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Thursday, January 7, 2010

Veldon Law: Beyond the Fund Balance

Questions to Ask Your Chief Financial Officer

Many in key positions of organizational leadership find themselves in roles requiring an understanding of financial matters beyond the specifics of their education and experience. While there are leaders that have risen to their role through the ranks of the “accounting department,” it would seem that many have had little more than:

1) basic accounting,

2) responsibility for departmental budget development,

3) keeping spending within a set limit, and/or

4) generating income to meet a particular goal.

Obviously, organizational leadership requires some understanding of financial matters but leaders are generally appointed for skills beyond just fiscal acumen. So for the many of us in leadership roles who lack a professional background in accounting there are strategic questions that leaders can use to stay abreast of the financial health of the organization as well as ask to guide planning. These are questions for the organization’s chief financial officer which will keep you as the organization’s leader informed while you meet your fiduciary responsibility.

Key Questions

The following are questions whose answers have a tremendous impact on organizational policy and planning. They are questions designed to peel away the top layers of financial information in an attempt to arrive at substantive detail without micro-managing the CFO. They are questions whose answers do not require a CPA for understanding, and they are questions to which every CEO should have answers.

1) What are the organization’s various sources of revenue?

2) How reliant on vulnerable streams of revenue have we become?

3) If there are auxiliary enterprises, are they self-sufficient, and have we transferred or hidden some of the costs of operation into other funds?

4) Do any trends in major categories or revenues and expenditures cause you concern?

5) What if any concerns do you have with cash flow?

6) Would you describe the nature and amounts of our accounts receivable, and discuss our likelihood of collecting outstanding amounts?

7) Should any outstanding long-term debt be refinanced to save money, improve our ability to pay, or to remove troublesome debt covenants?

8) Would you describe the composition and nature of the organization’s outstanding accounts payable and accrued liabilities?

9) Over time, have there been any major change in assets, liabilities, or required transfers that cause you concern?

10) Would you please outline the type and amount of each of the organization’s investments?

11) What fiscal obligations does the organization have related to leases, operating agreements, monthly capital payments?

12) What is the age of our information technology, and do we have a planned replacement or improvement schedule?

13) Has the failure rate on any of our buildings’ major components or equipment been increasing, and do we have a plan for rehabilitation or replacement?

14) In dollars would you describe the intermediate term impact of any labor agreements with various employee groups relative to compensation and benefits?

15) Do we have any new reporting requirements and will those requirements affect reports we are accustom to receiving?

16) Would you describe how decisions are made about resource allocation?

17) Does the expenditure of resources track with the organization’s plans and the priorities as articulated by the Board and leadership?

18) Against whom do we benchmark our financial performance?

19) What have we learned about our financial performance in comparison to those against whom we benchmark?

20) Is there any other financial information you believe might assist us as policy makers?

Each question lends itself to broad implications. Without addressing each potential implication, the implications range from determining price sensitivity, avoiding embarrassments over lack of timely payments to venders and employees, providing a tool for discovering efficiency of payment systems, to long-term liability, etc.

Armed with these questions and following a thorough discussion of them and the implications for the organization with the CFO an organizational leader will be well prepared to address strategic planning and organizational leadership, their major responsibility.

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