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Free Online Course: Managing Your Organization’s Finances

24 November 2009 No Comment

Free Online Course: Managing Your Organization’s Finances

Written by Carter McNamara, MBA, PhD, Authenticity Consulting, LLC. Copyright 1997-2008.
Adapted from the Field Guide to Leadership and Supervision.

(This module is in the organization development program. However, this module can also be used by anyone as a self-study exercise to learn more about managing finances.)

INTRODUCTION

New business leaders and managers have to develop at least basic skills in financial management. Expecting others in the organization to manage finances is clearly asking for trouble. Basic skills in financial management start in the critical areas of cash management and bookkeeping, which should be done according to certain financial controls to ensure integrity in the bookkeeping process. New leaders and managers should soon go on to learn how to generate financial statements (from bookkeeping journals) and analyze those statements to really understand the financial condition of the business. Financial analysis shows the “reality” of the situation of a business — seen as such, financial management is one of the most important practices in management. This module will help you understand basic practices in financial management, and build the basic systems and practices needed in a healthy business.

In the case of a corporation, the board has final responsibility for the overall financial health of the organization. Therefore, it’s critical that new corporations quickly build up the roles of the board treasurer and board finance committee. The treasurer and finance committee can be wonderful assets to the chief executive when managing the finances of the organization — however, the chief executive should never completely ignore the finances by leaving them for the treasurer and other board members to manage. The board’s role in ongoing governance of finances can include ongoing review of financial reports during board meetings, approving yearly budgets and financial statements, approving a set of fiscal policies (guidelines for managing finances), reviewing results of a yearly audit conducted by an outside auditor, co-signing checks that are over certain limits, approving contracts, etc.

NOTE ABOUT LEARNING FINANCIAL MANAGEMENT: At first, when learning financial management, many people might react that the learning experience seems mostly like filling one’s head with strange concepts and processes. Typically, the learning process starts with this experience — it probably isn’t until the learner actually enters an accounting transaction and analyzes a financial statement that learning about financial management seems more “real”. But the learning process almost always starts by reviewing concepts and processes. Financial management always tells the truth about the situation of a business — so the learning process is well worth the effort.

NOTE ABOUT BOARD COMMITTEES: Consider establishing a Board Finance Committee [in the case of a corporation!!] to review and help guide implementation the information in this learning module. Major activities and goals from this learning module could be incorporated in that Committee’s Committee Work Plan.


MATERIALS FOR REVIEW

  • The following materials will help you address each of the topics and learning activities in this module.
  • Note that additional materials for review are associated next to certain topics and activities listed in this module.

Background Reading

Read Basic Guide to Financial Management in For-Profits — particularly the sections:

Basics and Getting Started

Basics of Financial Management
– – – Role of Board Treasurer if your’s is a corporation)
– – – Getting an Accountant or Bookkeeper (read “Getting and Using Accounting Services”)
– – – Buy Accounting Software (click three link levels out to “For-Profits, General Advice”)
– – – Getting a Banker (read “Getting and Using a Banker”)
– – – Basic Overview of For-Profit Financial Management (read “Basic Overview of Process and Its Key Terms”)

Activities in the Yearly Accounting Cycle

Bookkeeping Basics:
Bookkeeping Basics, including:
– – – Understanding Financial Statements (basic tutorial — be patient; get a sense …)
– – – Bookkeeping and Accounting: From Start to Finish (more detailed tutorial … be patient)
– – – Financial Controls (scan various questions in the articles to get sense for controls)

Critical Operating Activities in Financial Management:
Managing a Budget (read all)
Managing Cash Flow (read all)
Credit and Collections (read at least 3 articles)
Budget Deviation Analysis (read all)

Financial Statements and Analysis:
Financial Statements
– – – Profit and Loss Statement (read all)
– – – Balance Sheet (read all)
Financial Analysis
– – – Profit Analysis (read all)
– – – Break-Even Analysis (read all)
– – – Ratios (read all)


SUGGESTED TOPICS FOR REFLECTION AND DISCUSSION

  • Learners are strongly encouraged to discuss the following questions with peers, board members, management and staff, as appropriate.

Preparation for Financial Management

1. What is the role of the board treasurer [in the case of corporations!!]? (See Role of Your Board Treasurer.)

2. What is the role of the board finance committee [in the case of corporations!!]? (See Description of Typical Committees.)

3. What needs to be considered when selecting an accountant? (See Getting and Using Accounting Services.)

4. What needs to be considered when buying accounting software? (See Buy Accounting Software to Help You?)

5. What needs to be considered when selecting a banker? What services might a business need from a bank? (See Getting and Using a Banker.)

