Nonprofit Finance: Basics for the non-MBA, non-CPA professional
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Transcript of Nonprofit Finance: Basics for the non-MBA, non-CPA professional
Finance – Cash, credit, and investment
Presented By: Janet Gibbs
President & CEO
Mission Accomplished
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Session Focus
• Finance basics for the non-MBA, non-CPA professional.
• At the end of this session, participants will: – Understand their organization’s financial statements,
and be comfortable interpreting them for external audiences
– Understand the role of cash, credit, and investment in maintaining stability and supporting growth
– Be able to tell their organization’s financial story as it relates to their mission
Financial Statements 101
• There are 3 basic financial statements for all non-profit organizations
– Statement of Financial Position (balance sheet)
– Statement of Activities (Income Statement)
– Statement of Cash Flows
• Due to time limitations, we will focus on the first two
Statement of Financial Position
• 3-part statement – Assets
• What is owned
– Liabilities • What is owed
– Net Assets • What is left
• Theoretically, if all assets are sold to pay off all liabilities, net assets would remain
• Audit typically shows 2 years
NON-PROFIT ORGANIZATION
STATEMENT OF ACTIVITIES
20xz 20xy
Assets
Cash and cash equivalents 131,414$ 144,032$
Contracts & Grants Receivable 1,111,902 720,970
Prepaid Expenses 16,387 34,168
Property, Plant & Equipment (net of depreciation) 533,346 491,774
Total Assets 1,793,049$ 1,390,944$
Liabilities and Net Assets
Accounts Payable & Accrued Expenses 329,203$ 253,402$
Deferred Revenue 74,919 75,646
Line of Credit 145,000
Total Liabilities 549,122 329,048
Net Assets
Unrestricted
Undesignated 708,401 563,225
Invested in Property, Plant & Equipment 533,346 491,774
Total Unrestricted 1,241,747 1,054,999
Temporarily Restricted 2,180 6,897
Total Net Assets 1,243,927 1,061,896
Total Liabilities & Net Assets 1,793,049$ 1,390,944$
•Cash and cash equivalents are assets that can be found in a bank, in CD’s or savings accounts.
•Contracts & Grants Receivable are assets, but NOT CASH. •Receivables are created when the organization is owed funds by an outside entity, such as a donor, customer or government agency.
•Receivables are expected to be collected and turned into cash at some known point in the future
•Prepaid Expenses include things like quarterly or annual rent payments or insurance premiums that are paid in advance of being used.
•PP&E (Fixed Assets) is typically the depreciated or “book” value, not replacement or market value.
NON-PROFIT ORGANIZATION
STATEMENT OF ACTIVITIES
20xz
Assets
Cash and cash equivalents 131,414$
Contracts & Grants Receivable 1,111,902
Prepaid Expenses 16,387
Property, Plant & Equipment (net of depreciation) 533,346
Total Assets 1,793,049$
•Accounts Payable include the value of invoices due but not yet paid.
•Accrued Expenses include payroll that is owed at the end of the month/year but not yet paid.
•Deferred Revenue includes cash received but not yet earned, such as tuition or meeting fees.
•Line of Credit (LOC) reflects the amount borrowed from and owed to a bank. Lines of Credit are used for short-term needs when cash is at a low point due to natural ebbs and flows of the operating cycle. (Girl Scouts cookie sales).
Liabilities and Net Assets
Accounts Payable & Accrued Expenses 329,203$
Deferred Revenue 74,919
Line of Credit 145,000
Total Liabilities 549,122
•Net Assets are divided into 3 categories
•Unrestricted Net Assets are available to support the general operations of the organization. •“Fixed Assets” separated from spendable net assets
•Temporarily Restricted Net Assets are available to support specific activities or purposes, as restricted by the donor or external party.
•Permanently Restricted Net Assets (not shown) include Endowment funds which must be invested “in perpetuity”; investment income can be used for operations.
