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Five Good Ideas to build your finance toolkit

Published on June 15, 2021

For anyone working in a for-profit, non-profit, or charitable organization, it is critically important to have a robust finance and accounting team that can help them understand and leverage the financial aspects of their organization. This will help minimize risk but also support them – and their organization – in navigating and planning for the future. Using a practical and illustrative approach, and based on his experience in both non-profit and for-profit sectors, Jeff Szeto, Chief Financial Officer at Avana Capital Corporation and Maytree, speaks on five good ideas to have in your finance toolkit that can help you build and maintain a strong financial foundation.

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Five Good Ideas

  1. Assess and improve operational efficiency
  2. Implement appropriate risk management
  3. Ensure you have business intelligence tools
  4. Be thoughtful about resource planning
  5. Integrate finance into the enterprise

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Full transcript

Note: The transcript has been edited for clarity.

Elizabeth –  So, while many of us are dialing in from across Canada, and some even from beyond, I’m speaking to you from Toronto, and I’d like to begin today’s session by acknowledging the land where we live and work, and recognizing our responsibilities and relationships where we are. As we are meeting and connecting virtually, I encourage you to acknowledge the place where you occupy, and the relationships you hold. I am and Maytree is on the historical territory of the Huron-Wendat, Petun, Seneca and most recently Mississaugas of the New Credit Indigenous peoples. The territory is covered by the Dish With One Spoon Wampum Belt Covenant, an agreement between the Haudenosaunee and Ojibwa and allied nations to peaceably share and care for the lands and resources around the Great Lakes.

For those of us working in the non-profit and charitable sector organizations, and also those in for-profit organizations, we all know how critically important it is to have a robust finance and accounting team that can help us understand and leverage the financial aspects of the organization. Now, I said robust, that doesn’t necessarily mean a team of five, or ten, or a department of 20 people. It can be one or two, it can be someone outsourced, but it’s robust in the sense that it’s strong and that it gives you good information. This is what helps minimize our risk, but it also supports us and our organizations in navigating and planning for the future.

Today we’re really pleased to have Jeff Szeto, who is the CFO, the Chief Financial Officer, at Avana Capital Corporation and Maytree. He will be speaking about his five good ideas on what to have in your financial toolkit that can help you build and maintain a strong financial foundation, while adding value to your organization. Jeff has over 15 years of extensive experience in leading, managing, and growing finance functions in high growth, entrepreneurial businesses. His background has seen him working in mergers and acquisitions and corporate finance for a variety of institutions, serving as CFO of rapidly growing private companies and playing a leadership role in a number of non-profit and charitable organizations. So in short, he knows his stuff. He’s also a colleague. We’re delighted to have Jeff join us today and share his five good ideas on what you need in your finance toolkit. It is now my pleasure to welcome Jeff.

Jeff – Thank you, Liz. It’s a pleasure and honour being here today. I certainly hope the presentation will be valuable to all of you, and that you can take some of these key points back to your role in your organization. I hope to make this interesting using some examples from both my not-for-profit experience and my for-profit experience, as many of these experiences are interchangeable.

I’d like to start off with laying out, essentially, the macro picture or the state of the union as it relates to the finance accounting function. Over the last few years, the finance accounting function has really faced both endogenous and exogenous challenges that have forced finance leaders to be very thoughtful about their function, and to adapt new ways of either the structuring or the operationalizing of their team, to keep up these changes, and to add real value to their organization.

Some of these forces include things like budget constraints. In essence, we’re doing more with less by adapting to new technologies. Every day we hear about new software applications that make finance professionals’ lives easier and more efficient. Another thing that continues to be an issue is talent acquisition and retention. Also impacting organizations are organizational changes in complexity, where the finance accounting function needs to be nimble and adaptable to these constant changes.

With that in mind, it’s important to consider where you are in relation to the evolution of the finance function. I like to think of the evolution of the finance function in a stepladder format, starting with financial operations as the first step. The first step is really all about tactical and transactional work. It’s ensuring invoices are booked, and bills are paid. Payroll is paid, and recording of entries are properly done. In essence, bookkeeping.

