5 Critical Board Finance Committee Responsibilities
The board finance committee provides financial oversight, ensuring the organization acquires all the financial resources it needs to operate efficiently.
Organizations grow when the board finance committee members perform their roles effectively. But to play the roles effectively from the word go, new finance committee members need to be well-versed in the board’s important financial matters and obligations.
We outline the major responsibilities of a board finance committee and how its role fuels the growth of the organization. We also introduce you to OnBoard, a board management solution to help you better manage your board finance committee responsibilities.
What Is a Board Finance Committee?
A board finance committee carries out all the duties associated with financial oversight. An organization’s bylaws may require the board to form a finance committee, as well as separate audit and investment committees, for better accountability. One of the main responsibilities of the board finance committee is to review and approve the annual budget before it goes to the full board for approval.
5 Board Finance Committee Responsibilities
The five most critical responsibilities for a board finance committee include:
1. Developing and Managing an Operating Budget
Developing and managing the operating budget is among the most important functions of the board finance committee. A budget guides the organization on where to direct funds during the budgeted financial period.
The board finance committee is responsible for everything related to the budget. Before board meetings, they prepare and meet with relevant departments and staff to consider all of the projects to be undertaken in the next financial period.
Based on the finance committee’s review of currently available resources, upcoming revenues, and expected expenses, the committee sets a budget that accurately distributes the financial resources to the best projects, in line with the policies of the board.
Once the board approves the budget, the finance committee helps to implement it. During implementation, they check the actual spending against the projected spending. If there are any deviations from the set plan, the committee takes corrective action immediately to ensure the organization remains in line to meet its objectives.
2. Establishing Financial Goals and Objectives
Financial goals are long-term, short-term, or intermediate goals of a financial plan. Reaching these specific and measurable milestones help your organization better meet its objectives. Some goals include growing revenues, increasing profit margins, and creating a cash reserve or working capital fund to use for purchasing, maintaining, and repairing equipment, among others.
The financial goals and objectives of the organization depend on what it’s trying to achieve. The board finance committee estimates the amount of money required and how the organization will fund the undertaking.
For example, say the organization develops a long-term strategic plan. By working with relevant members of staff, the board finance committee can determine the financial implications of the plan and the steps needed to accommodate it into a multi-period budget. These steps include increasing sales volumes, decreasing expenses, and optimizing pricing, among others.
3. Presenting Financial Goals to Board of Directors
Despite the vital role played by the board finance committee, the ultimate responsibility for the success of the organization rests on the board. So, before the board finance committee creates an agenda to discuss plans and strategies for achieving the financial goals, the board of directors must vet those goals and objectives.
As the board members aren’t always equipped with the expertise to understand the implications of every goal, the board finance committee breaks them down and presents them in an easy-to-understand format so the board can ask more meaningful questions and plan the future more accurately.
When the full board understands the financial goals of the organization, it ensures all actions of the organization are aligned and increases the likelihood of reaching strategic objectives.
Once the board approves financial goals, the board finance committee can move forward with creating and polishing strategies to reach these goals.
4. Establishing and Managing Funding Strategies
A funding strategy details the financial requirements of an organization in the long-term or short-term. This plan outlines how much money your organization will need in the covered period, and how the funds will be raised.
By establishing a funding strategy, the organization enjoys the following benefits:
- Ensures a plan for how the organization will continue providing the products or services in the future and a shared understanding of how this will be achieved.
- Demonstrates a strategy to potential funders that provides a clear plan on how their funds will be used. This allows them to take a calculated risk if they decide to fund the organization.
- Assures various stakeholders that the organization can generate funding in this volatile financial climate.
To increase the chances of reaching the long-term strategic objectives, the board finance committee manages the strategy in line with and measures against agreed objectives. They review the strategy periodically (typically every year) to accommodate any major changes that affect it.
5. Complying with Federal, State, and Local Reporting Requirements
Organizations must comply with several reporting standards and requirements set by government agencies and other regulatory bodies. Failing to do so can lead to hefty penalties or other repercussions, such as affecting the organization’s tax status and eligibility for grants and contributions.
It is the board finance committee’s responsibility to generate these financial compliance reports and meet all the reporting requirements. The finance committee generates compliance reports at least annually.
Apart from generating these reports to comply with reporting requirements, the finance committee creates them to monitor and track key metrics and trends, and to provide insight into the company’s performance to various stakeholders, among other functions.
The finance committee typically manages board reporting for the organization’s income statement, the balance sheet, and the cash flow statement. The finance committee is not responsible for writing board reports.
Manage Your Board Finance Committee with OnBoard
The financial analysis, advice, and budget oversight functions of the board finance committee are critically vital to the success of every organization.
But managing a finance committee can be difficult without a central and secure hub to keep track of all these important documents.
With collaboration tools to streamline board collaboration and a secure portal to manage sensitive financial documents, OnBoard Board Management Software helps finance committees safeguard financial stability and ensure oversight of risk and compliance.
Ready to level up your organization’s financial oversight? Contact us today to start your free trial and discover how a board portal management system can help your finance committee work smarter, not harder.
>>Are you communicating the right information to the board? Read our guide on Everything You Need to Know About Meeting Minutes to make your meetings more effective.
About The Author
- Josh Palmer serves as OnBoard's Head of Content. An experienced content creator, his previous roles have spanned numerous industries including B2C and B2B home improvement, healthcare, and software-as-a-service (SaaS). An Indianapolis native and graduate of Indiana University, Palmer currently resides in Fishers, Ind.
- Board Management Software2023.05.25How to Write a Strategic Plan (Step-by-Step)
- Board Management Software2023.05.24What is a Standing Committee? (Overview, Roles, and Responsibilities)
- Board Management Software2023.05.19Board Voting by Email: 3 Major Risks
- Board Management Software2023.05.17What is Cronyism? (Overview, Definition, and Examples)