Fiscal management systems for combined c4/c3 organizations

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This presentation was created for the annual meeting of State LCVs as a guide for fiscal management for State LCVs.

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Fiscal management systems for combined c4/c3 organizations

  1. 1. Fiscal Management Systems for State LCVs<br />Presented at the State LCVs Annual Conference, April 2010<br />
  2. 2. Two attitudes about fiscal management<br />Mindless Chore <br />Powerful, fun tool<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  3. 3. Four Audiences<br />The IRS <br />Some Funders<br />Your Board<br />Staff<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  4. 4. What we’re going to cover<br />The Basics of Fiscal Management for a State LCV<br />A System any State LCV Can Implement<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  5. 5. Some Basic Terms<br />Because if we’re not using the language in the same way . . . .<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  6. 6. Fiscal Year<br />All organizations have fiscal years – when budgets begin and end for reporting your tax returns. <br />Most organizations prefer to do it on a calendar year. But there can be times it makes more sense to do it July 1-June 30. <br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  7. 7. Budget<br />The budget is an annual document that the board should adopt, outlining the organization’s expected income and expenses. <br />For both income and expenses, it should break it down into categories that are useful for the organization in evaluating its performance.<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  8. 8. Income/Expense Statement<br />Formally referred to as Statement of Activities<br />At the end of every month, and year, you should be able to produce a statement showing your income and expense for a specified period of time. <br />At the bottom it should show your net income – the amount by which income exceeds expenses. <br />The statement should break down the income/expenses into the same categories that you used in your budget. <br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  9. 9. Balance Sheet<br />Formally referred to as Statement of Financial Position<br />At the end of any given month, you should be able to produce a statement showing the organization’s assets and liabilities – e.g. the things it owns and the debts it has. <br />Assets will be your Cash – in a checking and/or savings account. It may include Accounts Receivable – eg. money owed TO you. <br />Liabilities will be any significant Accounts Payable – eg. money you owe to others. It may include money you’ve withheld from employees’ paychecks for your share of their taxes, but have not yet paid to the government. <br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  10. 10. Chart of Accounts<br />This is a term for the set of numerical codes that your bookkeeper will use in their computer program to log different categories of revenue and expenditures.<br />Your 501(c)(4), 501(c)(3), and PAC will all have separate charts of account since they will have separate books, although the numerical codes should be largely the same to make remembering them easier. <br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  11. 11. Two elements of fiscal management in detail<br />Accounting<br />Tracking money as it flows in and out of the organization.<br />Budgeting<br />Projecting what’s going to happen<br />Evaluating whether what happened matches up with the expectations.<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  12. 12. Accounting for Revenue<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />Your State LCV<br />
  13. 13. Categories of Revenue<br />Can’t just have a total. Why not?<br />So how decide what categories to use?<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  14. 14. Legal Reasons<br />IRS requries certain revenue to be categorized on your tax return.<br />For example, “contributions” must be reported separately from earned income. <br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  15. 15. Management Reasons<br />Enough information so that you can evaluate your fundraising performance by key methods.<br />Not so much information as to overload you.<br />Not information that you could otherwise easily get from your fundraising database.<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  16. 16. Basic 501c4 Categories<br />Major donors <br />Board<br />Membership/ individual<br />Events<br />Grants<br />Reimbursement from c3 and/or PAC<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  17. 17. Major Donor<br />Amount of Gift<br />If gift above a set amount, accounted for as major donor<br />Method of Asking<br />If individually solicited as a major gift, accounted for as a major donor no matter the amount.<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  18. 18. Board<br />Board Donations<br />Only the board’s own donations are accounted for. <br />Board “gets” treated based on whatever other category makes sense.<br />Board Gives and Gets<br />Board donations and “gets” are accounted for in the category.