Transcript Slide 1

Financial Management…
in a Tough Economic Climate
March 11, 2009 - 2:00 pm to 3:30 pm
Oracle Conference Center
Presented by: Ira Holtzman, CFO, The Health Trust
2
Meeting Purpose
• This session will discuss two different
approaches toward making hard business
decisions in tough economic times.
- First, we will look at various strategies that
organizations should look at to reduce and contain
costs and ideas around increasing revenues.
- Second, we will be discussing the ways to use
financial information and indicators to analyze the
financial health of your organization.
3
Agenda
• Cost Reduction and Containment Strategies
• Revenue Concepts
• Evaluating Financial Health
• Financial Indicators
-----------------------------------------------------------------• Definitions and Frequently Asked Questions (not
covered; info only)
4
Cost Reduction and Containment Strategies
•
•
•
•
•
•
Staffing
Benefits
Staffing related and other expenses
Purchasing
Infrastructure
Services
5
Staffing
•
•
•
•
•
•
•
•
•
•
•
•
Layoffs, voluntary (unpaid) leaves
Freeze/delay new or open positions
Reduction in work hours (40 to 36)
Move some staff from F/T to P/T (job sharing and 1.0 FTE to 0.8 FTE)
Reduce salaries or freeze salaries
In lieu of salary increases give bonuses instead, in the event this is
necessary (doesn’t add to cumulative base rate)
Reduce non-income producing positions first
Make an employee an independent contractor versus an employee (can
be cheaper assuming you meet the employee versus IC rules)
Consolidate staff assignments, maximize output, look at pure secretarial
functions
Maximize use of volunteers particularly secretarial work
Hire temporary staff to do short term assignments
Look at management hierarchy and staffing ratios (consolidate positions)
6
Benefits
• Paid time off (Holiday’s, sick days, vacation)
- Reduce PTO components
- Limit accrual limits
- Use it or lose it don’t let employees accumulate hours)
• Medical (employer/employee shares)
- Plan designs
- Co-pays and coverage’s
- Employee only and Employee + Family
- Is this the year to look at HSA’s
- Company pension contribution amounts reduce or eliminate
• Pool employees with other organization to make a larger network for
possible lower rates
7
Staffing Related and Other Expenses
• Consulting
- IT consultant versus full or part time staff person
- Outsource Accounting and/or Human Resources functions
- Cost of grant writer versus internal staffing person
- Banking
- Payroll vendors
- Compensation for Executives (may be necessary)
- Facilitators
• Travel related expenses (options: conference call meetings)
• Subscription and professional association related expenses
• Newsletters, brochures, business cards
• Mail versus email
8
Purchasing
• Look for group pricing for discounts from suppliers
(combine purchases with others and discuss with others
who they use)
• In-kind contributions (Trustees) versus paid contractors
• Competitive bids on everything
• Analyze unnecessary purchasing
• Delay payments (work with suppliers to develop payment
plan)
• Direct mail vendors versus doing this in-house
9
Infrastructure
•
•
•
•
•
•
•
•
•
•
Delay construction projects
Delay maintenance
Delay capital purchases (furniture, IT, fixed assets)
Attempt to renegotiate rent with landlord
Phone systems – toll lines, cell phones
Copier leases renegotiate
IT structure (web hosting, maintenance, etc.)
Utilities (if controllable, alternative work weeks)
Look for donated facility space
Work from home shifts
10
Services
• Look at mission related services
• Look at non-core programs
• Tactically slow-down, reduce or shut-down costly services
(permanent or temporarily)
• Reduce or eliminate programs that cannot cover their costs
• Reduce or eliminate programs that are fundraising intensive
or cause you to fundraise more for each service performed
• Look at unrelated business areas and other areas you may
have an opportunity with due to someone else stopping that
service
11
Revenue Concepts
• Cash flow and cash reserves
• Income producing assets versus capital assets
• Fundraising
• Receivables and timeliness of receivables and source of
receivables
• Revenue sources
• Operational efficiency and expansion
• Liabilities (debt, where are commitments going, what
don’t I need to pay)
12
Cash Flow and Cash Reserves
•
Cash needs to be defined as readily accessible and un-encumbered
•
Make sure that your billing (invoices) statements go out timely
•
Talk to funders to accelerate grants particularly if they are multi-year
•
Organizations should not loan or borrow dollars from restricted or
endowment funds to pay for unrestricted expenses hoping to repay
those back
•
Collecting excessive amounts of endowed or restricted cash is not
always the best way to stay solvent for the short term
•
Organizations should not need to borrow cash in the form of loans in
order to make payroll obligations
•
This is the time to use reserves if you have them
•
Organizations should have at least two to six months of liquid cash
reserves to cover payroll in the event cash flow is interrupted
13
Cash Flow and Cash Reserves (cont.)
