Connecting school-level reporting with your board’s decision-making needs
Good financial reports are a school CFO’s most undervalued tool. When EdOps performs a school finance function assessment, we routinely find that the challenges we uncover are caused not by ineffective staff or bad software, but by an absence of clear, concise, understandable, and agreed-upon financial reports. Too often, the financials boards receive are simply a PDF printout of a year-to-date income statement from the school’s accounting system. While this meets the minimum bar of keeping the board apprised of the school’s financial position, good financial reports tell a story. They are tailored to their audience, and they explain not just the “what” but the “so what.” At the board level, good financial reports enable robust discussion of financial options, even from board members without a financial background; they provide an accurate picture of the financials prior to the annual audit; and they lead to faster, more strategic decision making.
Below is our best advice for ensuring that the financial reports you are providing to your board are helping to lead to these outcomes.
1. First and foremost, financial reports should clearly convey the school’s financial health. Whatever else may be included, financial reports should answer three questions:
How are we doing financially?
How do we expect to be doing financially at least through the remainder of this fiscal year?
What are the key financial levers we should be thinking about that may impact our financial outlook?
Board members should not need to manipulate reports or to sift through pages of details to get to these basic answers. Great CFOs make their board members’ jobs easier by providing reporting that explicitly and quickly answers the three questions above. If financial reports do nothing else but answer these questions, they are already succeeding.
2. Next, financial reports should be understandable to people without a professional financial background. A cover page should include an executive summary (in bullets or sentences) and a limited number of key performance indicators (KPIs). The executive summary is a good way for CFOs to focus the board’s attention and discussion. It can remind boards what was previously discussed, alert them to changes in outlook or plans, and preview upcoming decisions and events ( e.g. “Audit fieldwork begins next month,” or “Budget is currently in finance committee review”).
The KPIs are crucial to providing a snapshot of the school’s financial performance and outlook, even to board members with limited time to review the report. A well-chosen set of KPIs can single-handedly answer the first two questions above – how are we doing financially, and what’s the outlook going forward. Furthermore, showing the same few KPIs in each monthly report allows boards to identify and remember trends.
Illustrative: KPIs from an EdOps monthly financial report.
3. Proactively define financial terms. If working with financial complexity – like debt and associated covenants – CFOs should consider including a short glossary of terms in the financials’ appendix. A glossary can help board members review and digest financials prior to board meetings and come prepared for discussion. Glossaries can also help board members who may feel less comfortable asking for clarification, or who may worry that asking what a debt service coverage ratio is will make them seem uninformed. (Note: It won’t. It’s not common knowledge. DSCRs should be defined, with formulas for how the school’s lender calculates them.)
4. Make it visual. For schools whose financial reports already include executive summaries, KPIs, and well-defined terms (well done!), but who still aren’t getting the level of discussion and engagement that they’d like from their boards, we suggest you add pictures. In some cases, a chart or graph is worth a thousand bullet points. While we don’t recommend schools devote hours of time creating glossy, highly polished presentations, a bit of color-coding and a graph or two can go a long way to capturing board members’ attention and more clearly conveying data.
Illustrative: Actual and forecasted cash flow from an EdOps monthly financial report
5. Financial reports should provide context. Good financial reports enable better decision making – and some decisions can’t be made in a vacuum. Benchmarking data from other schools can tell boards if a new loan has a favorable interest rate, if the proposed tuition increase is reasonable, or if the school is spending too much on substitute teachers. Historical data can show how a school’s financial position and priorities are changing, and highlight trends. Budgets especially should never be presented without at least one year’s worth of historical financials. Board members cannot determine if spending targets are reasonable without seeing what was spent in the past.
Illustrative: Historical enrollment information from an EdOps budgeting presentation
Illustrative: Industry benchmarking expense information from an EdOps budgeting presentation
6. Finally, good financial reports should be timely and consistent. Whenever possible, they should be distributed in advance of meetings for board member review. Their format and layout should change very infrequently. Consistency of presentation allows board members to get used to reading and interpreting financials. It also makes it easier for the school’s business office to get efficient at producing reports. Producing financial reports doesn’t have to be a fire drill for the business office if the expectations and timing are clearly set ahead of time.
Investing time in improving financial reports is one of the best things schools can do to improve the quality of leadership and board financial decision making. Big financial decisions can and should be understandable to every board member, and not just be the purview of the finance committee. Executive summaries written in plain English (and translated if needed), a limited set of KPIs, a glossary of financial terms, a few well-placed graphs, some benchmarking and historical context data, and timeliness and consistency in format will help to ensure that all board members can confidently fulfill their fiduciary obligations to the school.
[This post contributed by Natalia Bovkun, Chief Operating Officer / Consulting Director and Vera Krimnus, Director of People Operations.]