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Nov 10, 2013 (3 years and 11 months ago)

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PURPOSE OF THE WORKSHOP


Presentation on Financial Management


Why it is important?


Understanding of Key Financial Terminology and Financial
Reports


A Review of some Key Financial Indicators that define Financial
Health


What is a Financial Dashboard and how can it be useful


A Review of a Financial Sustainability Model


Exercise on Calculating
Financial Indicators



WHY IS FINANCIAL MANAGEMENT IMPORTANT


Good Financial Management will orient an
organization towards financial stability and
sustainability


Good Financial Management will positively impact the
organizations ability to achieve its strategic and
programmatic goals


Good Financial Management helps to attract valuable
resources by showing that the organization is
accountable and a good steward of donated
resources.

CORE COMPONENTS OF FINANCIAL MANAGEMENT

Financial Management includes:


S
tewardship of an organization’s financial resources


Allocation of those resources in alignment with the
organization’s strategic and annual goals


Monitoring and Assessing of financial data


Integration of financial information into decision making


Planning around financial goals
(budgeting)


Communicating financial information to a variety of
stakeholders (reporting)




KEY TERMINOLOGY
-

ASSETS

Assets = A resource of measurable financial valued owned by the
organization


Current Asset = Resources owned by a nonprofit that are
available within a fiscal year



Long Term Assets = Resources owned by a nonprofit that are not
available within the immediate fiscal year



Fixed Assets = Property owned by the nonprofit that has financial
value

KEY TERMINOLOGY
-

LIABILITIES

Liabilities = Any obligation, debt, or claim on a nonprofit’s assets


Current = An obligation that is payable within the fiscal year



Long Term = An obligation is not payable within the fiscal year

KEY TERMINOLOGY
-

EQUITY OR NET ASSETS

Equity or Net Assets = The difference between a nonprofits Assets
and Liabilities. It is the measurement of an organization’s
FINANCIAL NET WORTH


Unrestricted Assets = Net assets that can used without any donor
imposed restrictions


Temporarily Restricted = Net Assets that can be used based on
donor imposed restrictions


Permanently Restricted = Net Assets in which only the earnings
can be used while the corpus must remain in tact (endowment)

KEY TERMINOLOGY
-

REVENUES

Revenues & Support


Unrestricted Income
is that income in which there are not any
donor imposed conditions


Temporarily Restricted Income
is income in which a donor has
imposed restrictions which the organizations has agreed to fulfill


Permanently Restricted Income
is income in which the donor has
imposed a restriction that the corpus of the gift can not be spent
(permanent endowment)

KEY TERMINOLOGY
-

REVENUES C0NTINUED

Revenues & Support


Contributed Income
is income from donations or grants and is
generally divided into the following categories: individuals, private
foundations, business and government



Contract income
is income generated through a contract in which
the organization is providing some type of service to the
contractor.

KEY TERMINOLOGY
-

REVENUES C0NTINUED

Revenues & Support


Asset Generated Income
is income that is generated through an
organization’s assets, generally investment income


Related Business
I
ncome
is income from an activity that is
related to the mission of the organization such as a fee for
service


Unrelated Business Income
is income from an activity that is
unrelated to the mission of the organization.

KEY TERMINOLOGY
-

EXPENSES

Expenses


Functional Expenses
are those functional areas of an
organization’s work such as Programs, Fundraising, and
Management & General



Line Item Expenses
are those specific line items expenses within
a functional area such as personnel, office expenses, rent,
communication, etc.

KEY TERMINOLOGY
-

EXPENSES C0NTINUED

Expenses


Pooled or Shared Costs

are expenses
that are shared by all
functions and directly related to those functions, e.g. rent,
utilities, communications, supplies, executive salaries.



Indirect or Overhead Expenses
consist of expenses that are
related to
the essential
activities identifiable with no one of the
primary functions but indispensable to the conduct of all of them
such
as finance function, governance (board) and
human
resource management.


