Nonprofit Financial Health:                        New Tools for Analysis                                                 ...
Today’s Facilitators      Rebecca Thomas      Vice President and Product Manager, NFF      Scott Menzel      Product and C...
Participant Poll  #financialscan   3
Today’s Objectives1. The Challenge: Uncovering a nonprofit’s comprehensive financial story     Why it matters     Why no...
The Challenge:Uncovering a nonprofit’s comprehensive financialstory  #financialscan     5
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#financialscan   7
#financialscan   8
#financialscan   9
#financialscan   10
Nonprofit Financial Analysis 101:Considerations and Best Practices  #financialscan     11
#financialscan   12
Five Steps to Assessing a Nonprofit’sFinancial Health1. Profitability2. Revenue Dynamics3. Expense Dynamics4. Composition ...
Understanding Operating Performance:Statement of Activities/Income Statement         Revenue                             ...
Where Do I Find the Bottom Line?(Audits & Internals)     ABC Center Statement of Activities     Years ended June 30, 2008 ...
Where Do I Find the Bottom Line? (Form990: Not on the Income Statement!)  Statement of Revenue: Sample Form 990  Statement...
Where Do I Find the Bottom Line? (Form 990: On the Balance Sheet!)Balance Sheet from Sample Form 990                      ...
Beware! Unusual Large Surpluses        May Reflect Capital         Unrestricted Revenue & Expenses         (including non-...
Surplus Size Matters:Breaking Even is Never EnoughLike any organization, nonprofits need to coverthe ‘full cost’ of delive...
METRIC - Operating Results:A Guideline                                                                                    ...
Understanding Balance SheetHealth: Statement of Position       Assets                    Cash – How much? How “liquid?”  ...
Measuring Liquidity (Take-Home)                                                                     Total CashMonths of Ca...
METRICS - Liquidity:A Guideline                                                                                   Requires...
A Financial Health Checklist          Operating results are consistently           positive (surpluses!)          Full c...
Is there a “right” answer?  #financialscan   25
Financial SCAN :         SMAnatomy of a solution                    26  #financialscan
   An annual financial “check-up” for review at management and board levels   Visual and compelling report for communica...
   An annual financial “check-up” before fund allocation   Grantee and potential grantee peer benchmarking   Clear visu...
   Charitable Giving Planning: Wealth Managers can use Financial SCAN to present    grantee recommendations to individual...
#financialscan   30
31-Page PDF Report Financial Health Dashboard 13 Graphs with accompanying  narrative and questions to  consider Peer Co...
Financial SCAN DemonstrationOnline Report Generation #financialscan   32
Recap Financial Health Dashboard 13 Graphs with accompanying  narrative and questions to  consider Peer Comparables Das...
Common Questions1. I am a nonprofit and only want to run a report on my own organization once or   twice per year. Is ther...
Product Information and Questionswww.guidestar.org/financialscanwebinars@guidestar.org “This innovative new tool builds th...
The BackupAppendix             36
GuideStar USAwww.guidestar.org Founded in 1994 Offices: Washington, DC and Williamsburg, VA 1.8 million organizations i...
Financial     Health     Dashboard38    #financialscan
Graphs, Narrative and Questions to Consider                    39
Peer Comparables Dashboard                  40
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Nonprofit Financial Health:                        New Tools for Analysis                                                 ...
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GuideStar Webinar (05/03/12) - Nonprofit Financial Health: New Tools for Analysis

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GuideStar webinar on 05/13/12.

Presenters: Pamela Jowdy, Senior Product Manager, GuideStar, and Rebecca Thomas, Vice President, Strategy and Innovation, Nonprofit Finance Fund

http://www2.guidestar.org/rxg/news/webinars/webinar-archive.aspx

Published in: Business, Economy & Finance
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GuideStar Webinar (05/03/12) - Nonprofit Financial Health: New Tools for Analysis