•
•
Immediate cash needs:
Payroll
Payroll taxes
Employee paid time off banks
Employee health benefits
Rent
Secondary cash needs:
Vendors
Independent contractors
Company XYZ – FY08 Cash Flow Projection
COMPANY XYZ - FY08 Cash Flow Projection
CASH - OPERATING EXAMPLE 1
Cash – Operating Example 1
PROJECTED CASH RECEIPTS
February
1
March
Contributions: Unrestricted
12,000
Special Events
75,000
Program 1 Revenue - Fee for Service
28,500
28,500
Program 2 Revenue - Fee for Service
70,622
7,715
42,170
Interest Income from Portfolio
Program 1 Revenue - Other
Contributions: Restricted
Total Cash Receipts
Petty Cash:
PROJECTED PAYROLL COSTS
Total Projected Payroll Costs
PROJECTED NON-LABOR EXPENSES
1
81,000
2
April
1
May
1
June
12,793
3,200
28,500
28,500
189,300
68,162
70,613
66,624
59,996
7,715
7,715
7,715
7,715
29,588
44,749
62,340
25,000
60,000
12,800
2
-
14,919
13,569
14,000
22,560
8,300
250,926
288,534
178,377
200,532
293,511
595
595
595
595
595
February
155,000
February
March
3
1
157,692
March
April
3
1
159,812
April
May
3
1
159,428
May
June
3
1
163,428
June
Professional fees
Supplies
Food
Purchased Services
332
6,069
9,722
10,815
5,300
5,900
8,900
3,900
5,900
8,700
10,500
1,300
326
6,208
7,094
13,241
19,700
18,500
27,600
Admin. Services
12,296
12,296
12,296
12,296
12,296
Bldg Occ
12,290
13,000
11,760
15,231
14,800
Insurance
4,800
5,000
4,870
4,873
8,660
1,700
1,717
1,600
-
-
Telephone
1,700
1,700
Special Events exp
18,000
16,000
Other expenses
12,000
8,000
10,785
15,737
10,400
Total Projected Non-labor expenses
88,024
79,996
67,811
76,723
113,556
February
March
-
April
May
June
127,162
Beginning Operating Cash Balance
153,279
161,181
212,027
162,781
Add: Projected Cash receipts
250,926
288,534
178,377
200,532
293,511
(243,024)
(237,688)
(227,623)
(236,151)
(276,984)
161,181
212,027
162,781
127,162
143,689
Less: Projected P/R & Non-labor disbursements
Ending Operating Cash Balance:
1. Based on Projected FY08 sessions
2. Based on FY07 Actuals
3. Vacant Positions (Program Specialist, Advancement)
Company XYZ – FY08 Cash Flow Projection
Cash – Operating Example 2
COMPANY XYZ - FY08 Cash Flow Projection
CASH - OPERATING
PROJECTED CASH RECEIPTS
February
1
March
1
1
12,000
Special Events
65,000
Program 1 Revenue - Fee for Service
28,500
28,500
28,500
Program 2 Revenue - Fee for Service
43,560
68,162
7,715
7,715
Program 1 Revenue - Other
22,170
Contributions: Restricted
Interest Income from Portfolio
Total Cash Receipts
Petty Cash:
PROJECTED PAYROLL COSTS
Total Projected Payroll Costs
PROJECTED NON-LABOR EXPENSES
15,000
April
Contributions: Unrestricted
May
1
2
July
4
23,400
28,500
28,500
28,500
58,361
66,624
59,996
46,710
7,715
7,715
7,715
7,715
26,842
44,749
43,000
25,000
14,919
13,569
14,000
22,560
8,300
50,000
193,864
189,788
166,125
231,192
132,711
156,325
595
595
595
595
595
595
February
168,950
February
30,000
1
170,586
March
-
2
March
3
12,793
June
3,200
2
12,800
50,000
April
3
1
-
May
159,812
April
3
1
-
June
159,428
May
3
1
July
163,428
3
170,000
3
June
2
July
4
Professional fees
Supplies
Food
Purchased Services
332
6,069
9,722
10,815
5,300
5,900
8,900
3,900
5,900
8,700
10,500
1,300
326
6,208
7,094
13,241
19,700
18,500
27,600
17,600
19,400
43,000
Admin. Services
12,296
12,296
12,296
12,296
12,296
12,296
Bldg Occ
12,290
13,000
11,760
15,231
14,800
19,400
Insurance
4,800
5,000
4,870
4,873
8,660
5,200
Telephone
1,700
1,700
1,700
1,717
1,600
1,200
Special Events exp
18,000
16,000
-
-
-
Other expenses
12,000
8,000
10,785
15,737
10,400
5,000
Total Projected Non-labor expenses
88,024
79,996
67,811
76,723
113,556
123,096
February
140,000
March
76,890
April
16,096
May
(45,402)
June
(50,361)
July
(194,634)
Beginning Operating Cash Balance
Add: Projected Cash receipts
Less: Projected P/R & Non-labor disbursements
Ending Operating Cash Balance:
1. Based on Projected FY08 sessions
2. Based on FY07 Actuals
3. Vacant Positions (Program Specialist, Advancement)
4. Based on FY08 Actuals
-
193,864
189,788
166,125
231,192
132,711
156,325
(256,974)
(250,582)
(227,623)
(236,151)
(276,984)
(293,096)
(45,402)
(50,361)
(194,634)
(331,405)
76,890
16,096
16
Income Producing Assets versus Capital Assets
•
Are any assets available for sale (land, building – Rent vs. Own)
•
If there is a capital asset that could be converted to an income
producing asset, and that asset can generate recurring income, then
the disposition of that asset should be considered. (An under utilized
building or vacant land that could be used for another purpose or by
another organization)
•
When evaluating the asset mix of organization, look at the “liquidity” of
the assets of the organization versus just its “fixed” assets
•
Organizations heavy in fixed assets as a percentage of its assets may
not have liquidity to cover its obligations and overstate its true value