Moving on from the first step in the evolutionary function, the next step is the reporting and controls function. This step is aligned with the organization becoming a little more complex, growing. There are elements of timely reporting, management reporting, elements of risk management, and some level of financial analytics and planning.

The last evolutionary step in the step ladder is strategic finance, which combines or blends strategy, operation, and finance together. It involves key elements of business performance, risk, and using data as a decision support tool to navigate the future. It typically involves a seat at the leadership table as an executive, where you’re blending that core accounting finance expertise with strategy and operations.

One caveat is that these steps don’t necessarily apply to every single organization. It’s perfectly fine for small and medium organizations to be in one part of the evolutionary step ladder and not in others. It really depends on the complexity of the organization, the growth, and the overall strategy. So it’s really a case-by-case situation.

In light of these macro factors, and where you are in the step ladder, a key question to ask yourself is: What should be the focus of the finance function?

I’ll first start with what it shouldn’t be.

It shouldn’t be a senior finance leader using a ruler to measure the lines on a bar graph generated by Excel. It’s not a finance leader that’s concerned about the font on a financial report, versus the accuracy of the numbers. And it’s certainly not a finance leader who has an aversion to a red pen being used on a financial document as it indicates losses. These may sound comical and outrageous, but these are personal experiences I’ve had working with various finance leaders.

My view of what the function should focus on is how to create a best-in-class function that can strategically and operationally support stakeholders and really add value. This is a good segue into examining how you achieve these goals. This is distilled into the five good ideas I’ll talk about today.

The first idea is about assessing and improving operational efficiency. The second is about implementing appropriate risk management. The third good idea is to ensure you have the business intelligence tools to make good decisions and plan for the future. The fourth is around being thoughtful about resource planning, which really circles around hiring, retaining, and managing talent. The fifth idea is about integrating finance into the enterprise, from a cross-enterprise connection.

The first idea is around assessing and improving operational efficiencies.

I like to start by saying that accountants and finance professionals tend to have a very common DNA or character profile. Good or bad, being prescriptive, fastidious, risk adverse, and thinking within the box, versus outside of the box. Sometimes this creates a sub-optimal way of doing things – if it’s not broken, why fix it, right? Summed up, this means optimal perspective results in inefficient processes, which actually results in a strain on human capital, waste of internal resources, and prevents the elevation of some employees to more core important activities.

Taking a critical eye to your finance function is a starting point. It can be quite revealing. I like to think of it as putting on the mindset of an entrepreneur, where you’re trying to be lean and resourceful. You’re not afraid to fail, and you’re taking a fresh look at your operations. That isn’t to say that you’ll get everything correct the first time. But having in mind continuous improvement is critical.

I’ll illustrate this, as a perfect example, with an experience I had. I was working for a medical organization, and I was brought in to take a look at how they were setting up and using their current finance operations. It was quite interesting. The medical organization had two accounting systems, and the accounting system was also used as a purchase order system. Interestingly, the Controller, who was there for many, many years, did a fantastic job, but spent an enormous amount of time pulling information from these two accounting systems, integrating them, and reporting it to the management team.

Using the accounting system as purchase order system is risky. A frontline salesperson using your accounting system this way is problematic. When I was brought in, I took a critical eye at this and said, “Well let’s just merge the accounting systems into one. You obviously don’t need two. Let’s also get a proper purchase order system implemented.” This resulted in a significant reduction of time and cost, and potentially errors. That was the approach to adding value from an operational efficient view or lens.

This leads into the next item, which is that there’s a cost for everything. Sometimes there’s a bias in the finance accounting world to throw more staff or resources at a problem, because of the aversion to the cost of a new system. Brute force is usually the default solution to any issue, without really thinking of innovative ways to improve the function. There’s a time cost to it, and potentially a new system or redesigning the process can make it much more efficient.

The key, in my mind, is to do an analysis of how much time is currently being spent and what the return on investment is on a new process relative to this. To think that there is no cost is actually incorrect, there’s always a direct cost. Sometimes there’s a pretty significant opportunity cost to an inefficient process, which leads to my next point. I’d like to talk about technology as an enabler.

