I’ve been on the board of a small arts organization since 2006. I love the organization and its unique mission; I really like the founder, who is a painter and 88 years young; I appreciate that I’ve been able to lend energy and creativity to a wonderful organization; I like my fellow board members.
The downside is, we’ve got money problems. We’ve also got a couple of marvelous opportunities, at least one of which will be realized. The other faces an uncertain fate.
At a committee meeting last Wednesday, our executive director announced that the organization has a $60,000 budget shortfall. With some creative cost-cutting, he feels that the deficit can be reduced to $40,000. How did that happen? In September, his financial report was cautiously optimistic. In November he said little about money, except to note that he expected a certain level of donations to be received. Now, as of January 1, we’re rather deep in the hole. Ouch!
In truth, the signs were there. Examination of past balance sheets reveal distressing losses in our investments and income. For reasons I do not understand, the full board does not view monthly P & L statements; we receive only 6 month “condensed” statements. There is insufficient documentation of expenses, e.g. a couple of lump sum categories called “personnel” and “outside fees and services”.
Why the finance committee (and the executive committee) has allowed the ED to be so cavalier with the financial records, I will never know. Why the full board sat in meetings for years with eyes glazed over while he droned on about budget projections, expenses and donations received and expected—well, I should have questioned it, but I was hesitant to rock the boat.
However, in November ’09 I questioned the “outside fees and services” listed on the P & L and I was given a flip, off-hand answer that went something like oh that’s for accounting, insurance…and then he drifted off. I was not pleased with the answer. No other board member pushed the matter. But once again my intuition was on target because here we are, running out of money.
The ED has not spent wisely, his budgets are a fairy tale and the board (including myself) allowed him to get away with it. The organization’s founder enabled the ED’s bad behavior by writing checks to cover previous shortfalls. She claims that habit is over, but I don’t know. There is a board meeting scheduled this month and I plan to ask a few pointed questions. I hope that others will join me. The meeting will be very interesting.
So what is the lesson for business people? Do not delude yourself about money. The picture may not be pretty, but going into denial will only hurt you in the end. Keep accurate financial records and take the time to examine and interpret them. Use your financials to guide your business decisions. Cash flow is the level one warning system. Are the bills paid on time? Is making payroll a struggle? If your business has been cash strapped of late (especially with credit so tight and costly), then look to trim expenses where practical and renegotiate payments wherever possible. Next week, we’ll talk about opportunities.
Thanks for reading,