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.
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12 things your board should know about nonprofit financial statements financial literacy basics part 1
1. 12 Things Your Board Needs to Know About
Nonprofit Financial Statements:
Financial Literacy Basics-Part I
Stephanie Spindell, MBA
Spindell Consulting
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
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
10. 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
17. 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)
18. 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
19. 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
21. 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
22. #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
23. Statement of Financial Position
AKA Balance Sheet
Assets=Liabilities+ Net Assets
Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
24. 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
25. 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
26.
27. #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
28. 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
29. 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
30. #6 Don’t Make this Mistake..
GAAP Revenue = CASH
Wrong. Why?.......
Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
31. GAAP Accrual method of Accounting for
Revenue
Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
32.
33. 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
34. #7 Or this Mistake:
Cash Flow = Cash
Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
35. Cash flow = Cash In ─ Cash Out
Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
36. #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
37. 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
38. 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
39. 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
40. Answer: It depends
Unrestricted Net Assets are what matter most
And……
Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
41. #9 Liquid Unrestricted Net Assets…
Will pay your bills
Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
42. 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
43. 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
44.
45. 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
46. #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
47. 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
48. Analyzing Financial Data
Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
49. 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
50.
51. #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
52. #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
53. 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
54. Can you explain your financial story?
Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015
59. More?....
Coming Soon-
Part 1: Intro to Statement of Activities
Stephanie Spindell│Spindell Consulting│stephanie@stephsconsulting.com│http://www.stephsconsulting.com/│June 2015