Net Assets
Unrestricted
Undesignated 708,401
Invested in Property, Plant & Equipment 533,346
Total Unrestricted 1,241,747
Temporarily Restricted 2,180
Total Net Assets 1,243,927
Statement of Activities
• 4 parts to understand
– Revenue and Support • What was earned during
the period; not all cash
– Expenses • What was spent during
the period; not all cash
– Change in Net Assets • Revenue minus Expenses
– Net Assets Balances • Beginning and ending
NON-PROFIT ORGANIZATION
STATEMENT OF ACTIVITIES
Unrestricted
Temporarily
Restricted Total 20xy
Revenue and Support
Contributions 125,368$ 69,144$ 194,512$ 170,831$
Contracts and grants 3,807,616 3,807,616$ 3,716,855
Interest and Other Income 65,586 65,586$ 21,111
Net Assets Released from Restrictions 73,861 (73,861) -$ -
Total Revenue and Support 4,072,431 (4,717) 4,067,714 3,908,797
Expenses
Program Services 3,367,516 3,367,516 3,283,874
Management & General 471,247 471,247 371,166
Fundraising and Development 46,920 46,920 33,988
Total Expenses 3,885,683 3,885,683 3,885,683
Change in Net Assets 186,748 (4,717) 182,031 219,769
Net Assets, Beginning of Year 1,054,999 6,897 1,061,896 842,127
Net Assets, End of Year 1,241,747$ 2,180$ 1,243,927$ 1,061,896$
20xz
•Contributions are an unconditional transfer of cash or other assets, including unconditional promises to give (pledges). If a donor imposes a restriction on the use of the contribution, it is recorded as Temporarily or Permanently Restricted.
•Contracts and Grants are typically fixed price or cost reimbursement.
•Net Assets Released from Restrictions shows the amount of Temporarily Restricted funds that were used in accordance to the donor’s restrictions. Now can be recognized as Unrestricted revenue.
NON-PROFIT ORGANIZATION
STATEMENT OF ACTIVITIES
Unrestricted
Temporarily
Restricted Total
Revenue and Support
Contributions 125,368$ 69,144$ 194,512$
Contracts and grants 3,807,616 3,807,616$
Interest and Other Income 65,586 65,586$
Net Assets Released from Restrictions 73,861 (73,861) -$
Total Revenue and Support 4,072,431 (4,717) 4,067,714
20xz
Other Types of Revenue
• Program Services Revenue
– Exchanges between the non-profit and another party in which the non-profit provides a service in exchange for a fee.
• Product sales (net of cost of goods sold)
• Membership Dues
• Tuition
• Special Events Revenue
•Is this a Contract or a Grant?
•Contract typically requires a service directly to the funder., who directly benefits from the work.
•A Grant typically is in support of a project not owned by the funder/government and with little or no direct benefit.
•Program Services expenses are costs associated with the delivery of goods and services to beneficiaries, customers or members that fulfill the organizational mission.
•Management & General (Administrative) expenses include general and managerial costs such as executive leadership, finance, HR, technology, and related administrative activities.
•Fundraising and Development expenses include publicizing and conducting fundraising campaigns and events, maintaining donor mailing lists, and other activities to solicit contributions and memberships.
