Financial Literacy Training for Board Members

Having a high-performance Board of Directors translates, each with a diverse background is essential in ensuring efficiency and sound management decisions. There is no rule suggesting that board members need to have a strong financial background.

However, there are certain skills that they must be adept at. Accounting and finance drive significant strategic decisions and stances the board needs to take, such as strict or loose cash flow management, bookkeeping overview, asset sale and purchase, and more. For that, basic financial literacy is essential.

Even if organizations have a CFO or go for fractional CFO services there are some finance essentials that board members need to be aware of. Here is a list of topics that you should include when designing a financial literacy training module for those members who aren’t financial experts.

Essential Financial Terms for Board Member Training

Balance Sheet

Also known as the Statement of financial position, this is a summary of the assets, liabilities, and equity of the company. In fact, the whole summary revolves around the following formula.

Assets = Liabilities + Equity

This statement shows how much money the company has.

Income Statement

Also known as the Profit and Loss statement, this shows how much money the company earned and spent during the year.

Cash Flow Statement

This includes ratios to help analyze the cost-efficiency and other cash-related strategies of the company. Basic cash flow management is essential for directors.

Growth Ratios

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These ratios help members better understand how the company is performing with respect to the last year. Fractional CFO services are extremely handy for analyses of the same. These include:

• Profitability ratios
  • Return on Invested Capital (ROIC)
  • Return on Equity (ROE)
  • Return on Assets (ROA)
  • Profit margin
  • Gross profit margin
  • Earnings per share (EPS)
• Operating efficiency
  • Asset turnover
  • Return on Investment (ROI)
• Leverage ratios
  • Debt ratio
  • Debt-to-equity
  • Interest coverage ratio
• Liquidity ratios
  • Current ratio
  • Quick ratio

Audit-Related Matters

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These are critical factors when it comes to understanding vulnerabilities and any misrepresentation, along with preparing the organization for audits.

Virtual bookkeeping services make a point of being accurate and audit-ready but internal departments may not be as keen for the same. Following are some points to include in training programs:

• Sales manipulation
• Expense manipulation
• Incorrect asset valuation
• Hidden liabilities
• Improper disclosures

More knowledgeable directors are able to make much more sound strategies and decisions since they better understand what is driving the company’s performance and what is slowing it down; not to mention their resilience to fraud.

Along with the right material, having trained and expert individuals is also key to ensuring the training’s success. If you’d like to learn more about the different elements included in financial literacy training or simply need to ensure everything is in order, we recommend you take a look at our fractional CFOs or QuickBooks bookkeeping services; not only to manage your existing accounts but also to explain the intricacies therein to those who need it most! Get in touch today for a quick quote and a strategy session.