5 Questions Nonprofit Leaders Should Ask Their Finance Team

Hey, welcome back everybody. It's a really important day on the nonprofit show because it's nonprofit power week with our friends at your part-time controller. And today we have Barbara Enright. She's a director with us or with YPTC joining us and she's gonna give us the questions that we should be asking our finance team. Wow, Barbara, there are a lot of questions, aren't there? >> Yes, there definitely are. Well, we are delighted to have you with us. You know, we don't do nonprofit power weeks very often. They're very rare. Um, and when we do them, it's a big deal because we take a topic and we run with it for five days straight. And so, this week it's all about finance and how we need to be thinking about um our accounting, our finance, our revenue. And it's been super interesting. really I've learned a lot. Um Barbara, no pressure that you know you you come in on Wednesday, but um this will be really fabulous. Um we get to have these these conversations because we have amazing presenting sponsors. They include Bloomerang, American Nonprofit Academy, Staffing Boutique, JMT Consulting, Third Sector Company, Your Part-Time Controller, and Martis, one of our newest partners. Um I'm Julia C. Patrick, CEO of the American Nonprofit Academy and Barbara Enright, talk to us about being a director with YPTC and where you are coming to us from. >> Sure. So, I'm a director and market leader here at YPTC and I lead our Dallas Fort Worth market. Um, so I'm kind of in charge of all of our fabulous nonprofit accounting experts and um, making sure that we're keeping clients happy and that they are um, you know, we're meeting all their financial needs and helping them um, increase their miss their mission. >> Right. I love it. So um, you were telling me in the green room that this part of Texas has really only been flourishing for three years. It's relatively new. Correct. >> That's right. We started in Houston. Um, and so I was saying that's been where I was hired out of. And then we've had our Dallas Fort Worth market here about four years. >> Wow. Amazing. Well, it's just great to have you on. Um, we have such wonderful relationships with all of the leadership across this country when it comes to YPTC. Um, it seems like all of you have your own unique personalities and traits and talents and yet you all row in the same direction which I think is remarkable given the size of your organization and how you're growing. And I guess what's really remarkable remarkable about this is that this allows you to see a lot, right? And so when we had the opportunity to talk to you about what are those questions that leaders should be asking their finance teams, we jumped on this. And the first one that you advise us on, it actually gives me the chills right now. Um, do you trust the numbers? I'm like, well, yeah, the numbers show up on a piece of paper. Of course you trust them. And then when I was, you know, preparing for this, I'm like, "Oh, man. I've never asked that question. I just assumed that those numbers were right." Talk me off a ledge here, Barbara, because I'm shocked by this. >> Sure. Well, this is obviously a difficult question to ask sometimes, uh, because, you know, you're worried about offending people or getting anyone upset, but it is an important question to ask. And really, when you're asking, do we trust the numbers? What you're really asking is are these complete? Are they final? Are they accurate? >> Okay. >> And so a lot of times the numbers are correct, but they're preliminary. And so what we're really waiting on is, oh, we still need one more reconciliation to do or, you know, we're waiting on this report from the other department or it's endofear statements things we're making. And so the numbers are correct, but they're preliminary um in that case. So, uh, Deanna Peterson, uh, was on Monday and she gave us a really interesting, um, tip, and that was to not have your board meetings right at the beginning of the month because the finance team hasn't had a chance to reconcile everything. And she was talking to us about you're going to get better information if you go two, three weeks into the month. Do you think that's a a good strategy as well to get that veracity up? >> That's absolutely accurate. Unless you are a tiny organization, you have, you know, a few transactions a month and that's it. You know, we can close you quickly, but having the time to reconcile, you know, we need to talk to the development team, talk to the programs team, make sure all the numbers are together, and that just takes time. >> Yeah. Really interesting. Um, I I just thought of something when you were walking through the reasons why we should be thinking about this. Um, I don't know how often I've sat on a board and seen or heard the word preliminary. The these are the preliminary numbers. Um, is that just my fa my failing or do you think that um this is something that we don't re recognize or we don't use that vocabulary? You know, >> I think it's something we don't often use. Um, typically, you know, we're closing the month and so the month is as accurate as it can be, but the time I typically use preliminary law is the end of year numbers. Um >> yeah, I worked with one organization actually that um you know, we gave them preliminary numbers for board meeting and then we made all of our year-end adjustments and one of the