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12 Things Your Board Needs to Know About
Nonprofit Financial Statements:
Financial Literacy Basics-Part I
Stephanie Spinde...
Stephanie Spindell, Founder, Consultant
Spindell Consulting
MBA-Finance
Certificate Nonprofit Financial Management
25+ yea...
Spindell Consulting
 Feasibility Studies
 Financial Analysis
 Financial Literacy Training
 Financial Planning
 Organi...
Contacting Spindell Consulting
stephanie@stephsconsulting.com
www.stephsconsulting.com
www.linkedin.com/in/stephaniespinde...
Agenda
Who? What? How? of Financials
Statement of Financial Position
Cash and Liquidity
Common Cash Misconceptions
Unrestr...
Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
#1 Why do Financial Statements Matter?
Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.st...
Organization Plans/Forecasts
Competition
Your peer group or sector
Accurate and Quantitative Way to Measure
Performance Ag...
Financial Statements Facilitate:
Management Discussion
Planning and…
Decision Making
Stephanie Spindell│Spindell Consultin...
AND……
Funders, stakeholders, vendors, etc. want to
Hear your financial story!
Stephanie Spindell│Spindell Consulting│steph...
#2 Know THY Financial Statements
Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsco...
Is this Man Preparing Your Financial
Statements?
WHO? (CPA, internal accounting, finance, ED)
WHAT? (Audited, IRS 990, Unaudited)
HOW? (Method/basis of accounting or prepa...
Audited Financials vs. IRS 990
Audited Financials IRS 990
Prepared by Independent CPA Need not be prepared by CPA
Follow G...
Audited Financials
An independent (external) auditor (CPA) examines your financial
records to ensure that they are materia...
Unaudited Financials
Any financial compilation or review of your organization that is NOT audited by an independent CPA
St...
#3 Unaudited Financials Deserve Extra
Scrutiny
Why?.....
Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting...
Preparation/Review
Process of Financials
Degree of Certainty-
“Materially Correct”
Independent CPA Audit
(“Audited Financi...
#4 Audited Financial Statements Include:
Statement of Financial Position
Statement of Activities
Statement of Cash Flows
S...
Statement of Financial Position
AKA Balance Sheet
Assets=Liabilities+ Net Assets
Stephanie Spindell│Spindell Consulting│st...
Assets:
What you own or others owe you
Liabilities:
What you owe to/ (hold on behalf of)
others
Stephanie Spindell│Spindel...
Assets
Can be converted to cash (or another asset)
Liquid or Non-liquid
Unrestricted or Restricted
Stephanie Spindell│Spin...
#5 King of Assets
CASH is WHAT YOU NEED
to pay WHAT YOU OWE
immediately and in short term
Stephanie Spindell│Spindell Cons...
Liquid Assets
CASH or readily converted to CASH
Less than one year maturity investment
Unrestricted funds from a donor
Ste...
Non-Liquid Asset Examples
Property, Equipment
Long term investments
Restricted funds from donors (donor-imposed)
Endowment...
#6 Don’t Make this Mistake..
GAAP Revenue = CASH
Wrong. Why?.......
Stephanie Spindell│Spindell Consulting│stephanie@steph...
GAAP Accrual method of Accounting for
Revenue
Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http:/...
Accrual (GAAP) vs. Cash Basis of
Accounting
Accrual Cash
Revenues recorded upon
sale
Revenues recorded when
cash received
...
#7 Or this Mistake:
Cash Flow = Cash
Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.step...
Cash flow = Cash In ─ Cash Out
Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephscons...
#8 Growth in Net Assets…
Allows for organizational expansion and financial
flexibility
Stephanie Spindell│Spindell Consult...
Net Asset Calculation
Assets minus Liabilities OR
Sum of annual surpluses or deficits over organization
lifetime
Change In...
Net Assets
What’s left over after honoring obligations
Sometimes called capital
Stephanie Spindell│Spindell Consulting│ste...
True or False:
Growth in net assets should give our Board comfort
Stephanie Spindell│Spindell Consulting│stephanie@stephsc...
Answer: It depends
Unrestricted Net Assets are what matter most
And……
Stephanie Spindell│Spindell Consulting│stephanie@ste...
#9 Liquid Unrestricted Net Assets…
Will pay your bills
Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.c...
Ask yourself these questions…..
What portion of your net assets are unrestricted?
What portion of your net assets are liqu...
What you Owe (Liabilities)
Payables (bills, salaries, credit card)
Accrued expenses (interest, vacation pay)
Drawings from...
Data Transparency
Sometimes Less is More
But…
Financials need to show detail when relevant and
necessary
Stephanie Spindel...
#10 Transparency is Necessary to…..
