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

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Janet Gibbs, former CFO at Feeding America, explains how to understand your nonprofit's financial statements, and be comfortable interpreting them to external audiences.

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

  1. 1. Finance – Cash, credit, and investment Presented By: Janet Gibbs President & CEO Mission Accomplished []
  2. 2. 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
  3. 3. 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
  4. 4. 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-PROFITORGANIZATION STATEMENTOFACTIVITIES 20xz 20xy Assets Cashandcashequivalents 131,414$ 144,032$ Contracts&GrantsReceivable 1,111,902 720,970 PrepaidExpenses 16,387 34,168 Property, Plant&Equipment(netof depreciation) 533,346 491,774 Total Assets 1,793,049$ 1,390,944$ LiabilitiesandNetAssets AccountsPayable &AccruedExpenses 329,203$ 253,402$ DeferredRevenue 74,919 75,646 Line of Credit 145,000 Total Liabilities 549,122 329,048 NetAssets Unrestricted Undesignated 708,401 563,225 InvestedinProperty, Plant&Equipment 533,346 491,774 Total Unrestricted 1,241,747 1,054,999 TemporarilyRestricted 2,180 6,897 Total NetAssets 1,243,927 1,061,896 Total Liabilities& NetAssets 1,793,049$ 1,390,944$
  5. 5. •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-PROFITORGANIZATION STATEMENTOF 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$
  6. 6. •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). LiabilitiesandNetAssets AccountsPayable&AccruedExpenses 329,203$ DeferredRevenue 74,919 LineofCredit 145,000 TotalLiabilities 549,122
  7. 7. •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. NetAssets Unrestricted Undesignated 708,401 InvestedinProperty,Plant&Equipment 533,346 TotalUnrestricted 1,241,747 TemporarilyRestricted 2,180 TotalNetAssets 1,243,927
  8. 8. 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-PROFITORGANIZATION STATEMENTOFACTIVITIES Unrestricted Temporarily Restricted Total 20xy RevenueandSupport Contributions 125,368$ 69,144$ 194,512$ 170,831$ Contractsandgrants 3,807,616 3,807,616$ 3,716,855 InterestandOtherIncome 65,586 65,586$ 21,111 NetAssetsReleasedfromRestrictions 73,861 (73,861) -$ - TotalRevenueandSupport 4,072,431 (4,717) 4,067,714 3,908,797 Expenses ProgramServices 3,367,516 3,367,516 3,283,874 Management&General 471,247 471,247 371,166 FundraisingandDevelopment 46,920 46,920 33,988 TotalExpenses 3,885,683 3,885,683 3,885,683 ChangeinNetAssets 186,748 (4,717) 182,031 219,769 NetAssets,BeginningofYear 1,054,999 6,897 1,061,896 842,127 NetAssets,EndofYear 1,241,747$ 2,180$ 1,243,927$ 1,061,896$ 20xz
  9. 9. •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-PROFITORGANIZATION STATEMENTOF ACTIVITIES Unrestricted Temporarily Restricted Total Revenue andSupport Contributions 125,368$ 69,144$ 194,512$ Contracts and grants 3,807,616 3,807,616$ Interestand OtherIncome 65,586 65,586$ NetAssets Released fromRestrictions 73,861 (73,861) -$ Total Revenue andSupport 4,072,431 (4,717) 4,067,714 20xz
  10. 10. 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
  11. 11. •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.
  12. 12. •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-PROFITORGANIZATION STATEMENTOFACTIVITIES Unrestricted Temporarily Restricted Total Expenses ProgramServices 3,367,516 3,367,516 Management&General 471,247 471,247 FundraisingandDevelopment 46,920 46,920 TotalExpenses 3,885,683 3,885,683 20xz
  13. 13. 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-PROFITORGANIZATION STATEMENTOF ACTIVITIES Unrestricted Temporarily Restricted Total Total Revenue andSupport 4,072,431 (4,717) 4,067,714 Total Expenses 3,885,683 3,885,683 Change inNetAssets 186,748 (4,717) 182,031 NetAssets, Beginningof Year 1,054,999 6,897 1,061,896 NetAssets, Endof Year 1,241,747$ 2,180$ 1,243,927$ 20xz
  14. 14. 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
  15. 15. Statement of Functional ExpensesNON-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.
  16. 16. 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
  17. 17. 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
  18. 18. 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.
  19. 19. Make it Visual
  20. 20. Historical Trends Give Perspective to Current Position
  21. 21. 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)

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