Fundamentals of Nonprofit

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Nov 10, 2013 (3 years and 9 months ago)

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Fundamentals of Nonprofit
Financial Management

Presented by

Paula Smith
Arrigoni
, Smith & Daley

For New Sector Alliance

September 8,
2011


0

Smith

& Daley ©
2011

Smith & Daley ©2011


Smith & Daley
is a boutique nonprofit
consulting partnership focused on

financial
management and strategy issues for small to
mid
-
sized nonprofits, foundations, and the
broader sector through research and
analysis.





What
‘Accidental’ Finance Geek
?



W

hat

What ‘Accidental’ Finance Geek?



Smith

& Daley ©
2011

Smith & Daley ©2011

Background

What ‘Accidental’ Finance Geek
?

Why are you here?

Which nonprofit are you working for?

What are you doing there?

Any experience with accounting or finance?

What is your dream job in 10 years?

W

hat

What ‘Accidental’ Finance Geek?



Smith

& Daley ©
2011

Smith & Daley ©2011

Background




Increase Your Professional “Value”


Expertise & Passion for Programs is Not Enough


Nonprofit Finance is Tricky


Earning Potential and Versatility


W

hat

What ‘Accidental’ Finance Geek?



Smith

& Daley ©
2011

Smith & Daley ©2011

Why So Much Emphasis on Finance?





Nonprofits are businesses!


Organizational Sustainability


Accountability

to Funders, Board &
Stakeholders
ek
?


W

hat

What ‘Accidental’ Finance Geek?



Smith

& Daley ©
2011

Smith & Daley ©2011

Why So Much Emphasis on Finance?

The “New Normal”

Government funding uncertainty at all levels


Limited private fundraising capacity in many
sub
-
sectors


High fundraising competition

W

hat

What ‘Accidental’ Finance Geek
?

Smith

& Daley ©
2011

Smith & Daley ©2011

Nonprofit Sector Outlook


Cash v. Accrual Accounting


Internal v. External Financial Statements


Audits, Reviews and Compilations


What
‘Accidental’ Finance Geek?




What
‘Accidental’
nance

Geek?





Smith

& Daley ©
2011

Smith & Daley ©2011

The Basics




What
‘Accidental’ Finance
Geek?


3 Key Statements in an Audit:

Statement of Financial Position

Statement of Activities

Statement of Cash Flows


Budgets

Projections



What
‘Accidental’
nance

Geek?





Smith

& Daley ©
2011

Smith & Daley ©2011

The Basics

What ‘Accidental’ Finance Geek?



aka the “Balance Sheet”


Gives overall report of financial health

Reflects a “snapshot” in time

Assets = what you own

Liabilities = what you owe

Assets
-
Liabilities = Net Assets (Net Worth)


What
‘Accidental’ Finance Geek?



Smith

& Daley ©
2011

Smith & Daley ©2011

Statement of Financial Position

Typical Assets

Cash, Investments, Receivables & Deposits

Property, Plant & Equipment


Typical Liabilities

Payables (money owed) to vendors or
employees, lines of credit, deferred revenue,
or mortgage loans
‘Accidental
’ Finance Geek?







Smith

& Daley ©
2011

Smith & Daley ©2011

Statement of Financial Position


Finance Geek?


It’s important to understand what Net Assets are
made of, and what’s been happening over time. Are
they mostly liquid? Physical Assets? Have they been
increasing or decreasing?


Net Assets grow or contract depending what is
happening with an organization’s operations.
Deficits shrinking Net Assets (more vulnerable).





Smith

& Daley ©
2011

Smith & Daley ©2011

Statement of Financial Position

What ‘Accidental’ Finance Geek?


What ‘Accidental’ Finance Geek?

aka Statement of Profit and Loss (P&L) or
Statement of Income


Reflects the activities for a period (month,
quarter or year)


Tracks revenue, expense and surplus/deficit




Smith

& Daley ©
2011

Smith & Daley ©2011

Statement of Activities


Nonprofit Accounting (FASB) requires
organizations to classify revenue by
level of
restriction
: unrestricted, temporarily
restricted and permanently restricted.


Only unrestricted revenue pays for operating
expenses.
What
‘Accidental’ Finance Geek?


What ‘Accidental’ Finance Geek?





Smith

& Daley ©
2011

Smith & Daley ©2011

Statement of Activities


Temporary restrictions are imposed by a
funder and are satisfied by completing a
prescribed activity, or the lapse of time.


For example, a foundation gives an
organization a grant to support a counseling
program, 50% in 2011 and 50% in 2012.
What
‘Accidental’ Finance Geek?


What ‘Accidental’ Finance Geek?





Smith

& Daley ©
2011

Smith & Daley ©2011

Statement of Activities


Permanently restricted revenue is also imposed
by a donor, and is usually an
endowment
.
Endowments are common for arts and
education
-
related organizations.


Only the interest from an endowment is
considered unrestricted revenue. The “corpus”
investment is never spent.
Accidental
’ Finance
Geek?


What ‘Accidental’ Finance Geek?





Smith

& Daley ©
2011

Smith & Daley ©2011

Statement of Activities


Healthy organizations maintain cash reserves to
protect against uncertainty, losses, and risk.


Reserves can have specific uses: operating,
capital, program development, etc.


Board
-
designated reserves are a flexible
alternative to endowments.


What ‘Accidental’ Finance Geek?





Smith

& Daley ©
2011

Smith & Daley ©2011

Statement of Activities

What ‘Accidental’ Finance Geek?

Reconciles the use of cash (in and out flows)
during a period, around the following key
categories: operating, financing and investing.


Is inextricably connected to the Balance sheet
(through cash position) and the Statement of
Activities (esp. through the net surplus/deficit)
What
‘Accidental’ Finance Geek?



Smith

& Daley ©
2011

Smith & Daley ©2011

Statement of Cash Flows

What ‘Accidental’ Finance Geek?

The financial representation of how an
organization plans to generate and spend
its money over a given period.


Should reflect only
unrestricted

revenue
and
regular
, day
-
to
-
day activities.



What
‘Accidental’ Finance Geek?



Smith

& Daley ©
2011

Smith & Daley ©2011

Operating Budget

Generally, non
-
recurring and unrelated to core
business model

-
Purchase/Sale of capital items (equipment,
property and land usually in excess of $5k)


-
Investment gains and losses


-
Bequests
at
‘Accidental’ Finance Geek
?



What
‘Accidental’ Finance Geek?



Smith

& Daley ©
2011

Smith & Daley ©2011

Non
-
Operating Items

Why is it important to know the difference
between operating v. non
-
operating,
unrestricted v. restricted?


Accidental’ Finance Geek
?

-
regular operating expenses are paid with
unrestricted revenue

-
non
-
recurring activities, like big purchases,
skew regular operations







Smith

& Daley ©
2011

Smith & Daley ©2011

Sorting Out the Terms

What ‘Accidental’ Finance Geek?


What ‘Accidental’ Finance Geek?



Smith

& Daley ©
2011

Smith & Daley ©2011

If you aren’t already, start finding ways
to improve your financial capacity!

-
Participate in budgeting (project or
program)

-
Read
your organization’s annual report,
audit, Form 990s or strategic plan

-
Hone your Excel guru skills

-
Join
a committee or
a Board


Final Thoughts

What ‘Accidental’ Finance Geek?


What ‘Accidental’ Finance Geek?



Smith

& Daley ©
2011

Smith & Daley ©2011

Drop me a line:


paulasarrigoni@gmail.com

@
smitharrigoni



Good Luck!