What to include (and leave out) in Board financials

Many a post has been written about rules of thumb for holding effective Board meetings.  People should be present, meaning actually focused on the meeting and not doing other work (this one from Brad Feld at Foundry).   There should be an Executive Session scheduled with plenty of time for it (this one via Fred Wilson of USV).  I’m going to focus in particular how presenting financials can be done in order to maximize value and keep things focused on what is really important.
First of all, whatever you present as the CFO, it needs to be distributed ahead of time, preferably at least 72 hours.  This is one hard and fast rule that I try not to violate whenever possible.  There is nothing worse as the CFO than numbers that go out the night before an 8am meeting.  It’s not just Board members that hate this.  It invites scrutiny and questions, and is a signal – I am big on signaling – that management doesn’t quite have its act together.
What should be in the package?  Here are the things I minimally include in businesses that have a meaningful monthly cadence – which most build stage companies do.  For some it’s weekly; an example is an app where week-over-week growth is a meaningful metric.
  • Last month’s P&L vs. original forecast, and YTD vs. forecast
  • Last month’s P&L vs. prior month – dollars view
  • Last month’s P&L vs. prior month – unit economics view (meaning, take your P&L, and divide everything by the unit that’s most important in your business.  Could be square feet, available days for appointments, hours sold, hats – you name it)
  • Meaningful YoY stats by product line, location, or some other way to give investors an idea of where growth is (or is not coming from)
  • Headcount summary – by department, where are we against plan?  For many startups, this is where cash either gets burned (hiring too fast) or revenue growth is thwarted (because you can’t find the right head of marketing and while this saves you money in the short run, it means you are not driving top line in the medium-term)
  • Rolling forecast vs. original projection – meaning, if I re-forecast the business for the rest of the year (which you should be doing on an almost constant basis), where am I going to end up
  • Cash projection
If you have these ready to go 3 days ahead of time in well-formatted slides with pithy color commentary, you’ll serve everyone well.  You might need to add a few more based the particular business that you’re in, but this should get everyone grounded in the results and communicate how things are going.  Investors will have the opportunity to look through the numbers and draw some initial conclusions, which will make the financials review section of the meeting much smoother.
Your goal as the CFO is to let the strategic discussion take center stage and let the numbers support that discussion.
Caveat: sometimes you will have Board members/observers who do not read numbers early no matter how early you provide them, and are going to ask nitpick questions about one obscure figure that you know is not vital to anything.  Take a deep breath and go with it.  It’s not constructive behavior, and with any luck, the other Board members will talk to this person offline about expectations.  Your role is to set them high, and keep them there.

Feature It

Generally speaking, as a CFO you have 2 types of bad news to deliver.  The first type is where there’s a blip that you should report, but you and the CEO are pretty convinced that it’s not worth a long navel-gazing session with your investors.  A simple example that falls into this category is higher than expected G&A spending because your law firm forgot to invoice you for 3 months and you didn’t remember to accrue for this.  So, yes, it makes the numbers look worse than they really are, but if you can present the numbers in a way that doesn’t highlight this in bold underlines, that’s probably all for the best.
The other type of bad news is something that is impossible to hide.  Many CFOs are tempted to do this.  An example: new SaaS bookings are way behind even though the revenue curve for the current month or quarter is fine.  Quota deployed against bookings goals is way behind.  Hiring got away from you and you suddenly added 10 people when the budget called for 3.  You had projected cash lasting 18 months but now it sure looks more like 12.
If this happens, don’t hide it – feature it.
Meaning, present the financials as you normally do, but highlight the miss and make it front-page, bold-type, and unmissable.  Make the discussion about the bad news.  If you have conscientious investors who want to help you find solutions, they will.  In the closed-door executive session, they might have less-than-generous things to say about the company’s or management’s performance.  That’s fair.  Let them have that discussion instead of the one about why they had to uncover issues through forensic analysis because you tried to gloss over or hide it.
The same general rule of thumb goes for sharing numbers with your CEO.  Some bad news should be featured, early and often.