1 April 21, 2015 YWCA USA Financial Leadership & Management Program Understanding & Assessing Financial Health for every woman 1 Join us on Twitter: @SpectrumSteve.

1April 21, 2015

YWCA USA Financial Leadership & Management ProgramUnderstanding & Assessing Financial Health

for

ever

y w

om

an

1

Join us on Twitter: @SpectrumSteve

2

Housekeeping Slide

Point one

Point two

Point three

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WELCOME

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Today’s Conversation

• Assessing Financial Health: Some Definitions

• Reading Financial Statements

• Immediate & Long-term Financial Health

• Calculating Financial Ratios

AGEN

DA

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Financial Leadership Model

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Financial Leadership Model

a) Staffing

b) Internal Controls

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Financial Leadership Model

a) What am I looking at?

b) How do I assess?

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Definitions

• Accrual vs. Cash-based Accounting

• Contributed Support vs. Earned Revenue

• Nonprofit Revenues: Unrestricted, Restricted and Temporarily Restricted Income

• Natural vs. Functional Expenses

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Two Types of Accounting

Cash Basis Accounting Accrual Accounting

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Cash vs. Accrual: An Example

Month Recorded Cash Basis Accrual Basis

Revenue October July

Expense When Paid. July or August

July

We have a reimbursable government contract, the usual process looks something like this:

• Work performed: July• Bill sent to government: August• Check received from government: October

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Definitions

• Accrual vs. Cash-based Accounting

• Contributed Support vs. Earned Revenue

• Nonprofit Revenues: Unrestricted, Restricted and Temporarily Restricted Income

• Natural vs. Functional Expenses

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Contributed Support vs. Earned Revenue

Contributed Support Earned Revenue

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Definitions

• Accrual vs. Cash-based Accounting

• Contributed Support vs. Earned Revenue

• Nonprofit Revenues: Unrestricted, Restricted and Temporarily Restricted

• Natural vs. Functional Expenses

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Nonprofit Revenues

Unrestricted Restricted

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Nonprofit Revenues

Unrestricted Temporarily Restricted

Permanently Restricted

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Nonprofit Revenues

Unrestricted• Individuals• Special Events• Earned Revenue

• Fee for Service

• Foundations

Temporarily Restricted

• Foundations• Government Grants /

Contracts• Project specific funds• Endowments

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In-Kind

• Accounting for In-Kind Revenue

– Service that requires a special skill

– Enhancement of an asset

– Donated Good

• Important Financial Transaction

– The Overhead Effect

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Definitions

• Accrual vs. Cash-based Accounting

• Contributed Support vs. Earned Revenue

• Nonprofit Revenues: Unrestricted, Restricted and Temporarily Restricted Income

• Natural vs. Functional Expenses

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Expenses

Natural Classification Functional Classification

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Definitions

• Accrual vs. Cash-based Accounting

• Contributed Support vs. Earned Revenue

• Nonprofit Revenues: Unrestricted, Restricted and Temporarily Restricted Income

• Natural vs. Functional Expenses

Questions?

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Financial Leadership Model

a) What am I looking at?

b) How do I assess?

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Financial Leadership Model

a) What am I looking at?

b) How do I assess?

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Assessing Immediate Health

• Do we have enough cash to pay our bills?

• How does our cash flow projection look?

• How are we performing currently on our budget?

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Immediate Financial Health

Do we have enough cash to pay our bills?

Current Ratio

Total Current AssetsTotal Current Liabilities

Quick Ratio

Cash & EquivalentsTotal Current Liabilities

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Immediate Financial Health

How does our cash flow projection look?

– Do we have a lot of receivables?

– When do we expect to collect them?

– How are Accounts Payable?

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Immediate Financial Health

How are we performing on budget?

– For particular contracts

– For the organization

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Budget to Actual ComparisonFor the nine months ending September 30, 2014

YTD Actual

YTD Budget

Difference B/(W)

Annual Budget

$ Remaining

% Remaining

SUPPORT AND REVENUESContributions 90,000 60,000 30,000 145,000 55,000 38%Foundation grants 25,000 75,000 (50,000) 100,000 75,000 75%Fundraising events, net 76,300 70,000 6,300 70,000 (6,300) -9%Total Support 191,300 205,000 (13,700) 315,000 123,700 39%

Government contracts 340,000 337,500 2,500 450,000 110,000 24%Fee for Service 4,700 15,000 (10,300) 20,000 15,300 77%Investment Income 3,965 3,750 215 5,000 1,035 21%Total Revenue 348,665 356,250 (7,585) 475,000 126,335 27%

Net Assets Released from Restriction 204,580 200,000 4,580 275,000 70,420 26%Total Support and Revenues 744,545 761,250 (16,705) 1,065,000 320,455 30%

EXPENSESProgram Services

Employment/Economic Empowerment 150,979 150,000 (979) 200,000 49,021 25%Domestic Violence Prevention & Int. 424,860 431,250 6,391 575,000 150,141 26%Childcare/Youth Development 29,944 37,500 7,556 50,000 20,056 40%Total Program Services 605,783 618,750 12,968 825,000 219,218 27%

Supporting ServicesAdministration 67,031 67,500 469 90,000 22,969 26%Fundraising 59,862 67,500 7,639 90,000 30,139 33%Total Support Services 126,893 135,000 8,108 180,000 53,108 30%

Total Expenses 732,675 753,750 21,075 1,005,000 272,325 27%

Increase in Net Assets 11,870 7,500 4,370 60,000 48,130 80%

NET ASSETSBeginning of the year 184,795 End of the year 196,665

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Assessing Long-term Health

• Do we have an adequate reserve?

