Three-Dimensional Financial Messaging
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The delivery and interpretation of financial reports is a complex and sometimes unpredictable process. It becomes even more complicated when you realize that the target audience consists of multiple end-users who will be considering financial information from multiple points of view. Effective financial messaging tactics that incorporate a three-dimensional (3-D) tactical approach will give you more options and opportunities to connect with the many different types of users of financial information.
For me, a 3-D financial messaging approach starts with the selection process for the delivery format. Most financial messaging falls into one of three formats:
Report Format: financial statements, financial dashboards, graphical representations, supporting schedules.
Written Format: consent agendas, finance memos, annual reports, treasurer reports.
Oral Format: board presentations, committee presentations, annual meeting and other public presentations.
The selection of the format is often dictated by the calendar and meeting schedules. Every month financial statements are sent to the board, usually teamed with a background finance memo highlighting important areas. If the board is meeting in person or virtually that month, an oral presentation will also be part of the process. Just knowing that the three formats will all be involved will impact the content. If the next month’s reporting period happens to be a non-board meeting month, there would be no oral communication opportunity. Consequently, written communications should be expanded.
Let’s break down the three core formats and explore the 3-D approach further.
Report Format
There are two distinct approaches within the report format: User and Component.
1. User 3-D Approach
The report’s generator:
Accounting department (including the CFO, controller, staff accountant, and bookkeeper).
The report’s primary end users:
Senior management, project managers, staff, executive committee, president, treasurer.
The report’s secondary end users:
Board and finance committee members, association members, donors, the general public.
2. Component 3-D Approach
A line item.
A line item in reference to time.
A line item in reference to other line items and/or reports and metrics.
The user-based 3-D approach forces you to consider the needs of three distinct groups, something that can only be accomplished through consolidation, compromise, and balance. Take regular monthly board financial reports as an example. The generators always want to push out system-generated standard financial statements that include every general ledger line item. This is what they are used to doing—it is part of their monthly reconciliation process. Unfortunately, it’s a lazy approach, since generators will not have to reconfigure their reports. For primary and secondary end-users, the need for detailed information drops in proportion to the distance/separation of their job or position title from the finance department. Depending on that distance, they’ll need information that conveys a bigger picture or smaller picture view.
With board reports, you need to balance the urge to push out tons of information that board members will not have the time, willingness, and/or acuity to process, against the fiduciary requirements of board members to fulfill their role of financial oversight. Ultimately, what the average board member can be expected to, or wants to, absorb becomes the key targeting factor. In general, less information is better. It is hard work and takes creativity to consolidate financial information to fit on a page or two while still aiming to be as complete as possible and convey a comprehensive story.
For the component 3-D approach the goal is to help the end user avoid tunnel vision on a single line item within a report. A one-dimensional view takes into account only one line item by itself. A two-dimensional view allows for comparison among line-items, while a three-dimensional view expands the comparison to a third plane such as time, a third line-item, or another report. This is best accomplished by combining small, consolidated reports onto a single page in the form of a financial dashboard, allowing the storyteller and the end-user to draw multiple 3-D comparisons.
For example, $1 million in cash accounts looks wonderful until you see $1.5 million in accounts payable. Then expand the view to include a third dimension: $1 million in cash compared to $1.5 million in accounts payable looks less frightening alongside $10 million in short-term pledges receivable that are rock solid.
The line-item 3-D approach also works well across multiple reports. For example, a bottom-line year-end surplus (positive change in net assets) of $100,000 looks nice until you see that total net assets at year-end on the statement of financial position is negative ($50,000). However, expanding to a third dimension in this case time, you see that last year there was a deficit net loss of ($30,000) reported. A picture from this comparison quickly forms that while the total net assets on the balance sheet are still currently negative, a big positive swing in total net assets occurred cutting the deficit position by two-thirds ($150,000 to only $50,000). At the same time you will observe that the bottom line moved from a deficit ($30,000) to a surplus $100,000 in just one year.
Including a non-financial metrics box to the side of the report, it is possible to add a fourth dimension to the story. Building on the example above, by adding a non-financial metrics box listing membership statistics displaying the number of new members, renewing members, and terminated members, you will be able to highlight the positive trend that new members doubled from 250 last year to 500 for the current year. Now the comparison view can be redrawn, showing a $100,000 positive surplus (change in net assets) linked to a 100 percent increase in new members, linked to a two-thirds reduction in negative net assets.
Visualizing multiple comparison views that are easy to comprehend are the key hallmarks of useful board and management financial reports.
Written and Oral Formats
The 3-D comparison approach for written and oral reports is similar, except you are painting a picture more with words than numbers. You want the financial reports to convey accurate financial information from the generators (the accounting department) but be useful and easy to understand for the target audiences (primary and secondary end-users such as management, staff, executive committee, and board members).
Make it a habit to use mini-comparison views when crafting and delivering your written and oral finance messages, which will help you avoid tunnel vision on a single line item like the bottom line.
My favorite 3-D approach for written and oral financial messaging is to incorporate multiple storytellers into the communication. For example, incorporating input from the CEO, a specific key project manager, and the director of finance gives the message a totally different personality then coming from a single perspective while still delivering specific core financial information. The CEO can add a mission-first slant, while the project manager will add information that is more closely-aligned to the project or cost area being discussed. The director of finance will make sure the numbers supporting the messages are accurate and include key financial metrics that help meet oversight fiduciary needs are integrated.
A monthly written finance memorandum is the perfect vehicle to accompany monthly reports and satisfy the written format. A written finance memo works best when you include an opening general statement from the CFO or controller stating for example, “Our mid-year six-month results are in line with our budget and cash flow has been better than expected.” This would be followed with a comment from the CEO stating, “In accordance with board directives and our strategic plan we are pleased to report that there is expanded member involvement in the leadership training programs and our research reports completed in the first quarter are now getting national attention.” Then the project manager would add, “Leadership summit registrations were up 42 percent over last year with 90 percent of the participants rating the training summit excellent.”
Planning Tip – When there are opportunities to present financial information orally at in-person or virtual board or committee meetings, be thoughtful with your presentation strategies and tactics. Avoid reading what was distributed in a written format. Use your oral presentation to draw attention to issues that will spark interactive discussion and encourage questions and feedback. Similarly, written reports should be carefully structured to support in-person discussion, include a base-level of information, and frame issues that will be on the agenda for future planning and actions.
For each topical area in your written and oral messages, try to incorporate as many comparison views as possible. For instance, the reports can compare major gifts to planned gifts to annual giving; cash accounts to cash equivalents to investments; conference gross revenue to net revenue to number of paid attendees. 3-D comparison views are as numerous as your imagination and, regardless of how you use it, adding a 3-D approach to your financial messaging will enhance the effectiveness of your reports and tell a more complete and relatable story.