Over the last few years there has been a proliferation of new accounting software that is making the life of an accountant a lot easier. You now have software that can automatically bin your expenses, and can help with your bank reconciliation. It can integrate with your payroll, and with your customer relationship management system, among others. It’s really making the finance function a lot more efficient.

There’s a new buzz word in the finance world today: tech stack. You’ll hear this quite often, that nowadays accountants and finance professionals are looking at the best-in-breed technology to stack on one another to create that efficiency, to create that scale. There’s a change in the view of how technology can be an enabler for efficiency.

My approach to technology is to first conduct a diagnostic on your current operations, and really try to hone in on the cost and the risk of each activity, as a starting point. Once you identify the scope of the issue, it’s being resourceful, and it’s continuously trying to investigate or find new technologies that could perhaps solve your challenge or problem.

One caveat, though, is that technology is not a silver bullet. It should be an enabler. You still need good processes. You still need good talent, and you really need to understand the scope of the issue you’re trying to solve.

One key thing that tends to be not really brought to the forefront on technology, because everybody gets attracted to all the sort of the features of a piece of technology during implementing, we sometimes either disregard or don’t highlight as high on the criteria list, is the element of tech talent. I’ll illustrate with an example.

I worked at a software company where the C.O.O. president had implemented a really robust high-fidelity accounting system. It had all the bells and whistles. It could do pretty much everything you wanted it to. When I was brought in, the Controller had left, and I needed to find a new Controller to use this accounting system. I looked far and wide, and went through recruitment firms and job postings to find someone that had the unique technical skill to use this accounting system. It was practically impossible to find someone. Eventually I did, but we paid through the nose to hire this talent, just because of the demand and supply. So one of the things to consider is choosing a piece of technology where there’s a pool of talent, because it can really help with reducing the friction of turnover and training.

The second idea is around implementing appropriate risk management.

In my mind, risk management is having the right controls in place. I believe this is critically important, relying on specific organizational design pieces in an organization. The separation of roles, preparation or processing of work, and dual authentication or sign-off, among other things. It really comes down to that role piece, it’s the separation of roles and essentially, the dual review or authentication of the process.

This is relevant and relatable in the times in which we live. As many of us are working from home over the last year and a bit, and there has been an increase in cyber hacking or cyber security issues, and specifically around phishing for finance professionals. Having that appropriate process of separation of roles preparing and processing of electronic funds payment, or a wire transfer, and having a dual authentication role in your treasury management system, for example, can prevent payment going to a wrong counterparty.

There is a caveat to this however: a lot of small/medium organizations have the challenge of one bookkeeper, one Controller doing everything. So it’s actually difficult to have a separation of roles with these respective functions. There isn’t really a straightforward solution or answer to this, but I have seen and worked in organizations where operations had the president or the CEO play an increasing big site role in that finance function. As a result, you can create that separation of roles and duties. This may mean that the CEO, the president, or the ops person will need to enhance their knowledge of finance and accounting, but it is a way to create that oversight.

The second point is around automation. I like to think of automation in sort of two key buckets. One is tech automation, and the second is operational automation. We talked a little bit about tech in the previous idea. Technology can really help with risk management and have the extra benefit of being efficient, but it will also prevent errors and solve a lot of risk issues.

One perfect example was a not-for-profit organization we’re currently working with, and we use Pluto as a means to pay our vendors. It connects to our bank and is built to use a dual authentication process. Instead of running around and trying to get a check signed off, using Pluto was a means to greater efficiency in our treasury management and to have the ability of the dual sign-off control mechanism.

The other piece is around operational automation, which is really template and key processes. One of the things that I did in a previous company I worked with was to look at every single recurring finance function, and to create playbooks around that finance function. Whether it was an AP process, an AR process, or processing payroll, it was a way to codify how we do things in a playbook. This serves two functions. One, it created a very prescriptive manual for employees that de-risks certain activities. And, two, it played the redundancy backup as employees turnover, you can use these playbooks and say, “Hey, here’s the manual of how to do things.” It was a way to train new staff quickly and efficiently.

