Industry experts from Stern Cohen Accountants address key financial issues for your not-for-profit organization or charity. Learn best practices for the effective financial management of your NPO. This presentation covers: tips for a healthy balance sheet, understanding key metrics in your financial statements, managing cash flow, budgeting and forecasting.

1. Money
Matter$
Tips for a
healthy
nonprofit
organization

2. $
• Understanding Key Metrics / KPI’s in
Your Financial Statements
• Cash Flow
• Budgeting & Forecasting
This slide deck covers:

3. Nonprofits don’t exist
to make money
So why are their
financials so important?

4. Importance of Financials
• The board’s fiduciary duty is to ensure
mission and purpose are continued.
• Financials are crucial for survival and
establishing operational strategy.

5. TIP:
Run your not-for-profit
like a for-profit business!

6. FIVE Components of a Complete Set of
Financial Statements
1. Statement of Operations (Income Statement)
2. Statement of Financial Position (Balance Sheet)
3. Statement of Cash Flows
4. Statement of Changes in Net Assets (Statement of
Retained Earnings)
5. Note Disclosures (the story behind the numbers)
Monthly/
Quarterly
Financials

7. Which financial statement is the
most informative for making
financial decisions?

8. ANSWER: STATEMENT OF
FINANCIAL POSITION
or Balance Sheet
Why?
• Only statement that is NOT historical
• Tells you where you are so you can plan for
the future

9. Key Issues to Address at
Board Meetings - especially AGM’s
1. Does our organization have liquidity and
working capital?
2. Are we able to meet our current obligations?
3. Is our operating reserve fund sufficient?

10. How do you determine the
financial health of your NPO?

11. Learn the key metrics

12. Key Metric #1
Viability Ratio:
The ratio of an organization’s ability to cover its
liabilities.
net assets (unrestricted assets)
total liabilities
= 1.25 or greater

13. Key Metric #2
Current Ratio:
The measure of an organization’s ability to meet
its current financial obligations.
current assets
current liabilities
= 1.0 or greater

14. Key Metric #3
Quick Ratio:
Measures the ratio of quick, liquid assets to
current liabilities.
current assets
(cash, short term investments & current receivables)
current liabilities
= 1.0 or greater

15. Key Metric #4
Operating Reserve:
Describes your organization's ability to fund programs
and other expenses from expendable net assets for a
period of time, should no additional operating revenue
be available.
$ total fixed overhead expenses
12 months
X 3 months*
*see next slide

16. Operating Reserve Threshold
• 3 months minimum is recommended but….
TIP: Calculate how many months you have
covered in your reserve fund. Is that number of
months sufficient for your organization? Adjust
size of reserve fund as required.

17. Key Metrics in Action

18. Not-for-Profit A

19. Not-for-Profit A
Viability Ratio = 1.23
(excl. Reserve Fund)
Current Ratio = 2.00
Quick Ratio = 1.53
Viability Ratio = 1.52
(incl. Reserve Fund)

20. Not-For-Profit A
Operating Reserve Metric:
Fixed Overhead Expenses = $155,000
(157,500 – 2,500)
$155,000
X 6 mos = $77,500
12 months
Operating Reserve Fund:
$80,000 (6 months)

21. Not-For-Profit B

22. Not-For-Profit B
Current Ratio = 0.99
Quick Ratio = 0.56
Viability Ratio = 0.60
(excl. Reserve Fund)
Viability Ratio = 0.91
(incl. Reserve Fund)

23. Not-For-Profit B
Operating Reserve Metric:
Fixed Overhead Expenses = $149,000
(155,000 – 6,000)
$149,000
X 3 mos = $37,250
12 months
Operating Reserve Fund:
$70,000 (5 ½ months)

24. Not-For-Profit C

25. Not-For-Profit C
Current Ratio =1.94
Quick Ratio = 1.43
Viability Ratio = 1.07
(excl. Reserve Fund)
Viability Ratio = 1.37
(incl. Reserve Fund)

26. Not-For-Profit C
Operating Reserve Metric:
Fixed Overhead Expenses = $261,000
(268,500 – 7,500)
$261,000
X 3 mos = $65,250
12 months
Operating Reserve Fund:
$90,000 (4 months)

27. To Increase Working Capital
• Follow up on collections of accounts receivable
• Extend payment terms with vendors
• Increase higher margin revenue streams (perhaps
at the expense of lower margin revenue streams)
• Eliminate unprofitable revenue streams

28. To Increase Cash Flow (Liquidity)
• Consider all points on the previous slide
• Look for/refinance loans and debt (public and
private)
• Redemption of investments (if applicable)
• Reduce capital expenditures
• Draw down from Reserve Fund (if applicable)

29. Action Plan for Financial Health
What’s the
difference?
• Prepare budgets (forecasting)
• Prepare cash flow projections

30. BUDGETS CASH FLOWS
Accrual basis Cash basis
Annually (at minimum) Monthly
Grant income: when funds will be spent Grant income: when funds will be received
Membership dues: recognize over the
fiscal year
Membership dues: recognize when
received
Events: recognize ticket revenue and
expenditures following event
Events: recognize revenue and
expenditures as received and paid
Salaries: by pay period, bonuses/lump
sum payments in the month they occur
Salaries: recognize in the period actually
paid
Amortization/depreciation: include
consistently throughout fiscal year
Amortization: do not include
Capital expenditures: include when spent
Budgeting Cash Flow Projections

31. Timing
• Time your cash flows so your organization
won’t go into the “red”
• Invest excess funds for increased cash flow
• Be strategic to grow your organization

32. Investments
• Don’t rely on investment income for
operational performance.
• Board should decide on an investment
strategy.
• Actively communicate the strategy with your
financial advisors.
• Monitor portfolio performance.

33. Takeaways
Contact Stern Cohen for help!
Work with your team of advisors
Plan for future using budgets & cash flow projections
Apply key metrics & determine financial health
Start with the Statement of Financial Position

34. How We Support You
• First Aid for new clients (many need it)
• Training
• Available whenever you need us
(not just at audit time)
• Team Approach
• Legendary responsiveness
• Expert advisory for your industry

35. • Audit & Review
• Tax Compliance & Returns, CRA Submissions
• GST/HST and Payroll Consulting
• Cash Flow / Budgeting / Forecasting
• Financial Reporting
• Fraud Protection: Internal Control Evaluation &
Implementation (outside of an audit)
• Day to Day Questions
Help for NPOs, Charities,
Associations & Unions

36. Your Opinion Matters
• Share your feedback and ask ?’s
• Suggest content and resources you’d like to see
on our website
• Suggest topics for Money Matters 2017
contact@sterncohen.com
www.sterncohen.com

37. Thank you!