Nonprofit Financial Management: Not Just a Numbers Exercise
A critical skill in the successful management of an organization’s resources is understanding and communicating financial management to a variety of stakeholders. Financial management is more than doing bookkeeping and accounting or developing a budget and reading financial statements. From my perspective, a true expert in financial management must be able to interpret information and make this information accessible to the stakeholders and key decision-makers within any organization.
In my experience as an educator and workshop facilitator, I have often used the approach of finance as a language as opposed to a mathematical exercise. The function of adding up a column of numbers or subtracting numbers is strictly a mathematical act! Four plus four equals eight (4+4=8) is math. However, what does four mean to us? Is four too much or too little? What is the relationship of four to the activity at hand? Equally as relevant is what does the number eight mean to us. All of these questions are much more than about the “value of four or eight.” I would argue that being able to define the meaning of the number eight (or four) and use that knowledge to make a business decision is much more about financial management (which is more of an analytical exercise) than mathematics! The fundamental vocabulary of finance uses many of the concepts from accounting (the core); however, the interpretation and subsequent discussion of financial management requires understanding the relationship of numbers and the context of those numbers in making decisions. Ultimately finance management is about storytelling!
The moment I say to my audience, “finance as a storytelling exercise,” a world of possible narratives opens up to those who are not trained as finance or accounting professionals. The idea of engaging in a conversation about finance does not seem nearly as intimidating. One of the primary purposes of having an understanding of finance and financial management is to enable leadership to be able to tell the “financial health story" of their respective organizations. People are relieved to hear that this information, often shrouded in secrecy, is really a language and way of communicating with someone about the financial state of an organization.
The purpose of understanding the language is to empower leaders to ask the relevant questions of those trained professionals who are financial technicians. The question at hand that is most on the minds of management is, “How much money do we have?” This is a valid, very concrete question. However, it is not the only relevant question — or even the most critical question — if we want to understand the organization’s ability to sustain itself and grow. Understanding finance and financial management through the lens of a language, in addition to a technical skill, is a way to explain our organizational priorities and the decision-making process in allocating resources.
Over time, I want to spend some time “deconstructing” some of the complexities of finance as a powerful tool in nonprofit (and for-profit) management. The more we can explain how finance is about storytelling and not numbers (dollars and cents), the better management and stakeholders can communicate. The challenge for finance and accounting professionals is to make information as accessible as possible for the people who are going to need to act upon this information. The idea of making information accessible is a fundamental building block to real collective decision-making.
It is not necessarily as complicated as it seems! So let us see if I can help demystify some of the skills and language being used.