-
•
Ex. Organizations that hold land or buildings as assets will not have the
flexibility to timely exchange those assets for cash if that situation arose
Liquid assets are cash, investments, and receivables. Even inventories
can be converted to cash, but not as quickly
Company BBC
Statement of Financial Position as of 5/31/08
Company BBC: Statement of Financial Position as of 5/31/08
FY 2008
Actual
Percent
Assets
Current Assets
Cash
59,003
Accounts Receivable
95,625
Allowance for Bad Debts
Prepaid Insurance
Prepaid Rent
Other Prepaid Expenses
Total Current Assets
(9,908)
2,985
5,325
21,816
174,847
7%
11%
-1%
0%
1%
2%
20%
Investments
Endowment Contributions
129,048
Unrealized Gains/(Losses)
1,280
Realized Gains/(Losses)
Total Investments
933
131,261
14%
0%
0%
15%
Fixed Assets
Property
550,519
Computers
13,578
Furniture Fixtures & Equipment
88,892
Vehicles
Net Accumulated Depreciation
Total Fixed Assets
Total Assets
66,457
(131,252)
588,194
894,302
62%
2%
10%
7%
-15%
66%
100%
Liabilities & Fund Balance
Current Liabilities
Accounts Payable
Accrued Expenses
Accrued 403B
Accured Health & Dental Deductions
Accrued Vacation
Deferred Rent
Deffered Revenue
Lind of Credit
Total Current Liabilities
14,973
226
569
20,246
9,817
148,897
194,729
2%
0%
0%
0%
2%
1%
0%
17%
22%
Fund Balance
Unrestricted Net Assets
394,059
Temp. Restricted Net Assets
176,466
Perm. Restricted Net Assets
129,048
Total Fund Balance
Total Liabilities & Fund Balance
699,573
894,302
44%
20%
14%
78%
100%
18
Fundraising
• Evaluate if during tough economic times; Is it the time to cut back on
fundraising staff or hire more staff
• Is now the time to incur prospecting costs for new donors
• Special events (affordability and events should be what donors would like
to attend…games of chance with plenty of wine)
• Expand use of staff beyond normal duties versus using contractors
• Expand use of internet to search for funders
• Ask funder to relax restrictions on use of funds (more unrestricted use)
• Ask for some infrastructure support (extra percent) within grant proposals
• Employee donation of paid time off
• Planned giving (takes time so has to start eventually)
• Contributed services such as legal cuts costs
• Change endowment designations from donor to spin off more income or
use some principle to pay operating costs
• And of course…Board giving and their contacts
19
Receivables
• Accelerate billings, making it a priority
• Too high a percentage of receivables is dangerous to short and longterm health due to cash flow issues and receivable write-offs
• Receivables are too often left stale until they are difficult to collect –
Follow up with payers and put in a process to do this monthly
• Organizations that are heavily dependent on government funding risk
cash flow interruptions and need to develop other sources of reliable
recurring funding
• Some federal contracts and billing sources take months to filter
through the system before they get to the nonprofit. Cash flow lags of
180 days are normal
• Organizations that rely on fundraising receivables create risky
funding and timely cash situations
Hypothetical Company
Aged Accounts Receivable Report
As of 2/29/08
Aging Balance:
SCC Gov't grant AAA
Last Paid
2/2/2007
current
$4,583.33
31-60
$0.00
61-90
$0.00
over 90
$4,583.33
Balance
$9,166.66
San Jose Grant
1/28/2008
$3,302.15
$2,897.74
$2,259.72
$6,739.66
$15,199.27
CALWORKS
2/7/2007
$5,466.00
$0.00
$0.00
$79.47
$5,545.47
CDBG
1/31/2008
$12,225.52
$0.00
$0.00
$0.00
$12,225.52
SCC Office of XXXX
1/28/2008
$1,962.28
$1,815.79
$0.00
$4,883.65
$8,661.72
SCC HUD
2/2/2007
$6,209.49
$0.00
$0.00
$2,937.70
$9,147.19
SCC Gov't grant XXX
12/31/2007
$6,099.00
$5,739.00
$24,659.06
$76,807.04
$113,304.10
HNVF
2/28/2007
$6,779.23
$5,323.46
$0.00
$18,246.44
$30,349.13
$2,527.00
$2,225.00
$17,919.53
$0.00
$22,671.53
$ 49,154.00
$ 18,000.99
$ 44,838.31
$ 114,277.29
$ 226,270.59
22%
8%
20%
51%
100%
Private Funder
Totals
Percents
9/30/2007
21
Revenue Sources
• Diversification of revenue sources is an optimum revenue strategy to
even out cash flow and the expectation of income
• Government grants, fee for services (FFS), fundraising contributions
both corporate and foundation, investment income, and special events
• Renegotiate rates with governmental agencies particularly if you have
leverage
• Increase fees on services you offer to what the market can bare
• CAUTION - Revenue that does not cover costs and has to be
augmented with fundraising (which is also not guaranteed) is not an
optimum revenue strategy. This needs to be evaluated carefully from a
long-term perspective. Expanded service vs. increasing loss on activity
- Ex. Offering to accept a FFS (cost per meal) grant to cover
additional meals for clients below cost.