NON-PROFIT ORGANIZATION
STATEMENT OF ACTIVITIES
Unrestricted
Temporarily
Restricted Total
Expenses
Program Services 3,367,516 3,367,516
Management & General 471,247 471,247
Fundraising and Development 46,920 46,920
Total Expenses 3,885,683 3,885,683
20xz
Revenues minus Expenses = Change in Net Assets
Net Assets, Beginning of Year comes from Statement of Financial Position
Change in Net Assets + Net Assets, Beginning of Year = Net Assets, End of Year
NON-PROFIT ORGANIZATION
STATEMENT OF ACTIVITIES
Unrestricted
Temporarily
Restricted Total
Total Revenue and Support 4,072,431 (4,717) 4,067,714
Total Expenses 3,885,683 3,885,683
Change in Net Assets 186,748 (4,717) 182,031
Net Assets, Beginning of Year 1,054,999 6,897 1,061,896
Net Assets, End of Year 1,241,747$ 2,180$ 1,243,927$
20xz
Cash Flow
• “Cash is King” in a non profit organization
• Daily attention and management is critical
• Many banks have software to assist with cash flow management
• Manage accounts payable
• May need Line of credit for temporary cash needs
• Invest unused cash in low/no risk investments
Statement of Functional Expenses NON-PROFIT ORGANIZATION
STATEMENT OF FUNCTIONAL EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 20XY
Program A Program B Total Program
Management
& General
Fundraising &
Development
Total
Expenses
Salaries 2,254,516$ 372,000$ -$
Employee Benefits 481,300 3,750 -
Payroll Taxes 150,000 18,800 -
Total Compensation -$ -$ 2,885,816$ 394,550$ -$ 3,280,366$
Professional Fees 112,500 22,000 30,000 164,500
Supplies 15,000 247 5,000 20,247
Telephone 7,200 650 7,850
Postage 8,500 250 2,000 10,750
Occupancy Costs 12,000 1,200 13,200
Equipment Rental and Maintanance 17,500 12,000 29,500
Printing and Publications 11,000 7,500 7,500 26,000
Travel 172,000 17,000 2,420 191,420
Conferences and Professional Development 72,500 8,500 81,000
Scholarships 25,000 - 25,000
Interest 4,500 1,350 5,850
Total Before Depreciation -$ -$ 3,343,516$ 465,247$ 46,920$ 3,855,683$
Depreciation 24,000 6,000 30,000
Total Expenses 3,367,516$ 471,247$ 46,920$ 3,885,683$
% of Total 87% 12% 1% 100%
Supporting ServicesProgram Services
•Ties back to Statement of Activities •Should compare actual to budget, by program and in total.
How Do You Tell Your Story?
What are you trying to
accomplish?
What are your
strategies for making this
happen?
What are your
capabilities for doing
this?
How will you know if you are making progress?
What have and haven’t
you accomplished
so far?
Adapted from Charting Impact, led by the BBB Wise Giving Alliance, GuideStar USA, and Independent Sector.
Ask yourself these 5 simple yet
powerful questions
How Will You Present Your Story?
Audience
• Internal – Staff, Board
• External – Donors, regulators, constituents
Message
• What they want to know
• What you want them to know
What?
• Highlight what’s important
• Tie it to your goals
• Make it visual – dashboards, charts and graphs
Performance Dashboard NON-PROFIT ORGANIZATION
FOR THE SIX MONTHS ENDED JUNE 30, 20XY
Goal Outcome / Status
HIGHLIGHTS Grant salary Increases The full 8% increase was funded - our first in 3 years!
Increase Endowment Funds We have completed the campaign, ending $14,500 over goal
Obtain Line of Credit Secured a $200K line of credit with our bank
Increase Cost Recovery on
Grant to Cover Program
Costs
We have secured foundation grants to cover almost the full
cost of programs and we have commitments for next year.
MIXED RESULTS Upgrade technology
We have replaced all staff computers on schedule, but
delayed the new database until our cash position improves
Improve ROI on Fundraising
Activity
We had to spend more than expected on our fundraising
efforts, although we are still hitting revenue targets
LOW LIGHTS Improve Cash Reserves
Although we are showing a small surplus at this point in the
year, we are running behind in efforts to build our cash
reserve. This is not surprising given our focus on the
endowment campaign and renegotiating with our funders on
cost recovery. Unrestricted fundraising needs to be our next
priority.
Make it Visual
Historical Trends Give Perspective to Current Position
Sources of Guidance
• Guidestar (www.guidestar.org)
• Better Business Bureau Wise Giving Alliance (www.give.org)
• Charting Impact – a partnership between Guidestar, BBB-WGA, and Independent Sector (http://www.guidestar.org/rxg/update-nonprofit-report/charting-impact.aspx?source=/chartingimpact)
• Give Well (givewell.org)
• Great Non Profits (http://greatnonprofits.org)
• Charity Navigator (www.charitynavigator.org)