Are We Sinking?: Financial Leadership for Turbulent Times

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Are We Sinking?: Financial Leadership for Turbulent Times

  1. 1. Are we sinking? Financial Leadership in Turbulent Times Steve Zimmerman Spectrum Nonprofit Services
  2. 2. The face behind the voice . . . .
  3. 3. Our Agenda <ul><li>What is Financial Leadership? </li></ul><ul><li>Reading financial statements </li></ul><ul><li>What should I really be looking for? </li></ul><ul><li>But we’re out of cash? </li></ul><ul><ul><li>Cash flow projections </li></ul></ul><ul><li>Ongoing monitoring </li></ul>
  4. 6. Financial Leadership <ul><li>The financial leader of your organization </li></ul><ul><li>is . . . . . . . </li></ul>
  5. 7. Mission
  6. 8. Mission
  7. 9. Mission
  8. 11. Mission $
  9. 12. Who is involved?
  10. 13. Who is involved?
  11. 16. Budget to actual report Balance Sheet?
  12. 19. How do I read these things?
  13. 20. What monthly accounting reports are you getting?
  14. 21. 2 Key Financial Statements <ul><li>Balance Sheet </li></ul><ul><li>AKA: </li></ul><ul><li>Statement of Financial Position </li></ul><ul><li>Income Statement </li></ul><ul><li>AKA: </li></ul><ul><li>Statement of Activities </li></ul>
  15. 22. Snapshot of the organization at a specific date
  16. 23. <ul><li>Balance Sheet </li></ul><ul><li>Snapshot as of a particular date. </li></ul><ul><li>Cumulative history from the beginning of the company. </li></ul><ul><li>Tells you: </li></ul><ul><ul><li>How much cash do I have? </li></ul></ul><ul><ul><li>How much do I owe to people? </li></ul></ul><ul><ul><li>What is my net worth? </li></ul></ul>
  17. 24. 3 Parts to a Balance Sheet Assets Liabilities Net Assets Things you own Things you owe Your net worth Listed in order of liquidity. How quickly can I get my hands on the cash? Current liabilities represent those liabilities that are payable in the next year. <ul><li>Broken out by restriction: </li></ul><ul><li>Unrestricted </li></ul><ul><li>Temporarily restricted </li></ul><ul><li>Permanently restricted </li></ul>
  18. 25. <ul><li>Income Statement </li></ul><ul><li>For a specified range of time: Usually the fiscal year to date. </li></ul><ul><li>Typically compared with budget to see performance </li></ul><ul><li>Tells you: </li></ul><ul><ul><li>How much revenue have we earned? </li></ul></ul><ul><ul><li>Where are we spending our money? </li></ul></ul><ul><ul><li>What is the “bottom line”? </li></ul></ul>
  19. 26. I can read the financial statements, but how do I know if I have enough cash in the bank to pay my bills?
  20. 27. Immediate Financial Health <ul><li>Current Ratio </li></ul><ul><li>Total Current Assets </li></ul><ul><li>Total Current Liabilities </li></ul><ul><li>Quick Ratio </li></ul><ul><li>Cash & Equivalents </li></ul><ul><li>Total Current Liabilities </li></ul>
  21. 28. What should the ratio be? <ul><li>Ideally greater than 1. </li></ul><ul><li>This is a TRENDING tool. </li></ul><ul><li>What if it is not greater than 1? </li></ul>
  22. 29. What about the long term? Am I financially secure?
  23. 30. Assessing Long-Term Health: The Reserve
  24. 31. Assessing Long-Term Health: The Reserve
  25. 32. Calculating the Reserve <ul><li>Unrestricted Net Assets </li></ul><ul><li>Typical Monthly Expenses </li></ul><ul><li>Unrestricted N.A. – Fixed Assets </li></ul><ul><li>Typical Monthly Expenses </li></ul>
  26. 33. What is a good reserve?
  27. 34. What is a good reserve? 3 months is fairly common.
  28. 35. Paper Rich but Cash Poor
  29. 36. Two Types of Accounting <ul><li>Cash Basis Accounting </li></ul><ul><li>Accrual Accounting </li></ul>
  30. 37. Two Types of Accounting <ul><li>Cash Basis Accounting </li></ul><ul><li>Items recorded when you actually have the cash. </li></ul><ul><li>Accrual Accounting </li></ul><ul><li>Items recorded when they are earned or incurred. </li></ul>
  31. 38. Cash vs. Accrual: An Example <ul><li>We have a reimbursable government contract, the usual process looks something like this: </li></ul><ul><li>Work performed: July </li></ul><ul><li>Bill sent to government: August </li></ul><ul><li>Check received from government: October. </li></ul>Month Recorded Cash Basis Accrual Basis Revenue October July Expense When Paid. July or August July
  32. 42. <ul><li>Look at your Accounts Payable </li></ul>
  33. 43. <ul><li>Look at your Accounts Payable </li></ul><ul><li>If it increases, it could mean that you are having cash flow issues. </li></ul>
  34. 44. Temporarily Restricted Net Assets <ul><li>Are we using restricted net assets for operations? </li></ul><ul><ul><li>Cash + Grants Receivable </li></ul></ul><ul><ul><li>Temporarily Restricted Net Assets </li></ul></ul>
  35. 45. Ways to Adjust Cashflow <ul><li>Investments </li></ul><ul><li>Line of Credit </li></ul><ul><li>Moving Big Expenses </li></ul><ul><li>Revenue Shifts </li></ul>
  36. 46. Key Ratios to Watch Over <ul><li>Immediate Health </li></ul><ul><li>Budget to Actual </li></ul><ul><ul><li>Look at Revenue </li></ul></ul><ul><li>Current Ratio </li></ul><ul><ul><li>Payroll Ratio: </li></ul></ul><ul><ul><ul><li>Payroll Expenses / Cash </li></ul></ul></ul><ul><li>Long-Term Health </li></ul><ul><li>Reserve </li></ul><ul><li>Restricted Cash </li></ul>
  37. 47. These are . . . Trending Tools
  38. 48. Create a Dashboard to Monitor
  39. 49. The Dashboard Opportunity <ul><li>Agreement AHEAD OF TIME on what matters </li></ul><ul><li>Agreement AHEAD OF TIME on targets </li></ul><ul><li>Agreement AHEAD OF TIME on when action is needed </li></ul><ul><li>Ability to monitor and update strategic plan </li></ul>
  40. 50. Two Saviors
  41. 51. Two Saviors
  42. 52. Next Month: October 27, 2010 <ul><li>How Much is the Program in the Window? </li></ul><ul><li>Determining True Program Costs </li></ul><ul><li>What components go into the full costs of my programs? </li></ul><ul><li>How do we allocate administrative and common costs? </li></ul><ul><li>How do these translate to funding proposals? </li></ul>
  43. 53. Are we sinking? Financial Leadership in Turbulent Times Steve Zimmerman Spectrum Nonprofit Services [email_address] 414.226.2322 Nonprofit Services Center 326 South 21 st Street, Suite 301 St. Louis, MO 63103 www.nonprofitservices.org Alliance for Nonprofit Excellence 5100 Poplar Ave., Suite 502 Memphis, TN 38137 www.npexcellence.org

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