- Focus on getting revenues on existing operations before expansion
of services
Hypothetical Company
Statement of Activities - Combined Report
As of June 30, 2007
12 Months Y-T-D
Actual
CHANGES IN UNRESTRICTED NET ASSETS:
Public support:
Direct mail
Individuals & Board of Directors
Government grants
Corporate & Foundation grants
Workplace Giving
Special events
$
Total public support
Other Revenue:
Program income
Miscellaneous income
Interest & dividend income
In-kind revenue
Total revenue
Net assets released from restrictions
Total public support and other revenue
$
47,115
28,834
1,845,005
116,470
19,983
57,993
12 Months Y-T-D
Budget
$
$
82,033
171,125
1,915,265
120,000
34,100
99,500
12 Months Y-T-D
Variance
$
Percent
(34,918)
(142,291)
(70,260)
(3,530)
(14,117)
(41,507)
2%
1%
80%
5%
1%
3%
2,115,400
2,422,023
(306,623)
92%
111,514
11,252
6,066
15,454
144,285
119,667
6,600
4,400
14,704
145,370
(8,153)
4,652
1,666
750
(1,086)
5%
0%
0%
1%
6%
39,641
10,000
29,641
2%
(278,067)
100%
2,299,326
$
2,577,393
$
Hypothetical Company
Statement of Activities - Combined Report
As of June 30, 2007
12 Months Y-T-D
Actual
CHANGES IN UNRESTRICTED NET ASSETS:
Public support:
Direct mail
Individuals & Board of Directors
Government grants
Corporate & Foundation grants
Workplace Giving
Special events
$
Total public support
Other Revenue:
Program income
Miscellaneous income
Interest & dividend income
In-kind revenue
Total revenue
Net assets released from restrictions
Total public support and other revenue
$
47,115
28,834
5,005
266,470
19,983
57,993
12 Months Y-T-D
Budget
$
$
82,033
171,125
5,265
120,000
34,100
99,500
12 Months Y-T-D
Variance
$
Percent
(34,918)
(142,291)
(260)
146,470
(14,117)
(41,507)
8%
5%
1%
44%
3%
10%
425,400
512,023
(86,623)
70%
111,514
11,252
6,066
15,454
144,285
119,667
6,600
4,400
14,704
145,370
(8,153)
4,652
1,666
750
(1,086)
18%
2%
1%
3%
24%
39,641
10,000
29,641
7%
609,326
$
667,393
$
(58,067)
100%
24
Operational Efficiency and Expansion
• Multi-tasking staff beyond specialist borders (Keep staff busy
entire shift and don’t just let them look busy)
• Expand services that are funded but make sure costs are
going to be covered
• Technology improvements resulting in “real” cost reductions
and/or increased revenues (Quantitative vs. Qualitative)
• Sell expertise to other organizations (outsourced services,
niche skill services)
• Look for new markets and maybe untraditional markets (e.g.
HT wellness programs to corporations)
25
Liabilities
•
If you can write liabilities off (old debt, outstanding checks not cashed),
it is like income because you won’t have that expense
•
Deferred revenue collections become revenue when you incur the
activity and are typically categorized that way when the collection and
activity cross fiscal years (So not good practice to use cash before
service)
•
Current (short term and current year) and long-term debt obligations
•
Organizations need to continually examine all their sources of debt
- Payroll liabilities (staff accrued payouts)
- Vendor and service contracts
- Rents and copiers
•
Organizations should understand and re-evaluate their fixed (recurring)
versus variable obligations. Do I need that expense vs. I must have it.
•
If commitments become too large, it can inhibit the organization from
engaging in new interests and/or future activities. If one gets sucked
into borrowing on a line of credit it makes recovery more challenging.
Hypothetical Company
Statement of Financial Position
as of 1/31/08
Actual
Assets
Current Assets
Cash and Cash Equivalents
Investments
Other Receivables
Prepaid Expenses and Other Assets
Pledges Receivable
Total Current Assets
Fixed Assets
Furniture, Fixtures & Building
Accumulated Depreciation
Total Fixed Assets
Total Assets
Liabilities & Fund Balance
Current Liabilities
Accounts Payable
Accrued Payroll Liabilities
Other Accrued Expenses
Deferred Revenue
Total Current Liabilities
Fund Balance
Unrestricted
Temporarily Restricted
Permanently Restricted
Total Fund Balance
Total Liabilities & Fund Balance
$34,896.01
$2,714.49
$21,740.13
$65,570.18
$5,864.00
$130,784.81
$68,233.43
($6,771.94)
$61,461.49
$192,246.30
Percent
18%
1%
11%
34%
3%
68%
32%
100%
$87,987.15
$22,379.64
$47,712.25
$0.00
$158,079.04
46%
12%
25%
0%
82%
$31,559.26
$2,608.00
$0.00
$34,167.26
$192,246.30
16%
1%
0%
18%
100%
27
Key Financial Reports
• Statement of Financial Position
• Statement of Activities (with variances to budget)
• Statement of Monthly Cash Flows
• Dashboard Reports
• Financial Indicators (Financial and Non-Financial)
28
Evaluating Financial Reports
• Many audiences: Internal reporting, Finance Committee reporting,
Trustee reporting, public reporting, governmental and funder reporting
• Provide reports that target your audience
• Understand the difference between understanding actual vs. budget
and revenue vs. expense when interpreting reports
• Reports at some level should show month and year-to-date, actual
versus budget and variances
• There should also be discussions regarding “material” variances
• Dashboard reports are effective for quickly highlighting key indicators
that Trustees would want to know without getting buried in detail.
Caution should be observed to make sure they also receive the
detailed information as well
29
How to Analyze Financial Data
How to Analyz e Financial Data
Look at revenue vs. expense
Look at actual vs. budget
Look at variances (reasons behind the change)
Look at cash and liquidity
Unrestricted vs. Temp Rest. Vs. Perm.