The third point in implementing appropriate risk management surrounds policies. In my mind, policies are a way to codify key internal operations of your organization. One of the key questions I ask all of you today is, how many of you have policies around these key operational or finance activities? Those policies could be vacation policies, expense policy, a travel policy, a credit card policy. It’s how you look at your key operational pieces, then putting those down on paper.

Lack of policies can cause issues. I’ll share with you an example of this. I heard through my CFO peer network about an executive who had a corporate credit card. The card had points accumulating. The executive then used these points, which were a corporate asset, to purchase personal gifts and to take personal flights. It was quite outrageous. Once he was found out, and was approached by the CEO, his defense was that there was no credit card policy. This created a very tense situation. Despite the fact that it was pretty outrageous, the executive stood by that defense.

In my mind, if it’s not written down, it’s a guideline, not a policy. Having clearly written out policies avoids these types of problems, and there’s no misunderstandings. The situation in this example demonstrates how a clearly written policy could be used as a backup in a dispute situation.

The last point in risk management that I’d like to cover is stress testing. Stress testing is a pretty generic topic, but I believe it’s looking at the downside risk of an organization. The way I see it, the downside risk in an organization revolves around two factors: one around probability, and one around the magnitude of risk. If it’s highly probable, or highly likely, it has high impact, and you should probably plan around mitigating or managing that risk. This has become a very important topic over the last while due to COVID. There are many organizations who were looking at their financial plans, at how much cash they had, how much cash they had for runway before they effectively ran out.

I’ve worked with a lot of entrepreneurs developing financial models, and stress testing their models, whether sales don’t come through, or expenses are higher than expected, and how much runway they have for cash, or how much of an impact it will be on profitability. Those are the sort of elements to examine when stress testing and planning.

Idea number three is ensuring you have appropriate business intelligent tools or B.I. tools.

My first point is around marrying finance to operations and strategy. This means truly understanding the key value drivers of your business, and making sure you can measure and act upon them. I’ll illustrate this with an example as well.

I was working for a medical organization run by a radiologist, and he had two systems. One system tracked the patient volume and patient details through the modalities, the use modalities being the different sort of x-ray equipment at his clinic. He had another system which tracked the accounting aspects of how much revenue was being generated by using this equipment. It was tough trying to understand the revenue drivers of this business, and then also the impact around resource planning for the business.

What I did was I looked at the two pieces of data that could be extracted from the two different systems, and effectively merged them together. Then I was able to provide the radiologist the data around revenue per modality, or revenue per equipment, revenue per patient, volume capacity planning, and the so on. He was able to use this data and say, “oh, this is an interesting sort of marriage of operation strategy and finance,” and allowed him to essentially resource plan better for his clinic.

This leads me to my second point, which is around key performance indicators, or KPIs. The goal of a KPI is distill your key drivers into a succinct and digestible format that will provide you a decision support tool. You can then leverage this historical information to navigate future decisions or future strategy. It can highlight trends, opportunities, and issues, but, more importantly, be an actionable item for the executive team. It also can be an interesting cross-enterprise initiative.

You may measure finance ratios with operational right ratios, or some combination of the two. That could be quite valuable as you look at efforts across the enterprise. One charity I worked with were in the educational space, and we had KPIs around cost per learner, cost per student. It was a unique KPI, because what we wanted to do is reduce the cost per student to create operating leverage. We also wanted to think about our enhancement of the student experience. We also looked at key metrics like a working capital liquidity ratio, or our deferred obligations from the various grant funds that we would obtain. These were some of the key ratios and key metrics we looked at.

The third point in ensuring you have the appropriate business intelligence tools is around forecasting. We touched on this a little bit in the scenario of planning for downside risk, but this can actually be the flip side to that, using forecasting as a critical tool in strategic planning. So you could call it a budget, a rolling forecast, or a long-range forecast, but the idea is really to add a lot of value in the following ways. It provides a more detailed thought review of how you look at the organization. It provides you a level of discipline for the team like a budget. A budget provides a framework or defense post to spend within. You can also use this forecast as a way to scenario plan not just for risk, but also for opportunities. It can act as a strategic framework for you to navigate the future.

