At the end of a season, a player, a team, an administration reflect. Did we win? Did we qualify for the national championships? Did we increase our participation? Did we build a new pavilion? These questions link back to goals and objectives, and the reports a board interpret are tools to assess and drive performance.
Whilst a board may get long and detailed financial reports – being able to ask the right questions of these is important. Do they allow the board to understand if performance expectations have been met? If no, the, manner in which they are prepared and presented should be questioned.
The financial reports should only be seen as a small element of measuring performance, but they are a window to creating linkage to goals. Did we grow our participation as we set out to do? Let’s check our membership revenues. Did we build that new pavilion? Let’s check our balance sheet.
A good board report will not only link to goals, but will drive the discussions around the next wave of initiatives – creating a virtuous circle.
Creating better data, leads to better discussion and ultimately better decisions.
The papers made available for board members should cover many facets of your sport and should not be driven solely by financials, but equally, these should not be glossed over or diverted simply to the treasurer.
As a starting point, you should have available:
|Actual to budget||A roadmap of if you achieved what you set out to do. It allows for refinement, deliberation and the opportunity to reset.|
|Income statement||A snapshot for the period in question, and year to date, for your income and expenditure.|
|Balance sheet||A point in time summary of your assets and liabilities – your ability to invest vs. your obligations.|
|Cash flow statement||A snapshot for the period in question, and year to date, of where the physical money went.|
|Forecast to the end of the year||A point in time peek into the future.|
These all provide important financial information, and should be seen as a base level expectation. But, do they really tell you want you need to know? There is no ‘one size fits all’ guide to financial reporting – however, you should take time as a board to challenge what you need.
Some thoughts to consider:
- Can we track our performance back to our stated goals?
- Our targets are not monetary – can we create a link?
- Has money been spent in the best interest of our sport?
- Was our spending approved?
- Has our grant funding been used in accordance with stipulations?
- Will we run out of money?
Your strategic objectives should be considered in assessing performance. Many goals and objectives will be non-financial or non-monetary. That does not mean the financials cannot tell a story. As a board, you should consider what effect an action has, and determine what information you need to assess performance. Performance ratios should take on financial metrics, but also look to overlay non-financial metrics.
As supplemental information, it is worth requesting a summary of spend over certain thresholds to ensure it is mapped to the boards expectation and approval. Whilst not preventative, it does add a layer of internal control rigor.
Grant funding can be difficult to monitor, particularly around any required acquittal process. As a board, you may consider asking for grant based reports – to consider if the money received is being spent in accordance with the funders intention. You should be able to ask:
- Why did we get these funds?
- Are we spending in line with the grant parameters?
- For what period to they relate?
- What are our reporting obligations?
As a board, you are entitled to ask for information when you need it. It is a fine line however between governing, rather than being heavily involved in the detail of day to day operations. You should request the information you require for each board meeting as a baseline.
Throughout the year, you should also ensure you receive at a minimum:
- The annual budget;
- The annual financial statements; and
- Acquittals for any grant monies required.
Information for information’s sake is a challenge all boards face. In addition to the core financial reports, financial ratios can help give indicators to performance. But what is a ratio? Put simply, it is a relationship between key pieces of information that help indicate if you’re are on the right track. They can link to the past and the future, and can compare you to your peers.
Where to start?
The right data has to exist to be able to make the ratios meaningful. The old adage of garbage in, garbage out applies here. In considering what is important, consider the data sets that can support this.
The board have recently met, and outside of the financial statements, felt they needed more information to help shape better descisions. In reflecting on what would help, they considered if their strategic imperatives are being met?
- Has our participation grown?
- Did our retention strategies materialise?
- Were our fundraising efforts successful?
- Did we maintain our operating expenditure in line with budget?
- Were we able to drive web traffic to our site for key events?
In addressing these questions, the board decided they would look to:
- Participation program costs against participation numbers. The lower the number, the greater the impact.
- Number of repeat members over total memberships. The greater the number, the better the retention.
- Planned Fundraising revenues over total revenue. The greater the number, the greater level of self-sustainability.
- Operating expenditure as a % of revenue. The board set out to spend x% of all revenue on what they deemed ‘operating’ expenses.
- Event revenues per unique web site visit. The more revenue per visit, the greater the impact if the web campaign.
No sport will have the same ratios, but as guidance, the following were identified through surveys conducted by the NSW Office of Sport, and form a good base for ratio reporting.
- Net income ratio – surplus divided by net revenue. Measures the level of surplus generated from each dollar of revenue received.
- Current ratio – liquidity based ratio which measures the State Sporting Organisations ability to meet short term debts measured by dividing current assets by current liabilities.
- Debt to Assets ratio – indicator of financial leverage which indicates how much the State Sporting Organisation has financed its assets with debt.
- Revenue stream percentage ratio – indicates how much a particular stream of revenue is contributing to total revenue. This is often beneficial in assessing the performance of a given strategic initiative, or in aiding discussions around where resources may need to be better focused.
- Cash expenditure cover ratio – indicates the level of cash available to cover expenditure – and highlights how long a State Sporting Organisation can continue to operate before more cash is needed.
There are no right answers when it comes to the number of ratios. As a guide, focus the on the 5-10 that best drive meaningful decisions in your sport.
Many people find it easier to interpret data that is visualised. Where possible, you should consider appropriate opportunities to visualise your data.
A page of charts or graphs can often provide far more insight than pages and pages of financial statements. Remember your audience in preparing this information.
Financial Ratio Health Check Tool
Using financial ratio analysis regularly can assist your Board, Committee or Management monitor the financial health of your sporting organisation to better understand if it is meeting its financial performance expectations.
Financial Ratio Health Check Tool
The biggest challenge with assessing performance is to reflect on what answers the financial statements should give you as a board. To do this, you must first ask the questions. The following are a series of questions you may want to ask of the financial statements, the treasurer or your finance function.
- Are there any significant increases or decreases in income or expenditure – and if so, do these make sense?
- Are we generating enough revenue to be sustainable, or relying on funding? What happens if the funding model changes?
- Has budget been met? Have we exceeded expectation or fallen short? Why?
- Do our financial results reflect our non-financial results? E.g. Our participation numbers have increased, so should have our participation revenue. We have increased spending on coaching accreditations, have our coaching numbers increased?
- Have events occurred which weren’t foreseen and need to be budgeted for next year?
- Have our statutory obligations been met in regards to GST, payroll tax, WorkCover etc.?
- Do we have enough cash to pay our creditors? Are we at risk of being late on payments?
- Is our business solvent? Do our current assets exceed our current liabilities?
- Is any inventory held still able to be sold? Or is it at risk of being obsolete?
- Are we owed large amounts by debtors and is there an issue with collecting such monies?
- Are we generating a positive or negative net cash flow? Does spending need to be tightened or is there scope to invest into the sport?
- Are we to heavily reliant on debt? What happens if further debt cannot be sourced or is recalled? How long could we survive?
- Have all our employee entitlements been provided for?
- Has the auditor identified any issues with our books and records?
Note: as with any legal and financial documents, this does not replace obtaining legal and financial advice on each sports specific requirements and it is recommended you do so.
The information provided in the framework and tool kit is for your information only. The authors and the NSW Office of Sport accept no responsibility for the accuracy of the information or your reliance upon it.