12 Things Your Board Needs to Know About Nonprofit Financial Statements:Financial Literacy Basics-Part I
Stephanie Spindell, MBASpindell Consulting
Stephanie Spindell, Founder, ConsultantSpindell Consulting
MBA-Finance
Certificate Nonprofit Financial Management
25+ years experience nonprofit & corporate data-driven, comprehensive organizational assessments
Special focus on problem identification and developing appropriate analytical assessment tools
Passions/interests dance, arts/culture, education
Spindell Consulting Feasibility Studies Financial Analysis Financial Literacy Training Financial Planning Organizational Effectiveness Performance Analysis Program Planning Revenue Enhancement Strategic Planning Sustainability
Contacting Spindell Consulting
stephanie@stephsconsulting.comwww.stephsconsulting.comwww.linkedin.com/in/stephaniespindell or http://linkd.in/1IZIG6P https://twitter.com/spindstephhttps://www.facebook.com/stephanie.spindell917-306-2913
AgendaWho? What? How? of Financials Statement of Financial Position
Cash and Liquidity
Common Cash Misconceptions
Unrestricted Net Assets
Transparency
Statement Analysis Tips
Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
SStephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
#1 Why do Financial Statements Matter?
Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
Organization Plans/Forecasts
Competition
Your peer group or sector
Accurate and Quantitative Way to MeasurePerformance Against:
Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
Financial Statements Facilitate:
Management Discussion
Planning and…
Decision Making
Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
AND……
Funders, stakeholders, vendors, etc. want to
Hear your financial story!
Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
#2 Know THY Financial Statements
Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
Is this Man Preparing Your Financial Statements?
WHO? (CPA, internal accounting, finance, ED)
WHAT? (Audited, IRS 990, Unaudited)
HOW? (Method/basis of accounting or preparation)
Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
Audited Financials vs. IRS 990
Audited Financials IRS 990
Prepared by Independent CPA Need not be prepared by CPA
Follow GAAP principles Tax document; Can be recorded using Cash Basis or Accrual/GAAP basis
Itemize: Restricted, Unrestricted Revenue No detail
Separation of operating vs. capital revenue No separation
Record: Contributions In-Kind (Identical revenue and expense entries)
No recognition of Contributions IK
Identify: Government Grants (Contributed Revenue) & Gov’t Contracts (Earned Revenue)
Identify: Government Grants (Other Gov’t Revenue) & Gov’t Revenue (Program Service Revenue)
Audited Financials
An independent (external) auditor (CPA) examines your financial records to ensure that they are materially correct and not misleading*
*Effective 7/1/14-required for organizations with revenue > $500K
(Previously >$250K)
Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
Unaudited Financials
Any financial compilation or review of your organization that is NOT audited by an independent CPA
Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
#3 Unaudited Financials Deserve Extra Scrutiny
Why?.....
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Preparation/Review Process of Financials
Degree of Certainty- “Materially Correct”
Independent CPA Audit (“Audited Financials”)
Highest
Independent Accountant Review
Not as High
Accountant Compiled Financials
Lower
Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
#4 Audited Financial Statements Include:
Statement of Financial Position
Statement of Activities
Statement of Cash Flows Statement of Functional Expenses (required for specific NFPs)Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
Statement of Financial Position
AKA Balance Sheet
Assets=Liabilities+ Net Assets
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Assets:What you own or others owe you
Liabilities:What you owe to/ (hold on behalf of) others
Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
Assets
Can be converted to cash (or another asset)
Liquid or Non-liquid
Unrestricted or Restricted
Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
#5 King of Assets
CASH is WHAT YOU NEEDto pay WHAT YOU OWEimmediately and in short term
Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
Liquid Assets
CASH or readily converted to CASH
Less than one year maturity investment
Unrestricted funds from a donor
Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
Non-Liquid Asset Examples
Property, Equipment
Long term investments
Restricted funds from donors (donor-imposed)
Endowment Fund
Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
#6 Don’t Make this Mistake..
GAAP Revenue = CASH
Wrong. Why?.......
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GAAP Accrual method of Accounting for Revenue
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Accrual (GAAP) vs. Cash Basis of Accounting
Accrual CashRevenues recorded upon sale
Revenues recorded when cash received
Expenses recorded when incurred
Expenses recorded when paid
Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
#7 Or this Mistake: Cash Flow = Cash
Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
Cash flow = Cash In ─ Cash Out
Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
#8 Growth in Net Assets…
Allows for organizational expansion and financial flexibility
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Net Asset Calculation
Assets minus Liabilities OR
Sum of annual surpluses or deficits over organization lifetime
Change In Net Assets = Organization Profit/Loss
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Net Assets
What’s left over after honoring obligations
Sometimes called capital
Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
True or False:
Growth in net assets should give our Board comfort
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Answer: It depends
Unrestricted Net Assets are what matter most
And……
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#9 Liquid Unrestricted Net Assets…
Will pay your bills
Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
Ask yourself these questions…..
What portion of your net assets are unrestricted?
What portion of your net assets are liquid?
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What you Owe (Liabilities)
Payables (bills, salaries, credit card)
Accrued expenses (interest, vacation pay)
Drawings from Bank line of credit
Long term-loans, mortgages, > 1 year maturityStephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
Data Transparency
Sometimes Less is More
But…
Financials need to show detail when relevant and necessary
Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
#10 Transparency is Necessary to…..
Accurately exhibit and monitor progress
Explain variances or significant changes in key data items
Make possible corrective adjustments
Plan for the future (e.g., ways to increase revenue, improve cash flow, etc. )
Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
Examples
Break out restricted assets, revenue from total assets, revenue
Keep track of cash generating contributions vs. in kind or for capital projects
Track individual program financial performance
And MOREStephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
Analyzing Financial Data
Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
Are you comparing Apples to Apples?
Audited, Unaudited, Tax-IRS 990?
Current period vs. budgeted same period?
This year vs. last year?
Quarterly, monthly, ETC.?Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
#11 Analysis 101
Look for major trends (example: why did net assets decline 10% from previous quarter?)
What’s worsened OR IMPROVED? WHY?
Note WHERE and HOW cash was impacted
Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
#12 Your mission, should you choose to accept it…
Don’t underestimate the power of financial data!
Financial statements show and measure performance
They help you monitor, stay on track and plan for the future
Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
Make sure you
Aim for transparency and certainty!
Be accountable for safeguarding organizational assets
Ask the right questions
Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
Can you explain your financial story?
Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
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Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015
More?....
Coming Soon-
Part 1: Intro to Statement of Activities
Stephanie Spindell│Spindell Consulting│[email protected]│http://www.stephsconsulting.com/│June 2015