I’ll highlight this with another example. I was working with a not-for-profit CEO, and for the first time we had additional cash. We were looking at this cash and thinking that we should probably look at setting up an operating reserve for this excess cash. We went through a budget exercise and forecasted out what the next 12 months would be like. Looking at the forecast and working with the CEO, he said, “Well, let’s fine-tune the forecast. Let’s look at a very conservative situation where if you had to strip out certain revenue and costs, what would be the most conservative monthly cash burn that you would see in your forecast?” So we basically took the budget and tuned it down. Once we tuned it down, looking at that conservative cash burn was really a way, or a proxy, for the operating reserve.

So really, that operating reserve was kept for a rainy day situation. By looking at that tuned down forecast, we could say comfortably that the excess cash could be set up in an operating reserve that would sustain us for between three and six months. That’s how using a forecast for actionable decision-making, and adding value, is key.

So my last point is around measurement. Measurement is about looking at your forecast and measuring it against your actuals. For example, if you look at budget versus actuals, what were the variances between what you planned, and what actually happened?

It’s one thing to say, you know here’s the delta between what actually happened, and what we budgeted or forecasted for. But it’s getting behind those variances, examining what caused those variances that is most realing. Was it, for example, in some revenue variances, a change in volume, or was it a change in price? What happened? What caused these expenses? Was it a one-time issue, or was it a recurring issue? It’s critically important to put on that analytical lens and dive into those details. But it’s also important not only to look at the variances, but make it actionable. Just having it on paper, and not doing anything about it, doesn’t add a ton of value.

I’ll illustrate with another recent example of measurement and taking action. I’m the audit chair of a not-for-profit healthcare organization. We were looking at our budget versus actual numbers. The variances for expenses were quite good. The organization underspent what they budgeted. Therefore, you know they’re being resourceful and cost-effective about how they spent their money. But this was during the first days of COVID, and after some further operational discussions, we realized that they were actually short on PPE and other sorts of critical resources for their organization. As a consequence, I recommended to both the general manager and the Controller, I said, “look, if you’ve got these savings in these other buckets, redeploy those savings so that you can actually buy more PPE supplies and other really critical resources for you to navigate around the first and second wave of COVID.” In essence, it was taking the variants and the numbers, and making them actionable for the organization. They did so and obtained ministry approval to rebin the additional savings.

Idea four is around being thoughtful about resource planning.

This revolves around talent management and retention. There’s been a war on finance accounting talent these days. You’re now competing with high-growth tech companies, food companies, and public companies. There’s a lot of competition out there for talent. There’s been a lot of discussion about this total turnover tsunami once the pandemic ends. My other CFO peers say that they’re actually starting to see it. They’ve seen attrition rates of 20 to 30% in the last couple of months. So talent was always an issue, but it’s going to continue to become more and more of an acute problem just because of scarcity.

So how do you ensure you retain higher elevated talent, specifically in the finance function? In my experience, most finance professionals come with a certain level of technical skill and that’s the baseline for a lot of finance professionals. They know their debits and credits, and they know how to read a financial statement. But I look at other things that are equally important to just that baseline of skills.

I distill this down to three criteria or elements, that I look at relatively equally. One is skills, which we just talked about, and that’s an obvious definition, the level of technical acumen or aptitude for the role, knowing your debits and credits, and the financial statements, all those sorts of pieces. The second is his or her will, and the third is attitude. So skills, will, and attitude.

One of the ways I look at will is around grit and perseverance. That’s how I define will. Attitude is about taking on the challenge or the work task. Is there a level of positivity? Are they open to change? Are they naysayers? A willing attitude is a little more subjective than skills, but is just as important as the skills. I believe you can use these criteria in assessing your candidates, but also your distinct employees.

At my old company, we used to force rank all of our employees through these three pillars; skills, wills, and attitude. This was a way to measure talent, and to identify rising stars, but also it was a way to support them in areas of weakness. At the same time, we could consider replacing someone if we knew they were underperforming in any of these areas. Skills, will, and attitude – each one of these are very effective means of talent management or retention.