  1. 1. Nonprofit Financial Health: New Tools for Analysis 3 May 2012 1© 2012, GuideStar USA, Inc. All Rights Reserved. This information is copyrighted subject matter owned by GuideStar USA and is protected byUnited States and international copyright law.
  2. 2. Today’s Facilitators Rebecca Thomas Vice President and Product Manager, NFF Scott Menzel Product and Customer Experience Manager, GuideStar Pamela Jowdy Senior Product Manager, GuideStar 2
  3. 3. Participant Poll #financialscan 3
  4. 4. Today’s Objectives1. The Challenge: Uncovering a nonprofit’s comprehensive financial story  Why it matters  Why now?2. Nonprofit Financial Analysis 101: Considerations and best practices  Assessing nonprofit financial health in five steps  Income Statement and Balance Sheet demystified  Profitability and Liquidity guidelines  Financial Health Checklist3. Financial SCAN: Anatomy of a Solution4. Q & A #financialscan 4
  5. 5. The Challenge:Uncovering a nonprofit’s comprehensive financialstory #financialscan 5
  6. 6. 6
  7. 7. #financialscan 7
  8. 8. #financialscan 8
  9. 9. #financialscan 9
  10. 10. #financialscan 10
  11. 11. Nonprofit Financial Analysis 101:Considerations and Best Practices #financialscan 11
  12. 12. #financialscan 12
  13. 13. Five Steps to Assessing a Nonprofit’sFinancial Health1. Profitability2. Revenue Dynamics3. Expense Dynamics4. Composition of Balance Sheet5. Liquiditynonprofitfinancefund.org ©2012 Nonprofit Finance Fund® 13
  14. 14. Understanding Operating Performance:Statement of Activities/Income Statement Revenue  Where does the organization’s money come from? Dynamics  Is it reasonably diversified? Is it at risk?  Do revenue streams appear reliable / consistent?  How have expenses fluctuated over time? Expense  Are expenses adjusted in line with changes in Dynamics revenue?  Does the organization regularly cover its full costs Profitability with unrestricted revenue?  Is the agency saving? If so, is it enoughnonprofitfinancefund.org ©2012 Nonprofit Finance Fund® 14
  15. 15. Where Do I Find the Bottom Line?(Audits & Internals) ABC Center Statement of Activities Years ended June 30, 2008 ($ in thousands) Operating Activity Unrestricted Temp. Perm. Total Restricted Restricted Revenues, Gains and Other Support Support Foundations 113 58 – 171 Government 57 – – 57 Corporations 49 – – 49 Individuals 248 – – 248 Total Support 467 58 – 525 Investment Income 7 – – 7 Tickets, Dues, Other 484 – – 484 Net Assets Released from Restriction 749 -749 – – Total Revenue, Gains and Other Support 1,707 -691 – 1,016 Operating Expenses Program Services 1,004 – – 1,004 Supporting Services Administrative 209 – – 209 Development 49 – – 49 Total Supporting Services 258 – – 258 Total Expenses 1,262 – – 1,262 Change in Net Assets 445 -691 – -246nonprofitfinancefund.org ©2012 Nonprofit Finance Fund® 15
  16. 16. Where Do I Find the Bottom Line? (Form990: Not on the Income Statement!) Statement of Revenue: Sample Form 990 Statement of Functional Expenses: Sample Form 990 Total revenue $4,106,969 - Total expense $4,157,997 Surplus/(Deficit) ($51,028)nonprofitfinancefund.org ©2012 Nonprofit Finance Fund® 16
  17. 17. Where Do I Find the Bottom Line? (Form 990: On the Balance Sheet!)Balance Sheet from Sample Form 990 B.O.Y. B.O.Y. E.O.Y. Unrestricted net assets (end of year) $3,527,235 - Unrestricted net assets (beginning of year) $3,770,516 Change in unrestricted net assets ($243,281) nonprofitfinancefund.org ©2012 Nonprofit Finance Fund® 17
  18. 18. Beware! Unusual Large Surpluses May Reflect Capital Unrestricted Revenue & Expenses (including non-operating) Operating Revenue & Expenses ($ in thousands) ($ in thousands)1,800 1,8001,600 1,6001,400 1,4001,200 1,2001,000 1,000 800 800 600 600 400 400 200 200 0 0 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 Revenue, including non-operating Expenses (before depreciation) Audits rarely, and 990s never, segregate capital (i.e., for fixed asset purchases) from revenue. The unrestricted surplus may be inflated by these capital flows. nonprofitfinancefund.org ©2012 Nonprofit Finance Fund® 18
  19. 19. Surplus Size Matters:Breaking Even is Never EnoughLike any organization, nonprofits need to coverthe ‘full cost’ of delivering programs Tax Status is NOT a Business Model Full costs > Operating ExpensesFull costs include: 10 10 Operating Fixed Asset Expenses Additions Debt Principal 0 Depreciation 1 Working Capital Reserves 10 10nonprofitfinancefund.org ©2012 Nonprofit Finance Fund® 19
  20. 20. METRIC - Operating Results:A Guideline Requires Financial Moderately Healthy Immediate Indicator Healthy Attention Surpluses consistently cover Breakeven Consistent Unrestricted results or Surplus/Deficit full costs, and/or contributing to periodic growing (as % of healthy balance surpluses deficits expenses) sheet and savings insufficient to cover full costs (-3%+) (3%+) (-3% to +3%)nonprofitfinancefund.org ©2012 Nonprofit Finance Fund® 20
  21. 21. Understanding Balance SheetHealth: Statement of Position Assets  Cash – How much? How “liquid?”  Receivables – Are they slow to collect? Balance  Fixed Assets – Are fixed assets being maintained? Sheet Liabiliti Liabilities  Line of Credit – Is cash flow being managed Asse es through a line of credit? Appropriately? ts Net  Debt – Is there a plan for repayment? Assets Net Assets  Unrestricted Net Assets – Does the nonprofit & Reserves own more than it owes? How much is liquid?  Temporarily Restricted Net Assets – Do they fully support core programs?  Reserves – Any reserves? Suitable to needs?nonprofitfinancefund.org ©2012 Nonprofit Finance Fund® 21