Accurately exhibit and monitor progress
Explain variances or significant changes in ke...
Examples
Break out restricted assets, revenue from total assets,
revenue
Keep track of cash generating contributions vs. i...
Analyzing Financial Data
Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting...
Are you comparing Apples to Apples?
Audited, Unaudited, Tax-IRS 990?
Current period vs. budgeted same period?
This year vs...
#11 Analysis 101
Look for major trends (example: why did net assets
decline 10% from previous quarter?)
What’s worsened OR...
#12 Your mission, should you choose to
accept it…
Don’t underestimate the power of financial data!
Financial statements sh...
Make sure you
Aim for transparency and certainty!
Be accountable for safeguarding organizational assets
Ask the right ques...
Can you explain your financial story?
Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.ste...
Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
Spindell Consulting
stephanie@stephsconsulting.com
LinkedIn
Twitter
Facebook
917-306-2913
Stephanie Spindell│Spindell Cons...
More?....
Coming Soon-
Part 1: Intro to Statement of Activities
Stephanie Spindell│Spindell Consulting│stephanie@stephscon...
12 things your board should know about nonprofit financial statements financial literacy basics part 1
12 things your board should know about nonprofit financial statements financial literacy basics part 1
12 things your board should know about nonprofit financial statements financial literacy basics part 1
12 things your board should know about nonprofit financial statements financial literacy basics part 1
12 things your board should know about nonprofit financial statements financial literacy basics part 1
12 things your board should know about nonprofit financial statements financial literacy basics part 1
12 things your board should know about nonprofit financial statements financial literacy basics part 1
12 things your board should know about nonprofit financial statements financial literacy basics part 1
12 things your board should know about nonprofit financial statements financial literacy basics part 1
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12 things your board should know about nonprofit financial statements financial literacy basics part 1

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This slide share is an introduction to nonprofit financial literacy basics. It is aimed toward non-financial board and staff members who seek to learn how to read and understand various nonprofit financial statements. The presentation discusses the importance of recording and monitoring operating performance and planning for the future. Viewers will learn basics about audited, unaudited and IRS 990 statements as well as why they differ. The Statement of Financial Position will be discussed, along with basic concepts like data transparency, liquidity and financial analysis.

Published in: Government & Nonprofit
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12 things your board should know about nonprofit financial statements financial literacy basics part 1

  1. 1. 12 Things Your Board Needs to Know About Nonprofit Financial Statements: Financial Literacy Basics-Part I Stephanie Spindell, MBA Spindell Consulting
  2. 2. Stephanie Spindell, Founder, Consultant Spindell Consulting MBA-Finance Certificate Nonprofit Financial Management 25+ years experience nonprofit & corporate data-driven, comprehensive organizational assessments Special focus on problem identification and developing appropriate analytical assessment tools Passions/interests dance, arts/culture, education
  3. 3. Spindell Consulting  Feasibility Studies  Financial Analysis  Financial Literacy Training  Financial Planning  Organizational Effectiveness  Performance Analysis  Program Planning  Revenue Enhancement  Strategic Planning  Sustainability
  4. 4. Contacting Spindell Consulting stephanie@stephsconsulting.com www.stephsconsulting.com www.linkedin.com/in/stephaniespindell or http://linkd.in/1IZIG6P https://twitter.com/spindsteph https://www.facebook.com/stephanie.spindell 917-306-2913
  5. 5. Agenda Who? What? How? of Financials Statement of Financial Position Cash and Liquidity Common Cash Misconceptions Unrestricted Net Assets Transparency Statement Analysis Tips Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  6. 6. Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  7. 7. #1 Why do Financial Statements Matter? Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  8. 8. Organization Plans/Forecasts Competition Your peer group or sector Accurate and Quantitative Way to Measure Performance Against: Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  9. 9. Financial Statements Facilitate: Management Discussion Planning and… Decision Making Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  10. 10. AND…… Funders, stakeholders, vendors, etc. want to Hear your financial story! Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  11. 11. #2 Know THY Financial Statements Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  12. 12. Is this Man Preparing Your Financial Statements?
