Green Eyeshades Give Way to the Ministry's Executive Suite

The CFO Role as turnaround strategist.
John T. Zietlow
This article provided by the Engstrom Institute

The role of the chief financial officer within today's business or ministry organization is a team relationship with others in the so-called C-Suite, as in chief executive officer, chief operating officer, chief technology officer, etc. The "green eyeshades" image has long ago given way to the role of internal consultant, educator and strategist. That new role comes into sharp focus when the CFO must serve as turnaround specialist. A case in point comes out of a conversation I had with Winston Ling, vice president of finance and administration at Tyndale College & Seminary in Toronto.

In 1995 Tyndale was insolvent and filed to make a proposal to creditors under the Bankruptcy and Insolvency Act in Canada (although it didn't officially declare bankruptcy). Shortly thereafter Ling was brought in to help engineer a turnaround. He emphasizes that although there were times when he and the CEO disagreed, they always heard each other out and left the conversations supporting each other and the course of action they had decided was best. Ling worked to institute a culture of fiscal accountability and responsibility at Tyndale. Prayer followed by inaction was replaced by prayer with a bent for decisive action.

With Tyndale's experience as a more recent backdrop, the organizations we're considering here are churches and ministries that are largely dependent on donated funds. Most of these organizations have annual revenues of $1 million or less. The Tyndale experience underscores that the CFO in progressive nonprofit organizations no longer simply assembles financial data, but is an internal business consultant and financial educator.

This shift in the perception of the financial officer in many industries, but especially in nonprofits today, suggests three things the CFO should be doing:

Gain agreement on the primary financial objective in the organization.

Some nonprofits are still mired in the "we must break even financially" mindset, convinced that being a nonprofit prevents the organization from earning a surplus. That just isn't so. Surpluses, or net revenues, must be retained in the organization, not paid out to individuals. Tyndale now consistently earns a surplus. Surpluses in nonprofit organizations are needed for prefunding land, facility and equipment expansion, providing working capital necessary to bridge the summertime or "dry year" ebbs in donations or other revenues, and to build up a cash reserve of six months to a year's worth of expenses.

Ling notes donation-dependent organizations are not considered to be financeable from the perspective of most banks—with buildings being one possible exception. (Organizations with $5 million or more in revenues and a strong relationship with their depository banks may find those banks receptive to a discussion of a credit line while holding smaller cash reserves.)

However, the financial objective is not merely to earn a surplus, but rather to manage cash flow in such a way as to attain and preserve a target level of liquidity (cash and short-term investments along with unused short-term borrowing capacity, if any). "No margin, no mission" becomes meaningful as the CFO demonstrates to the CEO, other staff and board members that financial stability is a prerequisite for achieving the mission, and is linked to having proper liquidity. Proper cash planning is vital here, and it's essential that the CFO have the time and expertise to carry out the planning.

Prepare customized financial reports that are accurate, timely, useful and understandable.

Ling found that the financial turnaround at Tyndale College & Seminary required gaining an understanding of the expense coverage of existing programs. "You have to show them how finances work," he says, as he educated administrators on the necessity of cost coverage and the need for enrollment increases. He required administrators to deliberate on creative ways to meet expense targets until they had found solutions. The new president, Brian Stiller, was receptive and supportive throughout the process. The CEO may be kept abreast of the financial situation by having the CFO present the following:

• Daily cash reports
• Rolling monthly cash budgets (projecting cash inflows and outflows by months for the next 12 months, with the projection updated monthly)
• Budget-versus-actual monthly activity reports.

The number one "best practice" for the CFO as educator is to guide the CEO, other top administrators, and the board on how to interpret the invaluable statement of cash flows (assuming the organization is using accrual accounting). If the ministry's liquidity is properly managed, it will force fundraising and expense control issues to be managed as well.

Take the role of internal consultant seriously.

"The CFO should go to the CEO with solutions, not just problems," Ling says. For example, he found it necessary to implement responsibility accounting at Tyndale, in order that administrators might own the financial repercussions of their actions. As they began to understand their financial situation and the effect their departmental budgets had on that situation, it became easier for them to swallow the bitter pill that came with layoffs and other actions, and to communicate the reasons for those actions to area personnel. The importance of enrollment growth also became evident, and Ling points to God's blessing in the seminary enrollment as a key catalyst to Tyndale's return to solvency and reduction of debt from $6.2 million to less than $1 million. CFOs can also consult on areas such as fundraising evaluation, raising funds from large donors and foundations, techniques for being accountable to donors and foundations, timing of funding requests, how much in additional revenue it takes to cover new fixed costs, and program-versus-support service expense allocation issues.

It's exciting to see the organizational transformation that occurs when the faith-based organization gets its eye on the right ball, bringing fiscal strength to its passion for mission outreach. Not only are donors encouraged by financial management proficiency, but the CFO's emphasis on reasonable cash flow and liquidity also forces resolution of any ongoing financial excesses or excessive risk that may result from "playing it too

close to the edge." Jesus noted that the strong faith of (mission or church or ministry)

builders is best evidenced before the organizational and building growth occurs, not later (). He says we should make sure we have enough money up front to complete the work. The CFO can ensure that such pre-funding, and the liquid resources that implies, is part of the new paradigm of ministry effectiveness.

This article was reprinted from Christian Management Report, October 2001, pages 29—30. © Christian Management Report, 2001.

John T. Zietlow, D.B.A., CCM is business professor and division chair at Mount Vernon Nazarene College, Mount Vernon, Ohio. The article benefited from seminar discussions at Capin Crouse LLC and the Evangelical Christian Credit Union. Zietlow is the author of Financial Management for Nonprofit Organizations (John Wiley & Sons, 1998), written with Jo Ann Hankin and Alan Seidner, which includes research of 288 ministries, conducted in 1992-94, underwritten by Lilly Endowment Inc.