FINANCIAL REPORTS


Statement of Financial Position (Balance Sheet)


Statement of Activities (Income Statement)


Annual Budget and Project Budgets


Cash Flow Projections/Reports

FINANCIAL REPORTS (CONTINUED)


Monthly, Quarterly and Annual Actual to Budget Reports


Donor Reports


Financial Monitoring Dashboard


Annual Government Reporting


Annual Independent Audits

BALANCE SHEET

Assets

FY 2011

FY 2010

Non
-
Current Assets

Long
-
Term Debt


262,495


251,845

Fixed Assets
-

Equipment


68,689


251,845


331,184


503,690

Current Assets

Trade Receivables


393,545


526,151

Cash and cash equivalents


713,071


708,026


1,106,616


1,234,177

TOTAL

Assets


1,437,800


1,737,867

Equity and Liabilities

Equity

Retained
income (net assets)


603,843


621,030

Liabilities

Non
-
Current Liabilities

Long Term Debt


463,367


463,367

Current Liabilities

Trade and other payables


370,590


474,517

Total Liabilities


833,957


937,884


TOTAL
Equity and
Liabilities


1,437,800



1,558,914

STATEMENT OF FINANCIAL POSITION

Assets

FY 2011


FY
2010

Non
-
Current Assets

Long
-
Term Debt


262,495


251,845

Fixed Assets
-

Equipment


68,689


251,845


331,184


503,690

Current Assets

Trade Receivables


393,545


526,151

Cash and cash equivalents


713,071



708,026



1,106,616



1,234,177

Total Assets



1,437,800



1,737,867

Liabilities

Non
-
Current Liabilities

Long Term Debt


463,367


463,367

Current Liabilities

Trade and other payables


370,590


474,517

Total Liabilities


833,957


937,884

Net Assets

Unrestricted


203,843


221,030

Temporarily Restricted


200,000


200,000


Permanent Restricted


200,000


200,000

Total Net Assets


603,843


621,030

T
OTAL Net Assets
& Liabilities


1,437,800


1,558,914

INCOME STATEMENT

Revenues


FY 2011


FY 2010

Donations


2,000,000


1,800,000

Grants


600,000


400,000

Fees for Service


98,352


34,575


2,698,352


2,234,575

Cost of
Activities


(2,136,223)


(1,740,512)

Surplus after Activities


562,129


494,063

Other Income

Interest received


35,511


48,237

Fair vale adjustment on Investments


12,616


(8,985)


48,127


39,252

Administration expenses


(627,443)


(590,920)

Loss for the Year


(17,187)


(57,605)

STATEMENT OF ACTIVITIES

REVENUES

& SUPPORT


FY 2011


FY 2010

Donations


2,000,000


1,800,000

Grants


600,000


400,000

Fees for Service


98,352


34,575

Interest received


35,511


48,237

Fair vale adjustment on Investments


12,616


(8,985)


2,746,479


2,273,827

EXPENSES

Program Expenses


2,136,223


1,740,512

Fundraising


327,443


300,000

Management

& General


300,000


290,920


2,763,666


2,331,432

Change in Net Assets


(17,187)


(57,605)

Beginning Net Assets


621,030


678,635

ENDING NET ASSETS


603,843


621,030

FINANCIAL INDICATORS


What are Financial Indicators?


Financial data that summarizes organizational
performance and a measurement of an organization’s
financial health



Financial data that helps decision makers assess the
financial health of an organization

FINANCIAL HEALTH INDICATORS


Current Ratio = Current Assets / Current Liabilities



Defensive Interval (DI) = Net Assets or Equity /
Monthly Expenses


FINANCIAL HEALTH INDICATORS (CONTINUED)


Reserve Funds Indicator (RFI) = Unrestricted Net
Assets / Monthly Expenses



Savings Indicator measures increase or decrease in
net assets


FINANCIAL HEALTH INDICATORS (CONTINUED)


Functional Expense Ratio measures the proportion of
each functional expense to total
expenses



Fundraising Effectiveness = FR Expense/Total
Contributed Revenues

FINANCIAL HEALTH INDICATORS (CONTINUED)


Budget Variances = meeting budget projections



Cash Flow = meeting financial obligations

FINANCIAL DASHBOARD

What is a Financial Dashboard?


