nonprofit finance: basics for the non-mba, non-cpa professional

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Finance – Cash, credit, and investment Presented By: Janet Gibbs President & CEO Mission Accomplished []

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Page 1: Nonprofit Finance: Basics for the non-MBA, non-CPA professional

Finance – Cash, credit, and investment

Presented By: Janet Gibbs

President & CEO

Mission Accomplished

[]

Page 2: Nonprofit Finance: Basics for the non-MBA, non-CPA professional

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

Page 3: Nonprofit Finance: Basics for the non-MBA, non-CPA professional

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

Page 4: Nonprofit Finance: Basics for the non-MBA, non-CPA professional

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$

Page 5: Nonprofit Finance: Basics for the non-MBA, non-CPA professional

•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$

Page 6: Nonprofit Finance: Basics for the non-MBA, non-CPA professional

•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

Page 7: Nonprofit Finance: Basics for the non-MBA, non-CPA professional

•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

Page 8: Nonprofit Finance: Basics for the non-MBA, non-CPA professional

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

Page 9: Nonprofit Finance: Basics for the non-MBA, non-CPA professional

•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

Page 10: Nonprofit Finance: Basics for the non-MBA, non-CPA professional

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

Page 11: Nonprofit Finance: Basics for the non-MBA, non-CPA professional

•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.

Page 12: Nonprofit Finance: Basics for the non-MBA, non-CPA professional

•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

Page 13: Nonprofit Finance: Basics for the non-MBA, non-CPA professional

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

Page 14: Nonprofit Finance: Basics for the non-MBA, non-CPA professional

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

Page 15: Nonprofit Finance: Basics for the non-MBA, non-CPA professional

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.

Page 16: Nonprofit Finance: Basics for the non-MBA, non-CPA professional

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

Page 17: Nonprofit Finance: Basics for the non-MBA, non-CPA professional

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

Page 18: Nonprofit Finance: Basics for the non-MBA, non-CPA professional

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.

Page 19: Nonprofit Finance: Basics for the non-MBA, non-CPA professional

Make it Visual

Page 20: Nonprofit Finance: Basics for the non-MBA, non-CPA professional

Historical Trends Give Perspective to Current Position

Page 21: Nonprofit Finance: Basics for the non-MBA, non-CPA professional

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)