things was um looking at whether the pledges were still collectible and we ended up a huge pledge was no longer collectible and what looked like a surplus turned into a deficit. >> And so I was very glad that we had told the board these are preliminary numbers. >> Yeah. And I think what you just said is such a great, you know, piece of can we trust these numbers. That's really sage advice because um if you can kind of buffer what could be you can plan for it, right? But that to have that shock when the revenue difference o I'm glad I'm not on that board. Sorry. >> It's not a pleasant conversation. >> Okay. So, we're we're like looking at the veracity of the numbers, feeling confident that we do have the right numbers so we can make the right decisions. I love this next question that you're advising us to to ask and that is what do I need to know right now? Like this is really interesting, Barbara. Talk to us about this. >> Yeah, this is actually my favorite question. I know we're not supposed to have favorites, but it is one of my favorites here. Um because I think so often accountants especially, you know, we can get sucked into the numbers and just be staring staring at all these numbers and a board can help a finance team take a step back and really look at what's the most important thing I need to know right now. It's great to talk about the variances and all the little differences, but if you're running out of cash, the board needs to know. It's an interesting thing because it seems like it can can help light a fire to the conversation for the rest of the meeting. >> Exactly. Exactly. And that's why it's so important. I love, you know, at YPTC, we always include a memo with our financials. And that executive summary is just the most important part. It's the thing I hear from boards all the time. Thank you for bringing us in here. You know, I can read those two or three senses and I know, are we doing well? Are we doing poorly? What do we need to be concerned with? um you know get that big picture of what's really important right now. >> Yeah. Um you know it's it's a fascinating thing because we were talking in the green room. Um I'm always even with my in my own life trying to use that 10 10 rule. You know what decision or what action do I need to take? Um and I break it down into the next 10 weeks, 10 months and 10 years. And when you look at a situation and then you use that lens, um, your response is generally different, right, for each of those time frames. And so it I think it kind of helps to say what needs to bubble up to the front so that you are doing the right thing and you're being the best steward of the organization that you can be. Um, and again that this is a really interesting question because I would imagine that 90% of the time this gets asked um the finance folks have a different answer than what maybe leadership has. Is that is that possibly true? >> Yes, absolutely. Um, you know, leadership has so many other things they're thinking about. Same with the development, they all the different answers and programs, but finance is really looking at the financial health of the organization. And so, you know, while that is still mission aligned, they may have other concerns in there as well. >> Yeah, really an important question. And I I again, one of those things that I had never thought about and I I'm like, wow, there's so many times over the trajectory of my board service, I wished I had asked that question. I wish that I that I had even thought to ask that question. Right. Um, okay. So, then you've got the down and the dirty and what's going on? What do I need to know right now? The numbers are right. The numbers are still in translation. What the next question is again fascinating. What are we expecting next? What's coming down the road? I don't want to wait until the next board meeting to have a disaster or have never thought about something that needs to be acted upon. Talk to us about this as well. >> Yeah, absolutely. So, a lot of times you'll find finance folks were kind of obsessed with the numbers in the past or looking at what happened in the past and not thinking about what's going to happen in the future. And so, that's where forecasting, projecting, um, scenario planning, all of that can come in. And that's so important, especially right now when we're having, you know, times of uncertainty. We need to be able to plan ahead and know how we can pivot in the future depending on what's going to happen. Mhm. Um that scenario planning, I love that you brought that up. Um so you have those tools in your toolkit when you ask that question, what's up next? Is that the time when you pull that out and say we've planned for this or is this the time that you create those scenario plans? >> It should have already been planned hopefully ahead as we get in there. Um, you know, some situations, especially if it's a time of flux, we really need scenario planning when it comes to, you know, funding and things like that going on. Um, I heard someone once say they do a blue sky, gray sky, dark sky scenario planning, which I really liked and I've used that a lot. >> I love it. I totally love it. And I think um it's that's brilliant. That's just brilliant. I love that you gave us that idea because again, it's a framework. Um, and and that's always been kind of one of my challenges with scenario planning. Um, because it's like, well, wait a minute, there's