by Jini Stolk
Fair is fair. In my last posts I wrote about the Board’s financial responsibilities – so I’d like to say a few words on the Managing or Executive Director’s crucial role in financial strategy and oversight.
The invaluable Nonprofit Quarterly published (on Christmas day four years ago, I just noticed) an exceptionally helpful Executive Director’s Guide to Financial Leadership. It comes squarely down on the ED’s responsibility for developing a business model that sustains financial health while achieving the organization’s mission. This is a much larger role than merely collecting financial data, producing financial reports and solving day-to-day financial issues, and requires an array of executive skills:
- Strong annual budgeting, aligned to a written annual plan
- A focus on the net financial result (in other words, the desired balance between income and spending)
- Diversifying income as appropriate and possible
- Risk identification and management
- Anticipating and resolving cash flow issues
- Planning for and building reserves; and more
This, of course, debunks the mistaken idea that once an Executive Director identifies a financial problem, it’s the board’s role to solve it! That’s too much to expect, and expecting it leads to disappointment and trouble. But knowing how to “help your board to help you” is definitely a core ED skill and responsibility, well-covered in the Guide.
This includes providing thoughtfully prepared and useful financial reports that “communicate information specific to the organization’s size, complexity and program structure in a format that matches the knowledge level and role of the board.” There’s no one-size-fits-all financial reporting format, especially when boards need to be looking at compliance with financial standards, organizational effectiveness, planning and any necessary urgent action.
As with all things governance, financial leadership involves both mutual and separate, but reinforcing, board and staff roles and responsibilities which should be discussed, defined in writing and understood by all.
A reminder: check out the extensive financial resources on the Young Associates website, which contains tips, links and advice on budgeting, accounting, financial management and reporting, tax and legal requirements for arts organizations, and much more.