  22. 22. Measuring Liquidity (Take-Home) Total CashMonths of Cash = (Total Expenses / 12)Months ofUnrestricted Liquid Unrestricted Net Assets –Net Assets = (PPE – PPE Debt)portion of net assets (Total Expenses / 12)available for operationsWorking Capital = Current Assets – Current Liabilitiesnonprofitfinancefund.org ©2012 Nonprofit Finance Fund® 22
  23. 23. METRICS - Liquidity:A Guideline Requires Financial Moderately Healthy Immediate Indicator Healthy Attention 3+ months cash and working capital Sufficient to Months of cover cyclicality Less than one One ore more board of cash flow month and Liquidity designated reserves (aim for 3 declining for risk or months) opportunity Risk – Cash = Crisisnonprofitfinancefund.org ©2012 Nonprofit Finance Fund® 23
  24. 24. A Financial Health Checklist Operating results are consistently positive (surpluses!) Full costs are regularly covered by reliable revenue Reinvestment in fixed assets to offset depreciation Evidence of ability to manage debt Liquidity is sufficient to withstand risk and pursue new opportunitiesnonprofitfinancefund.org ©2012 Nonprofit Finance Fund® 24
  25. 25. Is there a “right” answer? #financialscan 25
  26. 26. Financial SCAN : SMAnatomy of a solution 26 #financialscan
  27. 27.  An annual financial “check-up” for review at management and board levels Visual and compelling report for communicating financial story and funding requirements Historical context to inform the annual budgeting process and strategic/business planning A quick way to inform consultants engaged for financial planning and other capacity-building efforts A training resource for new executives 27 board members and
  28. 28.  An annual financial “check-up” before fund allocation Grantee and potential grantee peer benchmarking Clear visual representation of financial trends with a guide for interpreting results: program officer education Engage grantees in dialogue about their financial health and resource needs Documentation to support recommendations to boards 28
  29. 29.  Charitable Giving Planning: Wealth Managers can use Financial SCAN to present grantee recommendations to individual clients in a consistent, sophisticated way. NPO Asset Management: Inform the development of income generation strategies and investment policy statement development for existing nonprofit clients. New Business Acquisition: Identify new nonprofit clients and use the comprehensive report as part of a pitch book to prospective nonprofit and high net worth individual clients. 29
  30. 30. #financialscan 30
  31. 31. 31-Page PDF Report Financial Health Dashboard 13 Graphs with accompanying narrative and questions to consider Peer Comparables Dashboard Glossary and Definitions Date and time stamped All data sourced directly from Forms 990 31
  32. 32. Financial SCAN DemonstrationOnline Report Generation #financialscan 32
  33. 33. Recap Financial Health Dashboard 13 Graphs with accompanying narrative and questions to consider Peer Comparables Dashboard Glossary and Definitions Date and time stamped All data sourced directly from Forms 990 33
  34. 34. Common Questions1. I am a nonprofit and only want to run a report on my own organization once or twice per year. Is there a Financial SCAN product for nonprofits?2. How big is the Financial SCAN universe?3. How does Financial SCAN handle cases where a target organization does not have 5 years of data?4. Does Financial SCAN include mission and impact data? 34 #financialscan
  35. 35. Product Information and Questionswww.guidestar.org/financialscanwebinars@guidestar.org “This innovative new tool builds the financial management capacity of nonprofits and helps grantmakers engage with their grantees about financial health and funding needs. By creating a new standard for nonprofit financial analysis, the Financial SCAN underscores the relationship between strong finances and effective programs.” -- Kathy Reich, Director or Organizational Effectiveness Grantmaking David & Lucile Packard Foundation Financial SCAN Funder #financialscan 35
  36. 36. The BackupAppendix 36
  37. 37. GuideStar USAwww.guidestar.org Founded in 1994 Offices: Washington, DC and Williamsburg, VA 1.8 million organizations in the GuideStar database 18,554 nonprofits voluntarily provide information via GuideStar Exchange More than 6 million Form 990 images in the GuideStar database 8.3 million annual visitors to the GuideStar website 803,256 newsletter subscribers $11 million operating budget 37
  38. 38. Financial Health Dashboard38 #financialscan
  39. 39. Graphs, Narrative and Questions to Consider 39
  40. 40. Peer Comparables Dashboard 40
  41. 41. 41
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  44. 44. 44
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  48. 48. Nonprofit Financial Health: New Tools for Analysis 3 May 2012 48© 2012, GuideStar USA, Inc. All Rights Reserved. This information is copyrighted subject matter owned by GuideStar USA and is protected byUnited States and international copyright law.

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