Available cash vs. committed
Look at Receivables and source
Look for liability trends
Is AP increasing because more debt or unpaid
Look at ratio's
Admin vs. Program
FR vs. Program
Cost to raise a dollar
Other ratios
Look at revenue mix
Sources of payors
Look at type of expenses
Salary vs. nonlabor
In-house vs. out source
Look at historical trends
Side by side years at detail level
The Nonprofit Company 1
Statement of Financial Position
October 31, 2007
10/31/2007
Combined
ASSETS:
Current Assets
Cash and cash equivalents
Cash and cash equivalents restricted
Investments
Accounts receivable
Note Receivable
Prepaid expenses
Total Current Assets
Fixed Assets
Land
Buildings
Equipment
Autos
Less: Accumulated depreciation
Total Fixed Assets
Other Assets
Endowments
Total Other Assets
9/30/2007
Combined
Monthly Chg.
Incr./(Decr.)
6/30/2007
Combined
Jun-07 to Oct-07
Incr./(Decr.)
94,678
682,325
1,355,035
291,190
498,575
60,907
2,982,711
66,403
680,370
1,311,481
306,001
498,575
67,431
2,930,261
28,275
1,954
43,554
(14,810)
0
(6,524)
52,449
76,587
520,878
1,443,014
244,056
498,575
58,439
2,841,549
18,091
161,447
(87,979)
47,134
0
2,468
141,161
52,926
4,198,837
825,196
121,726
(2,372,560)
2,826,125
52,926
4,175,833
825,196
121,726
(2,363,247)
2,812,434
0
23,005
0
0
(9,313)
13,691
52,926
4,157,704
823,789
121,726
(2,326,712)
2,829,432
0
41,134
1,407
0
(45,848)
(3,307)
496,915
496,915
496,915
496,915
0
0
496,915
496,915
0
0
6,305,751
6,239,611
66,141
6,167,897
137,854
116,085
143,598
10,538
270,220
103,830
122,267
9,431
235,528
12,255
21,330
1,106
34,691
99,150
121,041
9,566
229,757
16,935
22,557
971
40,463
0
196,101
196,101
0
110,209
110,209
0
85,892
85,892
1,074
133,122
134,196
(1,074)
62,979
61,905
466,321
345,738
120,583
363,954
FUND BALANCE
Board designated reserves
Unrestricted fund balance
Temporarily restricted fund balance
Permanently restricted fund balance
1,554,274
2,490,791
1,297,449
496,915
1,554,274
2,545,714
1,296,969
496,915
0
(54,923)
480
0
1,554,274
2,630,174
1,122,580
496,915
TOTAL NET ASSETS
5,839,430
5,893,873
(54,443)
5,803,943
35,487
TOTAL LIABILITIES & NET ASSETS
6,305,751
6,239,611
66,141
6,167,897
137,854
TOTAL ASSETS
LIABILITIES & NET ASSETS:
Current Liabilities
Accounts payable
Accrued payroll/vacation
Other accrued expenses & current lease obligations
Total Current Liabilities
Long term Liabilities
Lease obligations - long term
Deferred revenue
Total Long Term Liabilities
TOTAL LIABILITIES
102,368
0
(139,383)
174,870
0
The Nonprofit Company 1
Statement of Activities
October 31, 2007 - Actual vs Budget
Monthly
Actual
CHANGES IN UNRESTRICTED NET ASSETS:
Public support:
Contributions
Government grants
In-kind revenue
Special events
Total public support
$
Revenue:
Fee for service
Other usage fees
Investment income
Miscellaneous income
Total revenue
Monthly
Budget
729
3,693
19,722
24,144
$
Monthly
Variance
19,510
28,550
48,060
94,382
9,970
43,031
147,383
$
(49,664)
43,346
(16,690)
(23,008)
37,074
61,971
214,429
19,381
1,377,337
1,349,969
27,368
207,998
189,261
(18,737)
1,226,648
1,162,975
(63,673)
28,370
35,452
16,913
80,735
36,658
42,771
79,429
8,288
7,319
(16,913)
(1,306)
148,104
104,102
37,865
290,072
150,676
135,754
286,430
2,572
31,652
(37,865)
(3,642)
288,733
268,690
(20,043)
1,516,720
1,449,405
(67,315)
Increase / (decrease) in unrestricted net assets
(54,923)
(54,261)
(662)
(139,383)
(99,436)
(39,947)
CHANGES IN TEMPORARILY RESTRICTED NET ASSETS:
Contributions
Investment income
Net assets released from restrictions
16,486
1,954
(17,960)
18,284
(6,320)
(1,798)
1,954
(11,640)
112,468
161,447
(99,045)
142,257
(37,074)
(29,789)
161,447
(61,971)
11,964
(11,484)
174,870
105,183
69,687
-
-
Total expenses
233,810
$
99,045
Support services:
Management & general
Development
Capital Improvements (unbudgeted)
Total support services
6,320
Increase / (decrease) in temporarily restricted net assets
480
CHANGES IN PERMANENTLY RESTRICTED NET ASSETS:
Increase / (decrease) in permanently restricted net assets
-
CHANGE IN NET ASSETS Y-T-D
$
(54,443)
