Purpose-Built Financial Messaging and Reporting
Financial reports show up each month with great regularity but little fanfare and excitement. Consequently, we tend to take financial reports for granted and do not give them the attention they deserve. To correct this deficiency, nonprofit organizations need to add purpose to their financial reporting, aiming to fulfill the “needs” of users while also satisfying their “wants.”
In my view, financial reporting has two main purposes: traditional and inspirational. The traditional role is important but usually considered burdensome, while the inspirational role is a pathway to more active engagement.
The traditional role of financial reports includes helping to safeguard assets, enable the tracking of financial performance, and provide a mechanism for timely monitoring and oversight. The key word here is “timely.” Economic conditions and operations can change quickly, and exposure to risk events, such as fraud, diversion of assets, market fluctuations, and random errors, can surface at any time. Financial reports are a window to view these as well as other changing conditions and must be built in a way that efficiently satisfies this oversight “need.”
“Safeguard,” “performance,” and “oversight” are heavy words that often trigger feelings of hesitancy and even fear, which contributes to the perception of the traditional role being burdensome. This tends to make people shy away from fulfilling their financial oversight roles.
To change this perception and increase engagement, we need to increase the general understanding of financial reports and eliminate the negative feelings that create barriers to trust and connection with financial reports. Some key tactics include providing regular financial acumen training, and condensing and simplifying financial reports to make them as easy as possible to be viewed and understood. Accurate and timely financial reports that are long and hard to comprehend will be almost as useless as no financial reports because they will not be read. Therefore, we must work as hard on readability of financial reports as we do on accuracy.
That brings us to the inspirational role of financial reports. As described above, the traditional role is mostly a backward-looking effort to assess financial performance and safety. The inspirational role comes next, where we use financial reports as a call-to-action to spur innovation, change, and ideas for how financial resources could be “better” used in the future. This is the opportunistic forward-leaning role, which speaks to the “wants” of users to build a stronger and more impactful organization.
The marriage of the traditional and inspirational roles is synergistic and, just like a good marriage, one cannot exist without the other. Highlighting the purpose of both roles and gaining consensus and willingness to engage in the process of oversight (traditional) married with consideration of the future (aspirational) will become more natural to users as engagement increases.
Planning Tip – When assembling financial reports for the Board, avoid only issuing a standard long set of financial statements. Add a financial dashboard with key performance indicators (KPIs) to make it easier for Board members to connect to the core purpose of financial reports (observing key financial indicators and changing financial performance trends). This will help Board members to embrace their financial oversight roles more efficiently and with less stress.
The words “needs” and “wants” are particularly important when considered together. If we can satisfy the “needs” of users (information individuals need to draw out of financial reports to fulfill their financial oversight role) while also helping to satisfying their “wants” for a better future (how individuals can use financial information to spur change and innovation), we move financial reporting from a necessary evil to a higher plane that will encourage engagement, enhance sustainability, and spur innovation.