a bajillion things that could happen, but if you kind of break it into smaller pieces like that, it makes it a lot more manageable, doesn't it? >> Yeah. So, if you're, you know, the development team is saying, "Hey, we applied for all these grants. There's, you know, a million dollars out there." Well, you can blue sky plan. Great. we got a whole million dollars or we got nothing. What do we do then? Or maybe it's somewhere in the middle, which is probably most realistic, >> right? I love that. That's brilliant. That's a that might be the the best thing I've learned today from you. Um I'm fascinated by that. Let me ask you a little bit deeper question. Um a lot of times organizations and they generally are larger organizations, they'll have robust um finance committees or people that serve the executive committee um that are more, you know, educated and more uh capable of working with a finance department understanding asking these questions. Um but it I'm thinking that these questions are not just for those folks that they're really for everybody. Can you kind of give me your thoughts on that? >> Yeah, it is really important and I think that's why kind of breaking it down to these simple questions helps for people when you know they may not have a finance background. We work with a lot of associations and so we might be working with a whole group of firefighters or a whole group of doctors. They don't have any financial background but they can still ask what's going to happen next. Are the numbers right? Can we trust them? You know, those are really simple questions that anybody on a board and a finance committee can and should be asking. It also makes it seem to me that maybe a a tact would be that the finance person representing the organization or doing this this work would say here are the questions we need to be asking like lead the the the board or the team or if it's a leadership team into even beginning to think about these questions, right? >> Yes, absolutely. especially when it comes to kind of a forecasting piece. You know, that's just not something everyone always thinks about. A lot of boards, you know, well, it's a checks the box, great, we got financials, we approve. Um, but, you know, if you have a robust finance team, they should be coming in and saying, hey, here are the things we're thinking about next. Here's our forecast. You know, we had this budget. It was great. It was the best. We knew what to do with it at the time, but now we're getting into um, you know, inflation just happened or COVID happened. you know, something happened and that the numbers change for what we're projecting. And so being able to look into that as well as work across teams is really important for projecting to talk to the development team, talk to the programs team, talking to leadership, um you know, making sure you're getting all the input, all the variables that you can have the the best guess of what's coming up, >> right? So the next question is a fascinating one because I feel like this is where a lot of tension occurs between a board who doesn't really understand the concept of what can we use these funds for and it boils down to restricted versus unrestricted funding, doesn't it? >> Yes, absolutely. And um like you said, a lot of boards don't always understand and especially a lot of people serving on nonprofit boards don't have a nonprofit background. they're coming in with cash is cash, everything's fine. And so, you know, being able to explain, you know, that's great, we have this million dollars that we got, but we can only use it for this specific program in this specific way on these specific salaries. And so, it's really important to be saying, what's our unrestricted money and what's our restrictions? I think that that's got to be one of those things that the finance department uh when they're coming in to work with their board or committees, they have to re revisit the definition of this and the process of this because it seems to me that I hear all the time from uh finance teams about how screwed up things get over this very issue because to your point, people are like, "Wait a minute, we got all this money in. How could that be?" And then and then you know to have to make these adjustments can be I think this is one of those things that makes it Barbara why people fight or have stress within their organization with the finance department because even the employees don't understand this. >> Absolutely. Well, and this especially talking about restricted funding, it so closely involves development and finance and programs and as you know oftentimes they're not talking to each other and that's where the breakdown happens. Um we came into an organization and they said, "Oh my gosh, we have all these grant reports due. Please help us. Please help us." And um we went in and they overrestricted their funds so much that they put down specific people's names for the salaries which of course over the years people moved on, people moved to different positions. And so we had to go back to the funders, submit budget adjustments, all of that before we even released the restrictions. And so again, having finance involved at that beginning part with development, but then also in the after to help with programs, you know, have we spent this, what did we spend it on, you know, is really really critical. It's an interesting thing because I feel like when we're