even know what they want! In this workshop held for the Central Coast Community Council, Exec Connect Program on Thursday 24 August at Ourimbah RSL Club, we work through 10 key financial questions, the related ratios and their meanings, and how to present this information to your board. Consequently, we will briefly explore the limitations of the Associations Incorporated Act 2009 financial reporting requirements compared to the financial reporting requirements under the Corporations Act 2011.
Our first workshop concentrates on ideas for financial reporting, a particularly challenging area of reporting for many boards.
Three key principles are: less is more, top down, and backward looking to forward looking.
Less is more when financial reporting is well formatted and presents clear, and concise information. This will usually be a mixture of numbers, text, graphical representation, and exception reports.
Top down provides clarity in the overall picture. These financial markers work best when correlated with the goals set by the board and executive team in the strategic plan.
Backward looking to forward looking is checking the decisions that were made in the past have set us up for the present (or not), and how are we financially positioned for the future.
When I look at reporting to a board, the question I ask is… “If I were a director of this organisation, what would I want to know?”
The first thing I want to know is the historic record. I review the five years (and sometimes more) of financial history from annual reports. I review the income statement, cash flows statement, balance sheet, and ratios.
This tells me a lot about the strategic narrative. That is, has there been a story of careful planning, use of resources, key investment decisions, and so forth? Or has the board made, let’s say, interesting decisions!
Have we been close to financial jeopardy?
Have we grown year on year?
What is our historical management of personnel wages and liabilities?
Has there been a significant event in the past (e.g. bought or sold major assets, took out a major loan) and what was the purpose of this strategic acquisition? How did this change our financial landscape?
It is important to remember and, at times, remind the board of the narrative, so we can argue for or against like issues in the future. As the adage goes, mistakes are only mistakes if you don’t learn from them.
The present is looking at monthly or quarterly financial statements compared against budget or the rolling forecast.
This is a combination of the less is more and top down principles. In a one-page executive summary, I should learn how the organisation has performed during that reporting period.
Specifically, what I want to know is;
Are we in financial jeopardy?
Do our profits – gross, operating and net – mirror our forecasts or budgets?
Are we growing quarter by quarter?
What are our personnel wages and liabilities?
Are we meeting compliance (e.g. super, tax, interest payments, funding terms)?
Are we on our way to achieving our strategic goals?
To calculate many of the ratios, we need the Cash Flow statement. This may be a report that you specifically request from your book keeper or accountant if you operate under the Associations Incorporated Act 2009. Sometimes, we are limited by our accounting software in producing this report accurately.
Cash flow, in plain English, is money we have coming in and money we have going out of the organisation. It separates what type of money has gone where.
The area I’m interested in specifically is the Operating Cash Flows. This has lots of information that reveals if the organisation is operating profitability, or relying too much on its investments and borrowing money. Operating cash flow is like your weekly wage; what happens to all the bills if you suddenly lose your job or take a pay cut?
The final thing I would like to know as a director, is the future financial health of the organisation.
What are the significant financial events coming up?
Are we prepared for sudden disasters?
Can we take advantage of sudden opportunities?
While the present figures may be hitting the targets today, as a director I would like to know what next month’s figures may look like. For example, do we have a major cash payment going out of the organisation that will affect our working capital? How will a major funding deposit affect our ratios, so I don’t get too excited about the sudden increase of revenue?
The rule of thumb is to have enough cash reserves to pay 3-months’ worth of bills if, for some reason, the money coming in dries up. Imagine if a natural disaster or compliance breach caused a loss of income – how long could your organisation survive?
I also want to know if an opportunity came up that we hadn’t planned for, like acquiring a similar business, do we have the financial ability to take advantage?
This is all great, but how do we work this out?
Bring your calculators to this workshop or, better still, your Excel spreadsheets.
We will begin by analysing your most recent annual financial reports then discuss how these can be included in your monthly financial board report. While different accountants have their favourites, the ratios we’ll look at include;
Debt to Equity Ratio
Debt to Asset Ratio
Operating cash flow to borrowings
We will also explore the difference between types of income and types of profit.
Why would we do this?
The financial goals we set strongly influence our strategic actions. To achieved these financial goals may require changing the organisation’s behaviour. This is the meeting point of financial goals and strategic planning.
Organisational behaviour may need to change the manner in which it recruits and trains staff, the programs it runs, the marketing budget and plan, and whether diversification or amalgamation strategies are required.
SHAYNE LESLIE | 0412 241 773 | firstname.lastname@example.org
To book this workshop contact Central Coast Community Council on  4333 4401. Eventbrite link coming soon.