20 Feb Sustainable Organizations Teach Financial Literacy
I have long been critical of Land Trust Alliance’s Standards and Practices, because they focus too heavily on policies and compliance and too little on sustainability. It’s fine that you have a conflict of interest policy and that you monitor each of your 35 conservation easements every year like clockwork, but having only six Board members and 100 members is a problem. It’s not sustainable.
Compliance with minimum standards of land trust behavior is critically important, but organizations feeling that everything is hunky dory because they are compliant – or even accredited – is folly.
Perhaps it is time for a new set of Sustainability Standards and Practices. I will almost certainly add to this in future posts, but here is an assertion that would make the list for me:
Sustainable organizations teach financial literacy to their Board directors.
In Non-Profit Sustainability: Making Strategic Decisions for Financial Viability by Jeanne Bell, Jan Masaoka, and Steve Zimmerman, the authors make a strong case for financial literacy being a key factor for strong board service.
I could not agree more. And it underscores a point I have made before: Board directors need to be recruited – at least in part – based on their skills and aptitudes related to governing non-profit organizations. Being an attorney or a botanist or even a really nice person is not enough. And those who do not come with financial backgrounds need to learn.
Non-profit board members need to pay attention to bank balances and budget variances (oversight), but that is hardly sufficient. Board members need to understand what activities the organization is engaged in that generate revenue – for example, the spring appeal letter, or the annual banquet with the silent auction. They need to understand each activity’s budget and its projected income. They need to understand the return on investment (ROI). And they need to understand organizational cash flows at least six months out on a rolling basis. They need to see and understand trend analysis and future projections – both. And they need to base their decisions on this knowledge.
This is no longer just the purview of the Development Committee or the Finance Committee. “I’m just not a numbers person” just isn’t going to cut it any longer. New Board members should probably sit in on the Finance Committee meetings during their first year of service. Board leadership and staff should prioritize annual financial literacy training and consider mentoring those board members struggling to understand the financials.
Every activity that generates income should have an accompanying budget with projected revenues attached. (Those projected revenues should be created with appropriate timelines – ie. not necessarily annual.) Activities that are consistently under-performing should be eliminated, or at least rested – even sacred cow activities – in favor of activities with a higher ROI. New ideas and innovations should regularly be tested against “business as usual”. And annual budgets should always include a projected surplus.
My accounting friend Dana says that every Board director should know how much money the organization has that is unrestricted – that it can spend on operations – and exactly how each restricted gift was spent. That would be an improvement for most land trusts that I meet.
What are you doing to help your Board member understand the financials?
Cheers, and Have a great week!
Parts of this post were first published in 2013.
Photo by Pete Johnson courtesy of Stocksnap.io.
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