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1April 21, 2015
YWCA USA Financial Leadership & Management ProgramUnderstanding & Assessing Financial Health
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Join us on Twitter: @SpectrumSteve
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Housekeeping Slide
Point one
Point two
Point three
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WELCOME
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Today’s Conversation
• Assessing Financial Health: Some Definitions
• Reading Financial Statements
• Immediate & Long-term Financial Health
• Calculating Financial Ratios
AGEN
DA
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Financial Leadership Model
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Financial Leadership Model
a) Staffing
b) Internal Controls
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Financial Leadership Model
a) What am I looking at?
b) How do I assess?
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Definitions
• Accrual vs. Cash-based Accounting
• Contributed Support vs. Earned Revenue
• Nonprofit Revenues: Unrestricted, Restricted and Temporarily Restricted Income
• Natural vs. Functional Expenses
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Two Types of Accounting
Cash Basis Accounting Accrual Accounting
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Cash vs. Accrual: An Example
Month Recorded Cash Basis Accrual Basis
Revenue October July
Expense When Paid. July or August
July
We have a reimbursable government contract, the usual process looks something like this:
• Work performed: July• Bill sent to government: August• Check received from government: October
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Definitions
• Accrual vs. Cash-based Accounting
• Contributed Support vs. Earned Revenue
• Nonprofit Revenues: Unrestricted, Restricted and Temporarily Restricted Income
• Natural vs. Functional Expenses
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Contributed Support vs. Earned Revenue
Contributed Support Earned Revenue
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Definitions
• Accrual vs. Cash-based Accounting
• Contributed Support vs. Earned Revenue
• Nonprofit Revenues: Unrestricted, Restricted and Temporarily Restricted
• Natural vs. Functional Expenses
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Nonprofit Revenues
Unrestricted Restricted
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Nonprofit Revenues
Unrestricted Temporarily Restricted
Permanently Restricted
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Nonprofit Revenues
Unrestricted• Individuals• Special Events• Earned Revenue
• Fee for Service
• Foundations
Temporarily Restricted
• Foundations• Government Grants /
Contracts• Project specific funds• Endowments
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In-Kind
• Accounting for In-Kind Revenue
– Service that requires a special skill
– Enhancement of an asset
– Donated Good
• Important Financial Transaction
– The Overhead Effect
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Definitions
• Accrual vs. Cash-based Accounting
• Contributed Support vs. Earned Revenue
• Nonprofit Revenues: Unrestricted, Restricted and Temporarily Restricted Income
• Natural vs. Functional Expenses
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Expenses
Natural Classification Functional Classification
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Definitions
• Accrual vs. Cash-based Accounting
• Contributed Support vs. Earned Revenue
• Nonprofit Revenues: Unrestricted, Restricted and Temporarily Restricted Income
• Natural vs. Functional Expenses
Questions?
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Financial Leadership Model
a) What am I looking at?
b) How do I assess?
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Financial Leadership Model
a) What am I looking at?
b) How do I assess?
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Assessing Immediate Health
• Do we have enough cash to pay our bills?
• How does our cash flow projection look?
• How are we performing currently on our budget?
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Immediate Financial Health
Do we have enough cash to pay our bills?
Current Ratio
Total Current AssetsTotal Current Liabilities
Quick Ratio
Cash & EquivalentsTotal Current Liabilities
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Immediate Financial Health
How does our cash flow projection look?
– Do we have a lot of receivables?
– When do we expect to collect them?
– How are Accounts Payable?
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Immediate Financial Health
How are we performing on budget?
– For particular contracts
– For the organization
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Budget to Actual ComparisonFor the nine months ending September 30, 2014
YTD Actual
YTD Budget
Difference B/(W)
Annual Budget
$ Remaining
% Remaining
SUPPORT AND REVENUESContributions 90,000 60,000 30,000 145,000 55,000 38%Foundation grants 25,000 75,000 (50,000) 100,000 75,000 75%Fundraising events, net 76,300 70,000 6,300 70,000 (6,300) -9%Total Support 191,300 205,000 (13,700) 315,000 123,700 39%
Government contracts 340,000 337,500 2,500 450,000 110,000 24%Fee for Service 4,700 15,000 (10,300) 20,000 15,300 77%Investment Income 3,965 3,750 215 5,000 1,035 21%Total Revenue 348,665 356,250 (7,585) 475,000 126,335 27%
Net Assets Released from Restriction 204,580 200,000 4,580 275,000 70,420 26%Total Support and Revenues 744,545 761,250 (16,705) 1,065,000 320,455 30%
EXPENSESProgram Services
Employment/Economic Empowerment 150,979 150,000 (979) 200,000 49,021 25%Domestic Violence Prevention & Int. 424,860 431,250 6,391 575,000 150,141 26%Childcare/Youth Development 29,944 37,500 7,556 50,000 20,056 40%Total Program Services 605,783 618,750 12,968 825,000 219,218 27%
Supporting ServicesAdministration 67,031 67,500 469 90,000 22,969 26%Fundraising 59,862 67,500 7,639 90,000 30,139 33%Total Support Services 126,893 135,000 8,108 180,000 53,108 30%
Total Expenses 732,675 753,750 21,075 1,005,000 272,325 27%
Increase in Net Assets 11,870 7,500 4,370 60,000 48,130 80%
NET ASSETSBeginning of the year 184,795 End of the year 196,665
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Assessing Long-term Health
• Do we have an adequate reserve?