A monitoring tool that graphically represents when an
organization is surpassing, meeting or falling short of its
Financial goals


Methodology:


Need to identify indicators to monitor


Set the parameters for each indicator


Identify who will collect and track indicators


Determine time frame for reporting on indicators


Build the tool



FINANCIAL HEALTH DASHBOARD TABLE

Financial Health

Celebrate

Monitor

Take Action

Current Ratio

3:1 or Greater

Between
1:1
&
2.99:1

Less than 1:1







Defensive Interval

6:1 or Greater

Between 3:1
&
5.99

Less than 3:1







Reserve Funds Indicator

3:1 or Greater

Between 1:1
&
2.99:1

Less than 1:1







Savings Indicator

Net increase

less than 10%
decrease

10% or greater
decrese







Fundraising Effectiveness

15% of Total
Expenses

Between 15%
&
20%

Greater than 20%







Functional

Ratios

75%

to
25
%

74
-
65%

to 26
-
35%

64%

to 36%







Budget Variances

Less than 5%

Between 5%
&
10%

Greater than 10%







Cash Flow

Meet monthly
expenses

Need to postpone
payments

Behind 30 days in
payments

NET ASSETS DASHBOARD CHART

$-
$5
$10
$15
$20
$25
FY06/07
FY07/08
FY08/09
FY09/10
FY10/11
Millions

Total
Net Assets by Type (Last 5 Years)

CONTRIBUTED INCOME DASHBOARD

$-
$2
$4
$6
$8
$10
$12
$14
$16
Jul
Aug
Sept
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Millions

FINANCIAL SUSTAINABILITY MODEL

Financial Sustainability is


A Direction or Orientation towards Financial Goals



Requires Assessment and Continuous Decision
Making



Must Encompass Program and Financial Elements
(new concept)




NEW FINANCIAL SUSTAINABILITY INDICATORS


In addition to the Financial Indicators that have been
reviewed there are two additional Indicators:


Fundability of key Activities

Mission Impact of key Activities



FUNDABILITY & IMPACT SCORING TABLE




Activity

Surplus/Deficit

Mission Impact

Expenses

Project A


24,000

3.6


890,000

Project B


(185,000)

3.05


580,000

Project C


(100,000)

1.8


220,000

Major Gifts


100,000

2.25


70,000

Membership


45,000

1.9


175,000

Events


60,000

1.45


75,000


MATRIX MAP


HEART



STAR




Proj

A
Proj

B





Maj

Gifts















Fundability



Proj

C






Members















STOP



MONEY TREE




Events





Mission Impact

DECISION MAKING


STRATEGIC IMPERATIVES


Star = Grow and Invest

Heart = Contain Cost

Money Tree = Increase impact

Stop Sign = Eliminate


FINANCIAL SUSTAINABILITY MODEL


Direction/Orientation: Identifying Key Financial
Indicators and Setting Financial Goals



Monitoring and Assessing Progress Towards the Goals
(Financial Dashboard)



Making Timely Decisions and Taking Action as Needed

CONCLUSION


Good Financial Management
will orient an
organization towards financial stability and
sustainability


Good Financial Management
will positively impact the
organizations ability to achieve its strategic and
programmatic goals


Good Financial Management
helps to attract valuable
resources by showing that the organization is
accountable and a good steward of donated
resources.

MAPPING EXERCISES

Exercise 1


Identify your organizations total Net Assets


Calculate your organization’s Defensive Interval: Net Assets /
Monthly Expenses

Exercise 2


Calculate your organization’s Program to Non Program
Percentage = Total Program Expenses/Total Expenses

Exercise 3


Calculate your organization’s Fundraising Efficiency = Total FR
Expense/Total Contributed Revenues


RESOURCES


Financial Leadership for Nonprofit Executives
by Jeanne Bell and
Elizabeth
Schaffer



Financial Planning for Nonprofit Organizations
by Judy
Blazek



Nonprofit Sustainability

by Jeanne Bell, Jan
Masaoka
, and Steve
Zimmerman



n
eedles.dale@gmail.com

QUESTIONS & DISCUSSION

?