talking about development, the pressure to to, you know, for cause selling and and I don't think selling is a bad word here. I want to make sure that I'm very clear on that. But we sell to get funding, right? We sell ourselves. We sell a program. We sell trust. We sell, you know, this philanthropic relationship. And I think it's really easy to sell an idea and a concept that says your money is going to go help us do d right but the reality is we need funding for gen that you know things that aren't sexy things that aren't grand but you know that keep us going. Um and so I I can see how this happens right I can see the struggle and um it's a tough thing. It's a really tough thing. >> It is. It is. And I, you know, development teams are wonderful at what they do. I could never do it. Um, but you know, when they're out there selling this specific program in a really, really specific way, sometimes it makes it hard. The organization can't succeed if it doesn't also have an executive director and an accountant and, you know, legal, you know, all the various things that we need just to actually really run the program and keep serving the people that we're serving. Um, you know, it's an interesting conversation that we need to have even more. Um, and to really understand how we look at restricted versus unrestricted funding. Um, I had and I think it was somebody from YPTC who several months ago we were talking and they said, you know, when you design your year-end um, asks, maybe it's a digital campaign or maybe it's snail mail and you're like, 50 bucks will buy three backpacks, 150 bucks will buy, you know, a hundred pencils or whatever it is. technically if you're if you're posting that up that way any funds that you get would should need to go there and even a lot of you know organizations don't realize that they're like oh wait yeah if that's how we've put forth and we've marketed ourselves and that just blew me away. Yeah, absolutely. Sometimes, you know, it's just the advertising. It doesn't have to be a complicated grant that puts, you know, things into restrictions. Uh, like you said, some organizations I've seen, you go to their donation page and you have, you know, five options to choose from. But if you instead make it, well, hey, only if you're wanting to restrict it. Let's just, you know, you can go to general offering, they can help the whole thing. You know, they're almost um enticing people to restrict their money. >> Yeah. And I would say as a donor when I look at that, you know, there's always that what's my money going to do? And I think I think when we have these super donors that has made things even more it's more imperative. That person's like I only am going to get 50 bucks. What's 50 bucks going to do? But when when I see those things, I'm like, "Wow, well $50 can go pretty far. I should stretch it to 150 because it it goes that much further." But, you know, tying it back to being a restriction is it's a fascinating issue. Um, so asking that question super super important. One of the big questions that nobody wants to really ask or even understand. Are we ready for the audit? Oh, what does that mean? >> Yeah. So, um, this is a really important question to ask. You don't want to go into an audit if you're not ready. Obviously, you always want to come out with your unmodified or clean opinion. Um, where I see this is not only organizations that have their their um audit every year, but okay, what else do we need to gather? What documentation or are we missing something from development? You know, what are the extra things we need? But this question comes even more important when an organization is going for their very first audit. We come across that a lot with our organizations. And sometimes we can say, yes, the numbers are right. We have all the documentation, but for the last year, you've had a single person who is in charge of all cash receipts and there's no controls in place. So, we're going to end up with internal control deficiencies. >> Interesting. Okay. And so, technically, when do we start asking this? I mean, if we're we're working with a finance department as a leader of an organization or a board member, committee member, when does this question get asked? I mean like right before the audit or at a certain time of year like how should or the beginning of the year how should we be thinking about this? >> It really should you know at least a few months before the audit usually when you're you know signing your new engagement letter with your auditor you should be asking what's our timeline what do we need you know typically you know we need a couple months to get everything you know in or do we have some other items that are outstanding that it might take us longer to get there. um because you're really hoping, you know, best practice to have your audit completed within six months after your end. >> Okay. Okay. Good advice. That that kind of helps level set that that process. Um because again, what you just said was very interesting to me. Um especially if you're new to the audit process, you've grown your organization. Um backing it up. um talk to us a little bit about the control piece because that's it's not just the numbers right the num the management of numbers >> exactly yeah it's so much about controls like I mentioned you know one person being in charge of all the cash receipts can be a problem um but similarly even sometimes