The second point here is regarding resource planning – build versus buy. There’s a new world of accounting outsourcing that’s evolved over the years. Organizations are looking to outsource non-core or non-value added items or areas. Or at the other end of the spectrum, as organizations get really complex, they’re or outsourcing highly specialized areas to free up resources.

Accounting firms, for example, have evolved and are now de facto outsource providers. They offer everything from outsource bookkeeping, general controllership services, to specialized tax services. Some things to consider when you’re contemplating this build-versus-buy strategy are: What is high or low value activity? What are some of the information sensitivities to be aware of, either outsourcing or keeping in-house? What sort of specializations do you have in-house or not? What is the cost or return on investment of outsourcing? And are there other beneficial elements to consider: These could include means of redundancy, backup, independence, or any other? With that being said, there’s another element to build-versus-buy, really a good segue into the next point: cross-training.

Accountants tend to be specialists in a certain fields. It’s highly unlikely you’ll find an accountant knows everything and is a technician in everything. What I found to be very helpful and useful for the growth of my staff is taking employees through either a formal or informal mentorship or job shadowing program. In essence, this involves rotating employees throughout different areas of the finance function, in order for them to understand other elements of the finance processes.

This creates a really interesting dynamic. I’ve seen employees find it very fulfilling and rewarding, and elevates them to the next experience in their professional development. It makes them a much more valuable member of the team, and also allows them to appreciate other team members and to understand what they’re doing. Finally, it also helps create a redundancy backup as well. I encourage mentorship or job shadowing as a very useful tool. If you’re able to set this up, it gives excellent cross-training exposure to your employees.

My last idea is around integrating finance into the general enterprise.

The finance department tends to be siloed or isolated from the rest of the organization. Sometimes finance is sort of an afterthought, or just another department. And, you know, (1) rightfully or wrongfully, they don’t add a lot of value to the rest of the organization; or (2) they’re naysayers and they’re not really part of really critical initiatives or opportunities because other organizational heads have been aversion to the finance department because they’re always saying no.

When you think about the finance function, however, it can be a valuable tool for executive decision-making, using quantitative tools or other decision-support tools. These tools can be a really good sounding board for an executive to balance risk and opportunity. And integrating finance into the enterprise, it is really a mind shift change, to change management and communication for change, as you try to integrate finance into the rest of your enterprise.

One of the ways that I’ve found it to be very helpful with the integration is celebrating wins, and communicating those wins across enterprise projects. At a software company where I once worked, we held “stand up Fridays,” where we would have the whole organization stand up and talk about successes across enterprise projects. Examples could include finance helping sales with a new commission policy, or finance helping operations with a new system implementation. By communicating and sharing these wins, finance was brought to the forefront.

The second element or sub-idea to integrating finance into your enterprise is around organizational design. Think about looking at your reporting structure and considering how to further embed finance into the rest of the organization. Some of the organizational design layouts that I’ve seen in essence is where finance actually is. There is a dedicated finance person for every operational head. In essence, there are many senior finance specialists or CFOs who would report to the operating head, but would also have a direct line to the corporate CFO. Having this sort of dotted line and a direct line allowed the integration of the finance mindset into the rest of the organization.

Finally, there was a situation where performance review around this organizational design was actually quite helpful with respect to giving feedback both from an operational head as well as the senior finance leader. To close off on this last point, you might not have the resources or the ability to create an organizational design where this might be more applicable in a larger complex sort of environment, but the idea is still the same. It’s synthetically creating that environment where finance is really a critical part of the organization and adding value to everyone in the organization.

The tools I outlined are really a means to an end for the finance function. In an organization, they add significant value far beyond the traditional view of making sure numbers are reconciled and things add up. It can be a driver of operational and strategic change. I hope this presentation has provided you valuable insights and perspectives that you can take back to your organization. Finally, I want to say thank you for all your time today.