• How are our programs performing financially?
• Is our income stream sufficiently diverse?
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What is a reserve?
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What is a reserve?
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What do we use a reserve for?
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Calculating The Reserve:Months of Cash On Hand
Cash + Savings + Receivables – Accounts Payable
Typical Monthly Expenses - Depreciation
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Calculating the Reserve
Unrestricted Net Assets
Typical Monthly Expenses
Unrestricted N.A. – Fixed Assets
Typical Monthly Expenses
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What is a good reserve?
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How many have reserves?
A study of Washington, DC nonprofits discovered:
• 48% of nonprofits had reserves less than 3 months
• 17% had negative reserves.
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Assessing Long-term Health
• Do we have an adequate reserve?
• How are our programs performing financially?
• Is our income stream sufficiently diverse?
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Employment / Economic
Development
Domestic Violence
Prevention & Intervention
Childcare / Youth
Development AdminFund-
raisingShared Costs TOTAL
Contributions 90,000 90,000 Foundation grants 25,000 25,000 Fundraising events, net 76,300 76,300 Total Support - - - - 191,300 - 191,300
Government contracts 340,000 340,000 Fee For Service 4,700 4,700 Investment Income 3,965 3,965 Total Revenue - 340,000 4,700 3,965 - - 348,665
Net Assets Released from Restriction 144,080 25,000 35,500 204,580 Total Income 144,080$ 365,000$ 40,200$ 3,965$ 191,300$ -$ 744,545$
Personnel Expense 96,370 224,020 21,045 34,960 37,950 51,750 466,095 Non-Personnel Expenses 31,300 157,400 6,780 13,000 3,900 54,200 266,580 Total Specific Costs 127,670 381,420 27,825 47,960 41,850 105,950 732,675
Shared Costs Allocation % 22% 41% 2% 18% 17% 100%Allocation of Shared Costs 23,309 43,440 2,119 19,071 18,012 (105,950) - Expense without Admin. 150,979 424,860 29,944 67,031 59,862 - 732,675
Admin Allocation % 23% 64% 4% -100% 9%Admin. Allocation 15,204 42,784 3,015 (67,031) 6,028
Total expenses after allocations 166,183$ 467,643$ 32,959$ -$ 65,890$ 732,675$
Change in Net assets (22,103)$ (102,643)$ 7,241$ 3,965$ 125,410$ 11,870$
Program Activities Supporting Activities
Summarized Statement of Functional Income & ExpensesFor the Nine Months Ending September 30, 2014
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Efficiency and Effectivenessof Programs
Full Costs
Direct Costs
Shared Costs
Admin Costs
Ratios
• Cost per client served― Classes― Shelters
• Cost per unit of service― Month of housing or
childcare
• Cost per successful outcome
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Assessing Long-term Health
• Do we have an adequate reserve?
• How are our programs performing financially?
• Is our income stream sufficiently diverse?
40Source: Urban Institute: Natl. Center for Charitable Statistics
Nonprofit Sources of Revenue
41Source: Estimates based on data from Urban Institute: Natl. Center For Charitable Statistics and Business & Nonprofit Strategies
Nonprofit Sources of Revenue (without College Tuition, Hospital Revenue)
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Diversification
Government Dependency
Total Gov. Funding
Total Revenue
Self-Sufficiency
Non-Gov. Income
Total Expense
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Recap
Immediate• Cash to pay bills• Cash flow projection• Budget
Long-Term
• Reserves• Profitability• Income diversity
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Homework: Reflection
• Immediate Financial Health
• Long-term Financial Health
• Overall Reflection
• Ratios and Financial Assessment Questions
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Resources
• Sample Financial Statements
• Ratios
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Recap
See the whole picture
Assess Your Health Spot the Trend!
Know what you’re looking at
• Accrual or Cash?• Unrestricted or temporarily
restricted?
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Your Questions
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YWCA FLM: Discussion Sitehttp://ywcaflm.ning.com/
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Next Webinar: May 26
Demystifying Expenses Part 1: Categorizing Expenses and Cost Allocation
• Differentiating between direct and common expenses.
• Allocating administrative costs
• Finding true program costs
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Steve ZimmermanSpectrum Nonprofit Services
www.spectrumnonprofit.com
414-727-1029