Have you found yourself spending hours preparing detailed reports for a Board meeting only to have them glanced at and tossed aside? Yeah, us too. So we thought we would put together our top tips that will ensure your reports are the highlight of the meeting.
Tip #1 Know Your Board
Most boards bring a wide variety of skills and expertise to an organization, which makes good business sense; but often means they have limited time and possibly limited financial or accounting experience. This can make it difficult to effectively communicate essential financial information to them.
By getting to know your board members, you can tailor your communication. For example, I worked at a non-profit who served the elderly community; our board was primarily made up of retired professionals. The problem was, they were not all computer savvy. Excel spreadsheets were confusing to most or at times not accessible. The best way to communicate financials to this group was to print hard copies and mail them out in advance.
Tip #2 A Picture is Worth 1,000 Words
Keep in mind that visuals, like dashboards or graphs, are often easier to understand than columns of numbers, and can better display trending information. Additional narratives or summaries are also very useful.A dashboard, a one- or two-page snapshot of key metrics, may be especially appropriate for the members of a board that also has an audit or finance committee.
Which indicators should be included on a dashboard? Management should work with the board to select the optimal indicators. Ideally, the handful of indicators most likely to communicate the organization’s performance in critical areas should be presented – information the board can use to determine whether the organization is on track or if corrective action should be taken. Examples include cost per primary outcome, cash reserves and working capital. As with standard financial reports, benchmarks should be included for context.
Tip #3. Don’t Assume – Train
It can be easy to think “oh everyone knows how to read and use financial reports”. A better practice is to roll training into your board member onboarding, including time for new members to meet with the Chief Financial Officer or accounting person to go over the financial report format, and to understand the organization’s critical financial factors. This would also be a good time for a review of the organization’s financial results and goals and strategic directions of the business.
Tip #4. The KISS Rule
This one is an oldie but goodie. Keeping it simple makes everyone’s life easier. Short and easy to browse reports, such as simple charts and small tables are best.
If a board member wants more detail, they will ask for it. Most of the time we find board members are interested in following:
- Where and why performance is changing.
- Long-term trends, provided in year-over-year formats.
- An executive summary of the information.
Tip #5. The Executive Summary
Always have an executive summary. Even if board members don’t look at anything else, they are likely to read over the summary statement. In the summary report, we suggest including:
- Cash as an amount and as a % of total assets.
- Disclose the current amount of accounts receivables and if it’s an increase or decrease. Also, any future collectability vs. bad debt written off.
- Current liabilities and the % of total assets, so you can compare to the cash amount.
Tip #6. The Must-Haves
At a minimum, monthly or quarterly, the board needs to receive the following financial information:
- Statement of financial position (balance sheet)
- Statement of activities (income statement)
- Cash flow forecast
- Actual results compared to budget
- Operational figures (for example, cost per unit of service)
This information will help board members evaluate decisions and the direction of the organization effectively. When engaged in planning, board members may also need trend analyses, information about the external environment and its impact on the organization, financial projections and multiple budget scenarios. Capital projects or new programs under consideration may require specialized budgets of their own.
Tip #7. Use Clear Sections
- Ratios: Many board members may find it easier to process ratios, which combine two or more pieces of financial data to provide a more comprehensive view. For example, sales or services by location compared to each other.
- Summaries: Use summarized information for income and expenses, rather than providing detailed line items. This makes it easier for board members to focus on the big picture and they will ask for details if they want them. So, be prepared to provide it.
- Narratives: Supplement your dashboards, charts and graphs with meaningful commentary via a narrative section. Use the narrative to highlight significant items and explain notable variances between budgeted and actual figures.
- Timing: Make sure the necessary financial statements are prepared well in advance of Board meetings and distributed to board members at least one week before the meeting to give them time for review.
Tip #8. Don’t Just Report – Interpret
Focus on exceptions and important outliers vs business as usual information. The management team should distil day-to-day informational reports and bring to light potential problems and/or discrepancies to be noted on board reports.
Finance professionals need to do more than simply put the right numbers on the boardroom table. If they are to add value, they must also act as strategic advisers, explaining what’s behind the information and pointing out possible solutions to any problems.
Tip #9. Know What to Leave Out
Boards should not be bombarded with an excessive amount of detail. Don’t present data that isn’t needed.
Tip #10. Be Ready With Details
Presenting summary information is great, but having the back-up details will ensure you can confidently address questions as they come up.
We Can Help
Many current ERP systems can assist in helping you communicate the correct financial message to various audiences. Crestwood Associates specializes in the small to mid-market ERP systems and can help you choose the right fit solution for your business. If you liked reading this article, take the short survey on our partner rating page and see what else you could be getting when you choose Crestwood as your ERP partner.