6. What is the board’s role in financial management [in the case of corporations!!]? (See Basics of Financial Management in U.S. Small For-Profit Businesses)

Basics of Accounting

1. What is the accounting cycle? (See Basics of Financial Management in U.S. Small For-Profit Businesses.)

2. What are the elements of an accounting system? (See Basics of Financial Management in U.S. Small For-Profit Businesses.)

3. What is a fiscal policies and procedures manual? (See Basics of Financial Management in U.S. Small For-Profit Businesses.)

Bookkeeping and Financial Controls

1. What general activities are included in bookkeeping? (See Basics of Financial Management in U.S. Small For-Profit Businesses.)

2. What is cash-basis vs. accrual-basis accounting? “What is the Difference Between Cash Basis and Accrual Basis Accounting?” (same whether nonprofit or for-profit) (click on Financial Managemednt and scroll down))

3. What bookkeeping journals might you start out with? (See Basics of Financial Management in U.S. Small For-Profit Businesses.)

4. What is a Chart of Accounts? (Go to the topic “Financial Management” and click on “What Should Our Chart of Accounts Include?” (generally the same principles whether for-profit or nonprofit)

5. What is depreciation? How do you account for it? (Go to the topic “Financial Management” and click on the topick “Wat is Depreciation?” (the concept is the same for nonprofit and for-profit)

6. What is the purpose of financial internal controls? What are some practices in internal controls (HINT: think about signing checks, opening mail, how to verify that account totals are accurate, etc.)? NOTE: The concepts in financial controls are essentially the same between a for-profit and nonprofit organization. (See Basics of Financial Management in U.S. Small For-Profit Businesses, Go to the topic “Financial Management” and click on “What is an Internal Accounting Control System and How Can We Make Ours Effective?”, Go to the topic “Financial Management” and click on “What Internal Controls are Needed for Cash Disbursement?” and Go to the topic “Financial Management” and click on the topic “What Internal Controls are Needed for Payroll?”.)

Budget, Cash Management, Credit and Collections, and Budget Deviation Analysis

1. What is a yearly (or operating or annual) budget? How is a yearly budget prepared? (See Basics of Financial Management in U.S. Small For-Profit Businesses and How Do We Prepare a Budget? )

2. What are fixed expenses and variable expenses? (See How Do We Prepare a Budget?)

3. What is petty cash? How should it be handled? (The concept is essentially the same in nonprofits and for-profits.) (Go to the topic “Financial Management” and click on “What is Petty Cash and How Should We Handle It?”)

4. What is a cash flow and how should cash be managed? (See Managing Cash Flow.)

5. What is a cash flow statement? What is a cash flow projection? (See Managing Cash Flow.)

6. List at least five methods that organizations can use to ensure they get paid by customers/clients. (See Debt Collection Basics and Having Trouble Getting Paid?.)

7. What is a budget deviation analysis? What information is considered during this analysis? (See Budget Deviation Analysis.)

Financial Statements and Analysis

1. What are two major forms of financial statements used by for-profit organizations? (See Financial Statements.)

2. What general information is included a Profit and Loss Statement? Balance Sheet? (See Financial Statements.)

3. What can be detected from a profit and loss statement? (See Profit and Loss Statement.)

4. What can be detected from a balance sheet? (See Balance Sheet.)

5. What is the purpose of profit analysis? Break-even analysis? Ratio analysis? (See Profit Analysis, Break-Even Analysis and Ratio Analysis.)


ACTIVITIES TO BUILD SYSTEMS AND PRACTICES

  • Learners are strongly encouraged to complete the following activities, and share and discuss results with peers, board members, management and employees, as appropriate.
  • As you proceed through the following activities, be sure to note any incomplete actions in the Action Item Planning List.

Building Role of Treasurer and Board Finance Committee

1. In the case of corporations, one of the greatest assets to a chief executive can be the board treasurer and finance committee. Do you have a board treasurer and a finance committee? If not, make it a high priority to recruit a treasurer and organize a board finance committee. (See Your Board Treasurer — A Critical Resource to Help You Get Started, Recruiting and Orienting Members and Building Successful Board Committees.)

Designing Operating (or Annual or Yearly) Budget

1. Your operating budget depicts the revenue the organization expects to earn. It also depicts how that revenue will be spent. Budget development starts from strategic planning. If you completed Module 6: Developing Your Strategic Plan. then you already have designed a basic yearly operating budget. If you completed Module 7: Marketing Your Products, then you’ve updated your operating budget to include revenue and costs of your products and services. If you have not completed these two modules, you should review information and materials in those modules to draft and update a basic operating budget.

