Financial Literacy and Organizational Sustainability

Posted by on Sep 13, 2011 in Board Development, Featured | 2 comments

Financial Literacy and Organizational Sustainability

I have long been critical of Land Trust Alliance’s organizational assessment tool, the Assess Your Organization or AYO, because it focuses 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.

Jeanne Bell, Jan Masaoka, and Steve Zimmerman collaborated last year on a new Jossey-Bass published book called Non-Profit Sustainability: Making Strategic Decisions for Financial Viability. In it, the authors argue that complex challenges now facing non-profit organizations “require that we shift our mental model from boards being primarily about financial oversight and accountability, to boards being concerned in an ongoing way with the financial sustainability of their organizations.”

I couldn’t agree more. The authors make a strong case for financial literacy being a key factor for strong board service, and that Board members should be able to understand the interrelationship between program results and financial results.

Of course the examples the authors use are mostly from non-profit organizations that provide services for which they get a fee – earned income – and are thus fundamentally different from land trust organizations. But the principles are still sound.

Non-profit board members need to pay attention to bottom lines 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.

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.

  • 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.
  • 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”.
  • Annual budgets should always include a projected surplus.

How does your organization work on financial literacy for board members? As always your comments and questions are welcomed.

-da

 

 

Here are some other articles I found interesting this week:

  • Do you have young people on your board? Here’s an interesting argument for why you should.
  • The Donor Relations Guru, which I admit I don’t know much about, has collected more than 600 sample acknowledgement letters into a pdf file. Check them out here.
  • Two land trusts are featuring local products for their end-of-summer fundraiser events. Sycamore Land Trust, and North Olympic Land Trust.
  • Here’s an interesting reminder on writing fundraising material. Remember who we’re writing to!
  • Great tips for drawing attention to your organization through the Op-Eds. Print this out and post it somewhere visible. Then make a commitment to start writing!
  • Special YouTube channel, videotaped thank you messages tailored to specific donor gifts – I love everything about this.

2 Comments

  1. I’m betting the experience was a positive one for the Wolf Center as well.

  2. Thank you so much for including my article about getting Young Professionals engaged on nonprofit boards. This is a passion of mine and I was privileged to get on the International Wolf Center’s board of directors at the age of 25. It was a fantastic learning experience and I have gone on to serve on three other boards and countless committees.