Balance Sheet? Income Statement? But I’m Not a Numbers Person!

hating the balance sheet

Thirty years ago, when I was an executive at Showtime Networks, I worked to get a pay-per-view business off the ground. Crunching numbers was a part of my work. I was not a CPA and did not have an MBA. Never took a class on budgeting or balance sheets.

And yet, for some reason, numbers have never made me anxious. In fact I was quite good at helping other execs make sense of the numbers. So good, in fact, that I was deployed for nine months to educate the members of the finance department on how to bring the numbers to life – to make them matter to the heads of business units – so they could make better decisions based on the stories the numbers told.

Ooops. I think I just leaked the moral of this story, the lesson in this post.

Have you ever felt the “heaviness of the lids”? I bet you have.

You know, that dozing sensation you get when you listen to a budget or finance presentation? That feeling that leads you to daydream about that thing you have to do for that person that you forgot to do yesterday?

Yeah, that. Let’s cure that once and for all. It’s time to get serious about bringing numbers to life.

NUMBERS CAN BE POWERFUL, BUT…

Numbers all by themselves are lonely.

Numbers all by themselves can’t speak.

Numbers all by themselves don’t tell a story.

Those were three key lessons from a brilliant book I am reading right now called Factfulness: Ten Reasons We Are Wrong About the World. And Why Things Are Better Than You Think. The author, Hans Rosling, of blessed memory, was a physician and statistician who loved numbers. He learned the power in telling stories about them, the trends that numbers offer us, the myths they can bust.

I strongly recommend the book and/or one of the numerous TEDTalks he gave during his lifetime. He was super smart, curious and entertaining. One of the best trifecta of attributes, if you ask me.

Let’s bring Hans Rosling’s three tools for bringing numbers to life, put them in context, and really learn something from them.

I’d like to see you use these three tools as you build a budget, as you work with a Finance Committee to help smart dedicated leadership volunteers focus on what matters.

Oh, and I have added a fourth rule of my own….

RULE #1: THE 80/20 RULE

You know the rule. 20% of items produce 80% of the value. Also known as the “Pareto principle”, it gets applied everywhere.

Not everything in a budget is equally important. And some things are really not very important at all. Take for example the budget presentation we gave one year when I was the Executive Director at GLAAD – a $3mm budget at the time.

One of the only questions asked?

“So what is the cost of a first class stamp these days?”

That’s a pretty clear example of what’s in the 80% of what we don’t really need to care about.

The easiest way to implement the 80/20 rule is to look at the largest numbers, the largest % variances. In most budgets, 20% of the items sum up to more than 80% of the total. Save time and prioritize. Focus on what matters.

In his book, Rosling tells a story of reviewing an aid budget, applying the 80/20 rule. He discovered that 100 times too much baby formula was about to be sent to a refugee camp in Algeria. He saw a big number and dug into why. In this case it was a decimal point in the wrong spot.

If one of my consulting clients had reviewed his financial statements carefully and looked at the personnel line (his biggest number – his 80%) and explored the details, he might have picked up the fact that the CFO was writing himself two paychecks every pay period. For an entire year. Did I hear you say “Oy?” Or something less kind?

RULE #2: COMPARE

Example 1
Has anyone in your organization (yourself included) ever said, “I really should understand what the balance sheet means.” Or, “I have heard that assets = liabilities but why do I need to care?

Rather than giving your board a “lesson” on balance sheets destined to induce insomnia on your board, how about comparing your balance sheet to two others – a really healthy one and one that spells trouble. At the very least, we could look at that balance sheet and understand a bit more about its relative health. That would be a start.

Example 2
Here’s the strongest case I can make for keeping historical financial information accurate and accessible.

If I am your treasurer, I want to see your line-by-line budget for next year compared with your actuals year to date / where you think you will wind up this year. I also want to see what the actuals were the year before.

If I am a good treasurer, I will use the 80/20 rule and focus on the big numbers and then compare those big numbers to historical information to get a sense of the direction things are headed. I will want to look at the % variance and the real dollar variance (sometimes comparing small numbers can result in crazy variances). But it’s less about the raw numbers per se. I’m looking for the story, the trends.

When I arrived at GLAAD we had $360 in the bank. The balance sheet was ugly, to say the least. I was hell bent on telling a story regularly about our cash balance and ultimately our reserve – a story that new board members could learn when they arrived.

In our first few years, our cash reserve number was really bad. But it was a whole lot better than $360. And so I showed a bar graph at most every budget presentation so that new board members didn’t think, “She really doesn’t care about building a reserve” and instead compared where we were with where we’d been. A lonely number became an impressive story that spoke to the priority we were giving to our fiscal health.

RULE #3: DIVIDE

Another way to reveal the story in the numbers is to divide the lonely number by a total. The best example for our purposes is to think about a direct service organization and to think about “per person.”

So I’m working with a client that wants to grow its budget by $200,000 to serve more kids – to double the number of kids they support in their state. Kids who need them and can’t get the services they really need. She wants to engage her board to rally around raising that new money.

It’s not a huge organization and so that $200K represents a 60% increase in their budget. Board members sweat bullets when they see increases like that.

A conversation about board engagement shifted when we started to divide. Turns out that to reach 60% more kids, that $200,000 worked out to be $1,400 per kid / year. When we met with the board and talked about the number $1,400, board members stopped sweating and they got excited and began to generate ideas of how to approach fundraising using the ‘per kid’ figure.

What numbers make your board sweat bullets and how might you divide to educate? Are they worried about overhead? I bet you could do some dividing and illustrate just how little you spend. That’s just one of many examples.

RULE #4: JOAN’S FRIENDLY AMENDMENT

After the financial statements are complete, the balance sheet need review, or the budget is ready for presentation, sit and write a 1-2 page narrative. The story the numbers tell. The headlines. The implications. The choices you are making as a result.

But here’s the catch. You can’t regurgitate all the numbers. In fact, you can only use numbers sparingly to illustrate the point in the story. The numbers are supporting detail for your story.

The bottom line is this. Far too few folks in nonprofit leadership have financial expertise. But this does not let them off the hook.

“I am not a numbers person” is a sentence you cannot and should not utter.

Everyone. Seriously. Everyone can be a numbers person.

And nonprofit leaders have to be numbers people. I hope these tools will change your mindset, decrease your anxiety, and eliminate your imposter syndrome around numbers.

Numbers have to make sense to you. So every time you see a balance sheet or income statement on a spreadsheet, go digging for the story they tell.