By Ron Yates, former Senior Financial Consultant
Over the past few months, we’ve written about the financial skills you need at board, leadership and finance team levels. These financial skills aren’t simply nice to have, they are integral to running a successful NFP. While there is a cost associated with getting your financial resourcing right, this easily outweighs the cost of getting it wrong.
Sadly, we see a number of organisations that have been damaged by poor financial management. We’re not talking fraud – thankfully those cases are rare – but we do see the results of overstretched, under-skilled, or simply misdirected financial management and administration. Here are the top five consequences of getting it wrong:
1. Increased costs
Failing to keep on top of financial admin can increase your costs. For example, late payment penalties, avoidable banking fees or the fines for late filing of regulatory reports and BAS returns can quickly add up. Would you rather spend your resources on fines or mission-directed activities?
2. Poor cashflow
This can be a knock-on effect of delayed raising or follow-up of invoices, or failure to submit funding acquittals. It can have a significant impact if you’re in receipt of large grants where payments are withheld pending acquittal reporting. Can you afford for $100,000 of a grant payment to be delayed whilst you’re still paying the staff who are delivering the program? What about the avoidable management time spent on worrying about, and working through poor cashflow?
3.Damaged relationships and reputation
The odd late payment or acquittal might be tolerated, but successive delays are likely to undermine confidence in the management and governance of your organisation, and could result in your stakeholders questioning whether they will choose to work with you or fund you again.
4. Lack of financial visibility
If there’s a pile of unpaid invoices sitting in a corner somewhere, or income that hasn’t been reconciled, you cannot really understand your financial situation. Should you be celebrating that things are going well, or wringing your hands over the hole in your balance sheet? If you’re operating with limited visibility, you’re making decisions in a vacuum, or based on inaccurate information. Neither is good for your organisation – or your mission.
5. Failure to deliver mission
Poor advice and weak financial information puts you at risk of either spending money you don’t have or, given the tendency of many not for profit boards to be risk averse and financially conservative, not investing in your mission. Imagine your finance manager telling you repeatedly that your organisation has no money. It will bring staff morale down, and keep it there. Your senior leadership and board will be wary of investing in the developmental improvements necessary to keep systems up to date and services relevant.
If you are genuinely broke and you have a good understanding of the financials, at least you will be in a position to plan your way out. But if the information and advice is wrong, and in fact your balance sheet is pretty healthy, you are losing the opportunity to leverage the resources available to increase your impact and further deliver your mission.
Not every not for profit can afford or even needs full finance team capability in-house, but be aware that saving money on resourcing your finance function can result in increased costs down the line if you don’t have access to the capacity and capability necessary to manage your organisation’s finances. Look for:
- Opportunities to streamline processes, reducing staff time and increasing efficiency, through process improvements and better use of software. This will help to keep on top of processing tasks and free up your resource for value-add activities.
- External support to:
- Build the capability of your in-house team – eg through training and mentoring
- Outsource elements of the work that you don’t need to manage in-house
- Provide an external perspective that can act as a check and balance on your in-house team, and identify further opportunities to strengthen processes.
For more information on CBB’s consulting services, please contact us via email email@example.com or phone 1300 284 364.