2. Obtain authorization of the operating budget by the board (in the case of corporations). Board members should receive copies of the operating budget for their review and authorization in a board meeting. The minutes of the board meeting should reflect member’s approval of the budget. Approval indicates that the board expects the organization to operate over the coming year according to the expected expenses and revenues depicted in the approved operating budget. Note that if board members have been involved in previous strategic and program planning, then their approval of the budgets should be very straightforward at this point.

Building Basics of Bookkeeping and Financial Controls

1. For your business, do you use a cash-basis vs. accrual-basis accounting system? How do you know? What system should you be using? What about for generating financial reports? (Go to the topic “Financial Management” and click on “What is the Difference Between Cash Basis and Accrual Basis Accounting?” (same whether nonprofit or for-profit)

3. What bookkeeping journals do you use for your business? If you do not have journals, then start with a simple cash journal. (See Basics of Financial Management in U.S. Small For-Profit Businesses.)

3. Do you have a Chart of Accounts for your business? If you do not have one, then consider an example provided in the following links. (See Click on Financial Management” and go to the topic “What Should Our Chart of Accounts Include?” (generally the same principles whether for-profit or nonprofit”)

4. What financial controls do you have in place? If you have not yet done so, draft a set of financial controls for your organization. Think about controls to guide signing checks, handling petty cash, opening mail, how to verify that account totals are accurate, etc.) (The concepts in financial controls are essentially the same between a for-profit and nonprofit organization.) (See Basics of Financial Management in U.S. Small For-Profit Businesses, Go to “Financial Management” and click on “What is an Internal Accounting Control System and How Can We Make Ours Effective?”, Go to “Financial Management” and click on “What Internal Controls are Needed for Cash Disbursement?” and Go to “Financial Management” and click on “What Internal Controls are Needed for Payroll?”.)

Credit and Collections

1. Imagine that you did not get paid by a client or customer. What would you do? Write down your answer and consider it to be a basic draft of a financial procedure to handle collections. (See Debt Collection Basics and Having Trouble Getting Paid?.)

Budget Deviation Analysis

1. A few months after implementing your operating budget (that includes expected expenses and revenues), modify the budget report to include the column headings listed in your reading in the section Budget Deviation Analysis. Analyze how closely actual expenses and revenues are matching planned expenses and revenues. What is the percentage difference for each item or account or line item in the report? Is that percentage difference a problem? What caused the difference? What are you going to do about the differences in the future? Conduct a budget deviation analysis each month in your business.

Financial Statements — Profit and Loss (Income Statement)

1. Generate an Income Statement for your business. Generating an income statement requires that you have been entering business financial transactions either by hand in a journal(s) or in an accounting software package. Ideally, you have an accounting software package that will produce a statement for you merely by entering a command or clicking on the button on your computer screen. If you generate a statement by hand, see examples in Income Statements to provide direction. Do you have an operating profit or loss?

Financial Statements — Balance Sheet

1. Generate an Income Statement for your business. Generating a balance statement requires that you have been entering business financial transactions either by hand in a journal(s) or in an accounting software package. Ideally, you have an accounting software package that will produce a statement for you merely by entering a command or clicking on the button on your computer screen. If you generate a statement by hand, see examples in Income Statements to provide direction. Do you have a positive or negative net worth? Calculate your current ratio (see Ratios). What does your current ratio indicate about your organization? Calculate your quick ratio (see Ratios). What does your quick ratio tell your about your organization?


REMINDERS FOR THOSE IN THE ON-LINE DEVELOPMENT PROGRAM

Reminders About You

1. Are you using your skills learned in previous modules? For example, as you using methodical approaches to problem solving and decision making? Are you using strong practices of meeting management? Are you communicating key information to others throughout your organization?

2. Are you discussing topics and materials with peers, board members and others, as appropriate? Discussion and ongoing feedback are some of the best methods to really learn new information and materials.

3. Are you helping others to hold you accountable to your times that you committed to reading and study in this program?

TRACKING OPEN ACTION ITEMS

1. One of the first indicators that an organization is struggling is that open action items are not tracked and reviewed. (Open action items are required actions that have not yet been completed.) Instead, organization members only see and react to the latest “fires in the workplace”. Whether open action items are critical to address now or not, they should not entirely be forgotten. Therefore, update and regularly review a list of open action items that includes listing each open action item, who is responsible to complete it, when it should be completed and any associated comments. When updating the list, consider action items as identified during discussions, learning activities and assessments in this module. Share and regularly review this action item list with the appropriate board, management and employees in your organization. You can use the following Action Item Planning List.

2. If you have questions, consider posing them in the national online discussion groups HRNET or ODNET which are attended by many human resource and organization development experts.

(Source from Management Help Organization)

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