• How are our programs performing financially?

• Is our income stream sufficiently diverse?

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What is a reserve?

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What is a reserve?

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What do we use a reserve for?

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Calculating The Reserve:Months of Cash On Hand

Cash + Savings + Receivables – Accounts Payable

Typical Monthly Expenses - Depreciation

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Calculating the Reserve

Unrestricted Net Assets

Typical Monthly Expenses

Unrestricted N.A. – Fixed Assets

Typical Monthly Expenses

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What is a good reserve?

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How many have reserves?

A study of Washington, DC nonprofits discovered:

• 48% of nonprofits had reserves less than 3 months

• 17% had negative reserves.

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Assessing Long-term Health

• Do we have an adequate reserve?

• How are our programs performing financially?

• Is our income stream sufficiently diverse?

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Employment / Economic

Development

Domestic Violence

Prevention & Intervention

Childcare / Youth

Development AdminFund-

raisingShared Costs TOTAL

Contributions 90,000 90,000 Foundation grants 25,000 25,000 Fundraising events, net 76,300 76,300 Total Support - - - - 191,300 - 191,300

Government contracts 340,000 340,000 Fee For Service 4,700 4,700 Investment Income 3,965 3,965 Total Revenue - 340,000 4,700 3,965 - - 348,665

Net Assets Released from Restriction 144,080 25,000 35,500 204,580 Total Income 144,080$ 365,000$ 40,200$ 3,965$ 191,300$ -$ 744,545$

Personnel Expense 96,370 224,020 21,045 34,960 37,950 51,750 466,095 Non-Personnel Expenses 31,300 157,400 6,780 13,000 3,900 54,200 266,580 Total Specific Costs 127,670 381,420 27,825 47,960 41,850 105,950 732,675

Shared Costs Allocation % 22% 41% 2% 18% 17% 100%Allocation of Shared Costs 23,309 43,440 2,119 19,071 18,012 (105,950) - Expense without Admin. 150,979 424,860 29,944 67,031 59,862 - 732,675

Admin Allocation % 23% 64% 4% -100% 9%Admin. Allocation 15,204 42,784 3,015 (67,031) 6,028

Total expenses after allocations 166,183$ 467,643$ 32,959$ -$ 65,890$ 732,675$

Change in Net assets (22,103)$ (102,643)$ 7,241$ 3,965$ 125,410$ 11,870$

Program Activities Supporting Activities

Summarized Statement of Functional Income & ExpensesFor the Nine Months Ending September 30, 2014

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Efficiency and Effectivenessof Programs

Full Costs

Direct Costs

Shared Costs

Admin Costs

Ratios

• Cost per client served― Classes― Shelters

• Cost per unit of service― Month of housing or

childcare

• Cost per successful outcome

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Assessing Long-term Health

• Do we have an adequate reserve?

• How are our programs performing financially?

• Is our income stream sufficiently diverse?

40Source: Urban Institute: Natl. Center for Charitable Statistics

Nonprofit Sources of Revenue

41Source: Estimates based on data from Urban Institute: Natl. Center For Charitable Statistics and Business & Nonprofit Strategies

Nonprofit Sources of Revenue (without College Tuition, Hospital Revenue)

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Diversification

Government Dependency

Total Gov. Funding

Total Revenue

Self-Sufficiency

Non-Gov. Income

Total Expense

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Recap

Immediate• Cash to pay bills• Cash flow projection• Budget

Long-Term

• Reserves• Profitability• Income diversity

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Homework: Reflection

• Immediate Financial Health

• Long-term Financial Health

• Overall Reflection

• Ratios and Financial Assessment Questions

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Resources

• Sample Financial Statements

• Ratios

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Recap

See the whole picture

Assess Your Health Spot the Trend!

Know what you’re looking at

• Accrual or Cash?• Unrestricted or temporarily

restricted?

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Your Questions

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YWCA FLM: Discussion Sitehttp://ywcaflm.ning.com/

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Next Webinar: May 26

Demystifying Expenses Part 1: Categorizing Expenses and Cost Allocation

• Differentiating between direct and common expenses.

• Allocating administrative costs

• Finding true program costs

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Steve ZimmermanSpectrum Nonprofit Services

www.spectrumnonprofit.com

stevez@spectrumnonprofit.com

414-727-1029