$
(42,297)
(18,695)
22,668
27,684
31,657
44,718
53,316
26,341
124,375
11,640
Expenses:
Program services
17,960
$
YTD
Variance
1,051,456
36,240
74,816
3,000
1,165,512
Total public support and other revenue
108,179
36,240
15,430
200
160,049
(18,781)
3,693
(8,828)
(23,916)
YTD
Budget
988,000
64,984
98,438
2,495
1,153,917
Net assets released from restrictions
89,484
58,908
43,114
200
191,706
$
YTD
Actual
$
(12,146)
$
NET ASSETS AT BEGINNING OF YEAR
NET ASSETS AT END OF YEAR
35,487
5,803,943
$
5,839,430
(63,456)
28,744
23,622
(505)
(11,595)
$
5,747
$
29,740
The Nonprofit Company 1
Statement of Cash Flows
For the period from June 30, 2007 to October 31, 2007
June 07 to Oct 07
Y-T-D Change
Operating Activities:
Net income / (Loss) - Increase / (Decrease) in net assets
$
35,487
Adjustments to reconcile net income to net cash used in operating activities:
Net (appreciation) / depreciation in investment portfolio
87,979
Depreciation and amortization
45,848
Changes in operating assets and liabilities:
(Increase) / decrease of receivables -- net
(47,134)
(Increase) / decrease of note receivables -- net
0
(Increase) / decrease of prepaid expenses -- net
(2,468)
(Increase) / decrease of other assets -- net
-
Increase / (decrease) in accrued accounts payable - net
16,935
Increase / (decrease) in accrued vacation - net
22,557
Increase / (decrease) in other accrued expenses -- net
971
Increase / (decrease) in lease obligations and deferred revenue -- net
61,905
Net cash provided by operating activities
222,079
Investing activities:
Disposition of land and buildings -- net increase / (decrease)
(42,541)
Cash transferred to capital projects
(161,447)
Net increase / (decrease) in cash Y-T-D
18,091
Cash at beginning of year
76,587
Cash at end of period
$
94,678
The Nonprofit Company 2
Dashboard Y-T-D Report
June 30, 2007
Statem ent of Financial Position
Statem ent of Financial Position
Total Assets
$1,435,363
Total Liabilities and Net
Assets $1,435,363
Program Services
$ 1, 8 0 0 , 0 0 0
$ 1,0 7 8 ,0 7
4
$ 1, 6 0 0 , 0 0 0
$ 439,095
$ 1, 4 0 0 , 0 0 0
$ 1, 2 0 0 , 0 0 0
$ 1, 0 0 0 , 0 0 0
$800,000
$600,000
$400,000
$ 2 5 9 ,6 4 7
$200,000
$ 19 7 ,6 4 2
$ 530,371
$0
$465,897
P r ogr a m A
P r ogr a m B
2 0 0 7 Ser vices
C ash & invest ment s
R eceivab les
Pr o p er t y & Ot her
Liab ilit ies
Change in Net Assets (Net Incom e) vs
Budget
$300,000
$2 52 ,70 2
U nr est N et A sset s
$3 ,0 75,4 3 5
$3 ,2 0 0 ,0 0
0
$2 0 0 ,0 0 0
2 0 0 6 Ser vices
YTD Expense vs Budget
$3,900,000
$2 ,8 2 2 ,73 3
$3,400,000
$3,500,000
$250,000
P r ogr a m D
T R & Per m N et A sset s
YTD Revenue vs Budget
$4,000,000
P r ogr a m C
$3,000,000
$3 ,0 0 0 ,0 0
0
$2,900,000
$2,500,000
$200,000
$2,400,000
$2,000,000
$ 1, 9 0 0 , 0 0 0
$ 1, 5 0 0 , 0 0 0
$ 15 0 , 0 0 0
$52 ,70 2
$ 10 0 , 0 0 0
$ 1, 0 0 0 , 0 0 0
$ 1, 4 0 0 , 0 0 0
$500,000
$900,000
$177,2 6 7
$0
$50,000
$400,000
( $12 4 ,56 5)
- $500,000
- $ 10 0 , 0 0 0
- $ 1, 0 0 0 , 0 0 0
$0
YT D C h a n g e i n
B udge t e d
N e t A sse t s
C ha nge i n N e t
A sse t s
Va r i a n c e
YT D R e v e n u e
B udge t e d
R e v e nue
Va r i a n c e
YT D Ex p e n se
B udge t e d
Ex p e n se
Va r i a n c e
35
Financial Indicators
• Program services as a percent of total expense
• Management & general expense as a percent of total expense
• Fundraising expense as a percent of total expense
• Fundraising efficiency (cost to raise money)
• Net working capital
• Quick ratio
• Current ratio
• Cash ratio
• Years of available assets
36
Program Services as a Percent of Total Expense
• Compares what percentage of the organization’s total expense is
spent on program services
Program service expense*
Total annual expense
Percentage spent on programs =
$100,000
$125,000
80.0%
• The AIP and BBB believe this ratio should be 60% and 65%
respectively. United Way believes this ratio should be greater than
75%
* Some watchdog groups exclude donated and contributed services
from these measurements since they are difficult to value. They feel
they can distort the ratios.