Elizabeth – Thank you, Jeff. That was terrific. A really great overview of what, for some of us, sometimes feels like an opaque and very impenetrable part of the organization. So thank you so much. That was great. We already have a few questions coming in, and I’m going to put two of them together, because they both get into the question of software. You mentioned and referenced Pluto in your examples, and somebody wants you to talk a bit more about it, but in the context of that, sometimes we hear about financial software and it sounds like a complicated notion. Is it actually user-friendly? Is this something that someone like myself, who is not a finance person, could get my head around? Building a tech stack sounds like a bit like climbing Mount Everest in the words of our questioner. So is that something that we can navigate? Can you tell us a bit more about Pluto?

Jeff – For sure, certainly. So I think conceptually, the tech stack concept is really trying to find, as I mentioned, best-in-breed technologies that you can stack upon one another. Part of that is making it user-friendly. Some of the accounting systems out there that are ubiquitous these days, are like QuickBooks or Xero. You don’t have to be a CPA to use QuickBooks, and, in fact, they have training modules online. If you sign up, that will just teach you and show you all the different elements and features, and no different than Xero.

I really want to emphasize the fact that you don’t have to be a true CPA-designated accountant to use these. They are all user-friendly software applications. Once you move up the ladder and the evolutionary scale, that’s where things get a little more complicated. You have these large enterprise resource planning systems that are connected to the accounting systems, and that’s a whole other world. For a lot of the medium and even some relatively large organizations, you can find off-the-shelf applications that are user-friendly.

As for Pluto, I like to consider it as a payment solutions offering. It essentially connects to your bank, and allows you to pay vendors. It allows you to pay employee expenses, and it notifies you when an expense is in the system. You log in, and you can set up dual authentication to approve that expense to be paid, and it automatically gets paid. So, it really just substitutes the check writing side of business.

Elizabeth – Here’s a different kind of question. Is a checkbook-style accounting system ever appropriate for a not-for-profit? How do you choose between this and a more traditional accrual accounting? Is this a function of size and scale?

Jeff – There are a lot of avenues by which you can enter that question. I always believe in an accrual basis to record keeping but I would also look at a cashflow lens. The reason why you want to keep two is that sometimes on an accrual basis you don’t really get a good sense of how much cash is in the bank or in a runway. For example, if you look at your financial forecast and a perfect example is an organization that I work with, where we used to get a lot of grants upfront. That would essentially be deferred revenue, and it’s a liability on their balance sheet, from an accrual standpoint. But from a cash standpoint, they get all that cash upfront. The challenge is trying to forecast out your accrual financial statement in an easy way, to ensure that you have enough cash in the future for your organization.

It can be done, but it isn’t necessarily a one-to-one conversion. You have to go through some of the, call it the math, and the technical accounting approach to take it from an accrual to the cash. In summary, I would say best practice is to keep it an accrual, most charities need to provide an annual return to the CRA. A lot of that is premised on the fact that it’s accrual, and in many cases you need an audit, but you shouldn’t lose the fact that cash is also very important. So understanding your cash position is critically important as well.

Elizabeth – You’ve prompted a few questions on the HR side of things, the talent resource. First, can you share how you might title a role that requires an individual who is able to straddle both the Controller and strategic financial management roles that an organization? Is this a Controller? Is this a Finance Manager? Is it a Finance Director? How do we distinguish between these titles?

Jeff – Sometimes there’s a misnomer of titling someone Director of Finance, or VP Finance, when they don’t actually have the skills or experience that ties with that role. The way I look at the delineation between, say, for example, a VP Finance, a Controller, or a Director of Finance, is to examine: are forward looking or are they historic looking, and what are their experiences around that? Is there an element of strategy and operations that gears more towards a VP finance or CFO?

I’ve seen a lot of organizations where they give a title to a person that’s a director of VP Finance, but really they’re just a glorified Controller, because they’re not really looking at the future-oriented piece of the business, and adding strategy and operations, and really taking a seat at the leadership table.

A perfect example is a non-profit where they hired a person who was a Director of Finance. After working with the individual for a while, the organization realized that this person was great, but probably more geared towards the Controller side of finance than a true Director or VP of Finance side, which is more forward-looking. That’s how I would look at the delineation.

Elizabeth – Do you have any suggestions for increasing the financial knowledge of managers who have moved up from frontline positions, and may not have had management training? So I guess sort of growing your talent?