just your documentation um you know if uh for your program you're not collecting all the receipts that can be an issue so it's it's really relying on everybody making sure we're following you know the same internal control having the policies in place as well, >> right? And so again, that's going to be somewhat of a new concept for for some of these organizations. Um because if you can share with us a little bit about some of the policies that you're asked about that you might say, "Wow, that doesn't even relate to finance or accounting." But talk to us about those policies. >> Sure. Yeah. They're looking at not only financial policies, but also what are board policies? Do we have an investment policy? Um, all of those and then as well as just uh some of your internal controls and the processes around how you're delivering your program can come in there as well. >> Yeah, really interesting. And I I feel like those questions are going to actually um be increased with IT issues, data privacy, and certainly AI. >> Absolutely. Yeah. We're seeing more and more need to show cyber security insurance, you know, things like that. Um, and again by just asking, you know, are we ready for the audit? You're going to find out. Finance teams typically know, you know, what's going wrong? What are we missing? What's in there? Um, and so, you know, especially if you're coming up thinking about doing your first audit, you can never ask the question too early. >> Right? So, a lot of of these uh audit partners, they're going to give you a list of things that they want, correct? In advance. So, you should have it shouldn't be just a blind situation. You should have something pretty well in advance, right? >> Yeah, absolutely. So, um you know, you know what to expect roughly. You know, you're giving them the numbers, then they come back with samples. So, they're asking for, okay, can we have, you know, this grant, this grant, and this grant documentation, but if you're following best practice, having the policies, finance should have that right there. They should have the receipt of the cash coming in, you know, have any information on the restrictions, you know, that should all be right there. um you know for with the finance team so that they can jump in and and supply that. >> Yeah. Very interesting. Well, this has been a great conversation um and something Barbara I sadly had never thought about. I think that um I think that many board members when the finance reports are given or the finance team comes you just sit there and you listen and you hope that you can understand but we don't ask questions right and I think that what you've given us are some really interesting tools that are a lot more strategic than just did you check the box right >> yeah absolutely and you know really the the board and leadership can take, you know, an extra kind of checking step here where, you know, finance might be, you know, all in the numbers, but when they take the step back, then they're able to do their jobs better when they're asked these questions. >> Yeah, I love that. I love that approach. I think that's really smart because also it takes it it takes it out of just the clerical mindset. It puts everybody into a much more strategic mindset. Several times during this this conversation of ours, you've brought up development Right. And we need to have we need to blend those conversations more. So that's been brilliant. Really a lot of fun to have you on, Barbara. Um Barbara Enright, she comes to us from our friends over at U YPTC, your part-time controller. She's a director and you can learn more about the work at YPTC at ytc.com. Uh your part-time controller only works with nonprofits across this country. They have a really really robust I'm going to call it educational se section where they have blog posts, they have trainings, they have webinars, they have episodes of of the nonprofit show. Uh and you can go on and there's there's no gatekeeper here. You can go on whether you're um a client of theirs or not and really learn about the different things that are going on. Um as Barbara you've brought up today, it's so complex but it doesn't need to be. It just I feel like it needs to be more strategic these conversations. >> Yeah, absolutely. >> Yeah. Really been really interesting. Barbara's been with us as part of uh nonprofit power week. And during this week, we've talked about the red flags that boards often miss adopting AI that you can trust and how you should be thinking about leading your organization through that, not just with finance, but with everything. We're going to be talking about when is it time to break up with your accounting partner and how do you know and then what are the big questions about asking um your software partners to to do and how to work with you different topics they all bleed into one another. It's been a fascinating week. We're just hitting the middle part. Uh Barbara, thank you so much. >> Thank you so much for having me. >> It's been a lot of fun. Um, we are here because we have these amazing partners that stand with us. They include Bloomerang, American Nonprofit Academy, Staffing Boutique, JMT Consulting, Third Sector Company, your part-time controller, and Martis, our newest sponsor, Joining the Nonprofit Show. As we end this episode and we end each and every episode, we leave with this message and it goes like this. to stay well. So you can do well.