AIP (American Institute of Philanthropy): BBB (Better Business Bureau)
37
Management & General as a Percent of Total Expense
• Compares what percentage of the organization’s total expense is
spent on management
M&G expense
Total annual expense
Percentage spent on M&G =
$ 20,000
$125,000
16.0%
• The AIP and BBB believe the combined ratio of M&G and Fundraising
should be 40% and 35% respectively. United Way and Charity
Navigator believe the collective ratio of M&G and Fundraising
combined should be less than 25%
• This ratio needs to be carefully considered before conclusions are
drawn because any organization can affect these costs to influence
these ratios, and accounting practices can vary across nonprofits
38
Fundraising as a Percent of Total Expense
• Compares what percentage of the organization’s total expense is
spent on fundraising
Fundraising expense
Total annual expense
Percentage spent on fundraising =
$ 5,000
$125,000
4.0%
• The AIP and BBB believe the combined ratio of M&G and Fundraising
should be 40% and 35% respectively. United Way and Charity
Navigator believe the collective ratio of M&G and Fundraising
combined should be less than 25%
• This ratio needs to be carefully considered before conclusions are
drawn because any organization can affect these costs to influence
these ratios, and accounting practices can vary across nonprofits
39
Fundraising Cost to Raise $1
• Calculates the cost for each dollar raised from fundraising
Fundraising expense
Related fundraising revenue
Cost to raise $1 from fundraising =
$ 25,000
$100,000
$0.25
• Watchdogs groups are generally looking for this cost to be less than
$0.35 on the dollar raised
Nonprofit Expense Indicators
Company 2
2007
$ 2,350,696
Management & General
Fundraising
Program Services
Total Expense
Company 4
83%
2006
$ 2,566,590
85%
281,667
10%
338,860
190,370
7%
99,944
$ 2,822,733 100.0%
2007
668,733
63%
11%
378,715
3%
17,168
$ 3,005,394 100.0%
$
2006
749,832
80%
36%
169,456
18%
2%
21,005
2%
$ 1,064,616 100.0%
$
$
940,293 100.0%
Nonprofit Revenue Indicators
Company 2
Fundraising Expense
2007
190,370 $ 0.07
Public Support Revenue
2,771,677
Contributions
Other or Foundations
United Way
Government grants
826,904
51,141
124,201
1,769,431
Company 4
2006
99,944 $ 0.04
2,766,237
30%
2%
4%
64%
671,427
115,435
217,928
1,761,447
2007
17,168 $ 0.02
875,747
24%
4%
8%
64%
303,568
55,052
7,190
509,937
2006
21,005 $ 0.04
504,832
35%
6%
1%
58%
214,889
51,141
7,050
231,752
43%
10%
1%
46%
41
Net Working Capital
• Working capital represents the amount that is left free and clear if all
current debts are paid off
Current assets
less: current liabilities
Working capital
$100,000
(50,000)
$ 50,000
• Each year’s working capital should be higher than last year’s
• You want there to be a comfortable amount of working capital, and
most sources use the current ratio to help with this decision
42
Quick Ratio (Liquidity Ratio)
• Compares current assets (cash, A/R and N/R) current assets less
inventory. Sometime called the acid test. This ratio determines the
nonprofits ability to meet short-term obligations without inventory
Current assets (less Inv.)
Current liabilities
Quick ratio range =
$100,000
$50,000
2.0 to 1.0
• So in the above example, it means that for each $1 of current
liabilities, there are $2 in current assets (less inventory) to back it up
• Some analysts say that the minimum safety net requires that current
assets be as least twice as large as current liabilities, at least in the
for-profit world
43
Current Ratio (Liquidity Ratio)
• Compares all current assets against current liabilities as a percentage
and determines the nonprofits ability to meet short-term obligations
Current assets
Current liabilities
Current ratio range =
$100,000
$50,000
2.0 to 1.0
• So in the above example, it means that for each $1 of current
liabilities, there are $2 in current assets to back it up
• Some analysts say that the minimum safety net requires that current
assets be as least twice as large as current liabilities at least in the
for-profit world
• One drawback of this ratio is that it includes inventory which may slow
down the ability to liquidate
44
Cash Ratio (Liquidity Ratio)
• This ratio is an indication of the nonprofits ability to pay off its
current liabilities if immediate payment was required. This is the
most conservative of the liquidity ratios and only includes cash
and cash equivalents.
Cash + Marketable Securities
Current liabilities
$100,000
$50,000
So in the above example, it means that for each $1 of current
liabilities, there are $2 in cash assets to back it up
45
Years of Available Assets
• Looks to see if an organization is healthy as opposed to wealthy
Available net assets*
Annual budgeted expense
$100,000
$35,000
Years of available assets =
2.8
• The AIP and BBB believe this ratio should not exceed three times the
current year’s budget
• The purpose of this indicator is to avoid accumulating funds that could
be used for current programs and activities
* Excludes property and equipment and donor advised endowments.
Board designated amounts would be included because they could be
spent if necessary
46
Definitions and FAQ’s
•
•
•
•
•
•
•
•
•
Nonprofit versus not-for-profit
Unrestricted versus Temporarily Restricted
Endowment versus Board Designated Endowment
Assets, Liabilities and Net Assets
Statements of Activities and Financial Position (Income
Statement and Balance Sheet)
Assets released from restrictions
Direct versus Indirect costs
Cost allocation to Program, M&G and Fundraising
Cash versus Accrual basis
47
Frequently Asked Questions (FAQ’s)
• What is the difference between a not-for-profit and a nonprofit?
The terms "not-for-profit" and "non-profit" are generally used
interchangeably. And, just because an organization is nonprofit
doesn't mean they don't have profits. It just means that no
individuals profit from the profit of the corporation although
bonuses may be made.
48
Frequently Asked Questions (FAQ’s)
• What is the difference between Unrestricted versus
Temporarily Restricted funds?
“Unrestricted” funds are donations that are available for the
nonprofit to use toward any purpose. Unrestricted funds
usually go toward the operating expenses of the organization.
“Temporarily Restricted” funds are donations to a nonprofit
organization where the donor may designate or "restrict" the
use of their donations to a particular purpose or project. An
example is a gift to a particular scholarship fund at a university.
49
Frequently Asked Questions (FAQ’s)
• What is the difference between an Endowment and a Board
Designated Endowment?
An “Endowment” is a permanent fund bestowed upon an
institution, such as a university, museum, hospital, nonprofit, or
foundation, to be used for a specific purpose. Generally, the
Endowment’s principal is set aside in perpetuity to spin off
annual interest for the institutions use.