Jeff – Just to clarify, would that be a finance professional and add to the knowledge or would it be like a non-finance professional?

Elizabeth – Let’s maybe have some thoughts on both because it’s not clarified.

Jeff – With the finance professional, I think there’s a pretty straight or linear path for a lot of folks. One is, if they’re not designated, and they’ve expressed interest in designation, going through a CPA program is a phenomenal experience and really getting those credentials behind them. I do believe also as a finance professional, doing that sort of cross-training or rotational program, if your organization is large enough, can really round out the skills of a finance professional.

Obviously, the continuing studies and all those sort of things, various academic programs, could also be listed.

I would apply those also for non-finance professionals. It is really getting the basics of accounting down and then overlaying the next level in finance that would be interpreting financial statements, looking at various financial ratios. Those types of elements could really help in non-finance professional too.

Elizabeth – What’s the difference between a CPA and an LLP?

Jeff –  A CPA and an LLP? Well, CPA is a professional standard designation; it’s essentially the equivalent of the CA or CMA or the CGA, which is now merged with the CPA certified public accountant. An LLP, in essence, is an organizational entity acronym. They’re very different things. So one’s a designation, one’s an organizational entity.

Elizabeth – Many organizations, even those with business continuity plans, did not anticipate the roller coaster of the pandemic, opening and closing, higher demands, higher costs. Do you have any words of wisdom, or examples of effectively moving from the usual governance-led risk management model, to a more rapid, but still rigorous analysis? What are some good standard parameters for scenario planning?

Jeff – One of the things I saw in the early part of the pandemic is that once you’re starting to stress-test your business, and you’re in this looming crisis, it’s probably too late. I think what you should be thinking about is looking at some level of long-range planning.

I worked for a public company, and we went through a five-year strategic plan every single year. That’s a bit of an issue, because strategy shouldn’t change that much, but the idea was to actually go through this pretty rigorous exercise, and plan out over the next three to five years a fairly robust financial model. This involves taking all those inputs from all your operational heads, and layering them into a long-range financial plan. And then what we did is, we took this financial plan and sensitized it. We asked: What is the most optimistic scenario? What is the pragmatic or conservative middle-of-the-road scenario? And what is our downside scenario? Then we’d measure that over time and considering as the environment changes, how do we sensitize our scenarios to say what course of action we are going to take?

We have to be mindful, as well, are some of these expenses or drivers in your business one-time in nature or are they recurring? Over the last year, year and a half, there have been a lot of discussions around how to look at the impact of COVID on your business. Some businesses actually have done really, really well. If you take that COVID factor out of their financial performance and analyze it, is the business actually doing all that well?

And then there are other businesses that say, “well I’ve been hit hard by COVID. So if I normalize for COVID, would my business actually on a run-rate basis be okay?” So it’s a matter of looking behind the lens and assessing, “are these elements recurring or non-recurring?”

You should also sensitize your scenario planning over a longer range period, and building that cadence into your overall planning process I would say is critical.

Elizabeth – I’m mindful of the time but we still have a lot of questions coming in. I want to go to one final one on a bit about of the character of the sector. Many non-profits are debt-averse, sometimes to a fault, for future sustainability. What tools and analysis have you found are most effective in making the case for debt or investment for a non-profit?

Jeff – It comes back to that cashflow forecasting plan. I just illustrate this with an example, from one of the not-for-profits I was working with. We looked at our forecast and said that if we could understand how much we’re going to get from grant funding and look at our expenses, so call it a traditional budget, how much cash will we need outside of that?

We looked at our financial situation and realized that we had adequate cash, but said just in case of a rainy day situation, let’s go get a working capital loan, just in case. We never touched that working capital loan for a very long time, effectively until COVID hit. Then we realized we might want to use it.

So, it’s really case by case, depending on your financial situation. Think about your runway over the 12 or 24 months, do you have some certainty around your funding, and what are some of the certain expenses that you can calibrate if things kind of go different or sideways. If you’re comfortable with that, there are plenty of financial debt instruments that you could look to use as additional buffer. Again, it’s case by case because they’ll go through a very specific credit analysis of your organization before they issue a line of credit or some other debt.