  13. 13. WHO? (CPA, internal accounting, finance, ED) WHAT? (Audited, IRS 990, Unaudited) HOW? (Method/basis of accounting or preparation) Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  14. 14. Audited Financials vs. IRS 990 Audited Financials IRS 990 Prepared by Independent CPA Need not be prepared by CPA Follow GAAP principles Tax document; Can be recorded using Cash Basis or Accrual/GAAP basis Itemize: Restricted, Unrestricted Revenue No detail Separation of operating vs. capital revenue No separation Record: Contributions In-Kind (Identical revenue and expense entries) No recognition of Contributions IK Identify: Government Grants (Contributed Revenue) & Gov’t Contracts (Earned Revenue) Identify: Government Grants (Other Gov’t Revenue) & Gov’t Revenue (Program Service Revenue)
  15. 15. Audited Financials An independent (external) auditor (CPA) examines your financial records to ensure that they are materially correct and not misleading* *Effective 7/1/14-required for organizations with revenue > $500K (Previously >$250K) Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  16. 16. Unaudited Financials Any financial compilation or review of your organization that is NOT audited by an independent CPA Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  17. 17. #3 Unaudited Financials Deserve Extra Scrutiny Why?..... Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  18. 18. Preparation/Review Process of Financials Degree of Certainty- “Materially Correct” Independent CPA Audit (“Audited Financials”) Highest Independent Accountant Review Not as High Accountant Compiled Financials Lower Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  19. 19. #4 Audited Financial Statements Include: Statement of Financial Position Statement of Activities Statement of Cash Flows Statement of Functional Expenses (required for specific NFPs) Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  20. 20. Statement of Financial Position AKA Balance Sheet Assets=Liabilities+ Net Assets Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  21. 21. Assets: What you own or others owe you Liabilities: What you owe to/ (hold on behalf of) others Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  22. 22. Assets Can be converted to cash (or another asset) Liquid or Non-liquid Unrestricted or Restricted Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  23. 23. #5 King of Assets CASH is WHAT YOU NEED to pay WHAT YOU OWE immediately and in short term Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  24. 24. Liquid Assets CASH or readily converted to CASH Less than one year maturity investment Unrestricted funds from a donor Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  25. 25. Non-Liquid Asset Examples Property, Equipment Long term investments Restricted funds from donors (donor-imposed) Endowment Fund Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  26. 26. #6 Don’t Make this Mistake.. GAAP Revenue = CASH Wrong. Why?....... Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  27. 27. GAAP Accrual method of Accounting for Revenue Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  28. 28. Accrual (GAAP) vs. Cash Basis of Accounting Accrual Cash Revenues recorded upon sale Revenues recorded when cash received Expenses recorded when incurred Expenses recorded when paid Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  29. 29. #7 Or this Mistake: Cash Flow = Cash Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  30. 30. Cash flow = Cash In ─ Cash Out Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  31. 31. #8 Growth in Net Assets… Allows for organizational expansion and financial flexibility Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  32. 32. Net Asset Calculation Assets minus Liabilities OR Sum of annual surpluses or deficits over organization lifetime Change In Net Assets = Organization Profit/Loss Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  33. 33. Net Assets What’s left over after honoring obligations Sometimes called capital Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  34. 34. True or False: Growth in net assets should give our Board comfort Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  35. 35. Answer: It depends Unrestricted Net Assets are what matter most And…… Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  36. 36. #9 Liquid Unrestricted Net Assets… Will pay your bills Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  37. 37. Ask yourself these questions….. What portion of your net assets are unrestricted? What portion of your net assets are liquid? Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  38. 38. What you Owe (Liabilities) Payables (bills, salaries, credit card) Accrued expenses (interest, vacation pay) Drawings from Bank line of credit Long term-loans, mortgages, > 1 year maturity Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  39. 39. Data Transparency Sometimes Less is More But… Financials need to show detail when relevant and necessary Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  40. 40. #10 Transparency is Necessary to….. Accurately exhibit and monitor progress Explain variances or significant changes in key data items Make possible corrective adjustments Plan for the future (e.g., ways to increase revenue, improve cash flow, etc. ) Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  41. 41. Examples Break out restricted assets, revenue from total assets, revenue Keep track of cash generating contributions vs. in kind or for capital projects Track individual program financial performance And MORE Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  42. 42. Analyzing Financial Data Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  43. 43. Are you comparing Apples to Apples? Audited, Unaudited, Tax-IRS 990? Current period vs. budgeted same period? This year vs. last year? Quarterly, monthly, ETC.? Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  44. 44. #11 Analysis 101 Look for major trends (example: why did net assets decline 10% from previous quarter?) What’s worsened OR IMPROVED? WHY? Note WHERE and HOW cash was impacted Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  45. 45. #12 Your mission, should you choose to accept it… Don’t underestimate the power of financial data! Financial statements show and measure performance They help you monitor, stay on track and plan for the future Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  46. 46. Make sure you Aim for transparency and certainty! Be accountable for safeguarding organizational assets Ask the right questions Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  47. 47. Can you explain your financial story? Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  48. 48. Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  49. 49. Spindell Consulting stephanie@stephsconsulting.com LinkedIn Twitter Facebook 917-306-2913 Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
  50. 50. More?.... Coming Soon- Part 1: Intro to Statement of Activities Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015

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