A “Board Designated Endowment” are usually dollars set aside
by an institution to act like an “Endowment” in order for the
institution to avoid spending the principal. The difference is that
if the institution later decides to spend out the principal, they
can.
50
Frequently Asked Questions (FAQ’s)
• Explain the definitions of Assets, Liabilities and Net Assets
Assets are property, including real property (for example, land or
buildings) and personal property (for example, cash, stocks, accounts
receivable, inventory) that belongs to a person, corporation, institution,
or other entity and have a current or future economic value to its owner.
Liabilities are defined as a company's legal debts or obligations that
arise during the course of business operations. These are settled over
time through the transfer of economic benefits including money, goods
or services.
Net Assets are defined as the difference between a company's total
assets and liabilities; Owner's equity is also defined as its net worth. It
is also stated as the owners economic interest in the assets of a
business.
51
Frequently Asked Questions (FAQ’s)
• What are the differences between the Statements of Activities
and Financial Position versus the Income Statement and the
Balance Sheet?
The Statement of Activities is the nonprofit equivalent for the
Income Statement or Profit and Loss Statement (P&L).
The Statement of Financial Position is the nonprofit equivalent
for the Balance Sheet
Financial Accounting Standard 117 introduced clarification for
these statements for nonprofits back in 1993
52
Frequently Asked Questions (FAQ’s)
• What are Net Assets Released from Restrictions?
The term “Net Assets Released from Restrictions" refers to
when restricted assets are used for the specific restricted
purpose they were intended for and/or are reclassified when
one of the following occurs:
- The program and/or purpose of the restrictions are met,
- Time based restrictions expire,
- Equipment-acquisition restrictions are satisfied
Net Assets are then released from restricted funds to
unrestricted funds to cover the cost of the program and/or
purpose.
53
Frequently Asked Questions (FAQ’s)
• What is the difference between Direct and Indirect costs?
Direct costs are those costs for activities or services that benefit
“specific projects”. For example, salaries for project staff and
materials required for a particular project. Because these activities
are easily traced to projects, their costs are usually charged to
projects on an item-by-item basis.
Indirect costs (sometimes referred to as overhead) are those costs
for activities or services that benefit more than one project. Their
precise benefits to a “specific project” are often difficult or impossible
to trace. For example, it may be difficult to determine precisely how
the activities of the Human Resource director of an organization
benefit a specific project.
Sample Direct and Indirect Cost Definitions
ple Direct and Indirect Cost Definitions
Direct Costs
Indirect Costs
⇒ Salaries of employees directly
attributable to the execution of the project
o Includes Project Management
o Includes administrative support
solely dedicated to the project
⇒ Fringe benefits of employees
directly attributable to the execution of the
project
o Includes Project Management
o Includes administrative support
solely dedicated to the project
⇒ Travel for employees directly
attributable to the execution of the project
⇒ Consultants whose work is
directly attributable to the execution of the
project
⇒ Supplies directly attributable to
the execution of the project
⇒ Sub-awards directly
attributable to the execution of the project
⇒ Sub-contracts directly
attributable to the execution of the project
⇒ Equipment acquired for and
directly attributable to the execution of the
project
⇒ Facilities newly acquired and
specifically used for the grant project
(excludes existing facilities). Examples
include:
o A new field clinic
o New testing laboratories
o Project implementation unit
office
⇒ Utilities for facilities acquired
for and directly attributable to the
execution of the project
⇒ Information technology
acquired for and directly attributable to the
execution of the project
⇒ Internal legal and or accounting
staff and/or external legal counsel or
accountants directly attributable to the
project
⇒ Facilities not acquired
specifically and exclusively for the project
(e.g. Foundation, Institute, or University
headquarters)
⇒ Utilities for facilities not
acquired for and not directly attributable to
the project
⇒ Information technology
equipment and support not directly
attributable to the project
⇒ General administrative support
not directly attributable to the project.
Examples are as follows:
o Executive administrators
o General ledger accounting
o Grants accounting
o General financial management
o Internal audit function
o IT support personnel
o Facilities support personnel
o Scientific support functions
(not attributable to the project)
o Environment health and safety
personnel
o Human resources
o Library & information support
o Shared procurement resources
o General logistics support
o Materiel management
o Executive management (CEO,
COO, CFO, etc.)
o Other shared resources not
directly attributable to the project
o Institutional legal support
o Research management costs
⇒ Depreciation on equipment
⇒ Insurance not directly
attributable to a given project
55
Frequently Asked Questions (FAQ’s)
• How do I allocate costs amongst Programs, Management & General
(M&G) and Fundraising?
Cost allocation should be related to the types of activity being
accomplished. In other words, if an employee is raising money then
that time and associated costs should be charged against
Fundraising.
If an employee is performing work related to the direct exempt
purpose for the organization (the reason why the nonprofit operates)
then that time should be charged against Program.
And, if an employee is conducting business that benefits the
organization as a whole (i.e., human resources, accounting
administration work) that time should be charged against
Management & General.
56
Frequently Asked Questions (FAQ’s)
• What is the difference between cash versus accrual
accounting?
The accrual method. The accrual method is the more
commonly used method of accounting. Under the accrual
method, transactions are counted when the order is made, the
item is delivered, or the services occur, regardless of when the
money for them (receivables) is actually received or paid.
The cash method. Under the cash method, income is not
counted until cash (or a check) is actually received, and
expenses are not counted until they are actually paid.