<br />Hybrid: Board give/gets but not events.<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  19. 19. Over time your list will expand<br />Different types of membership fundraising<br />Member acquisition v. renewal v. special appeals<br />Mail v. phone v. canvass<br />Different types of events<br />Annual Event v. house parties v. others<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  20. 20. Need System for Coding<br />As money is deposited, you will need to code. <br />Ideally, two sets of eyes will look at these.<br />The person who initially deposits it.<br />The Exec. Director as a check for obvious errors.<br />We’ll circle back and talk about the coding system some more in a bit.<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  21. 21. Accounting for Spending<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />Your State LCV<br />
  22. 22. Categorizing Expenses<br />Two Systems:<br />Line Items<br />Programs<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  23. 23. Line Items<br />By the nature of what is being bought<br />Examples:<br />Printing<br />Postage<br />Telephone<br />Staff Salary<br />Benefits<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  24. 24. Program Area<br />By the purpose of the expenditure<br />Examples:<br />Scorecard<br />Lobbying<br />Nonpartisan Voter Participation<br />Administration<br />Major Donor Fundraising<br />Program Area method is in addition to line item, not in place of it.<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  25. 25. Advantages of Each<br />Line Item<br />Simpler to set up<br />Easier to do data entry<br />Fewer opportunities for error<br />Program Area<br />Much more valuable information<br />Keeps board focused on strategy<br />Better evaluation of fundraising<br />IRS info easier<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />Program Method Strongly Encouraged by Year 3<br />
  26. 26. Accounting Codes<br />With a line item system, can have just one set of numbers.<br />With a program area system, need to have two sets, an additional code for the line item and another for the program area.<br />If you’re talking to a bookkeeper about Quickbooks: QB uses the term “classes” for what I’m calling program areas.<br />Handout example: OLCV chart of Accounts<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  27. 27. System for Coding<br />As bills get paid, an initial code should be written down on a copy of the check.<br />Ideally, a second set of eyes should look at the coding at the end of every month before it is formally entered into your accounting system.<br />At OLCV, we had our office manager do the initial coding, and the ED reviewed monthly before the month’s stack of paid invoices were sent to the bookkeeper.<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  28. 28. Timesheets and Accounting<br />If using program area, your timesheet categories should match up precisely with the program areas you’re using in the accounting system.<br />At end of every month, the timesheets should have totals identifying the % that each employee spent on each program. Used to split up the employee’s salary/benefits into the various program areas.<br />Handout example: OLCV Timesheets<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  29. 29. Where are we?<br />We have a system to account for money as it comes into the organization.<br />We have a system to account for money as it’s spent by your organization.<br />The spending accounting includes timesheets to account for staff salaries.<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  30. 30. The big State LCV challenge: shared expenses<br />Split up-front: easy<br />Split after-the-fact: need system<br />Example: salary or rent<br />The 501c4 pays for initially and the 501c3 (and possibly your PAC) reimburses the c4<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  31. 31. Reimbursement System – Non-Staff<br />Non-staff Shared expenses as incurred get initially coded into a special c4 program area (at OLCV we called these the 999s)<br />At the end of every month, our bookkeeper was able to calculate the total non-staff shared expense – everything in the 999s.<br />Based on timesheets, she determined what percentage of these should be reimbursed by the c3 and PAC.<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  32. 32. How is that c3 reimbursement accounted for on the c3 books?<br />Option 1: Put it all in c3 administration<br />Option 2: Spread it across c3 programs, in proportion to the amount of time spent on each program.<br />In a given month, if you spent 10% of your c3 time on administration, 30% on lobbying, and 60% on nonpartisan voter participation, a journal entry can split the cost in those percentages. <br />Why is Option 2 better?<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  33. 33. What about staff time reimbursement?<br />Each employee’s staff time and associated benefits are directly allocated to each program area based on the % time they spent on each program during the month.<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  34. 34. How do you treat the revenue on the c4 books?<br />Credit Approach<br />Not treated as revenue. Instead, journal entries are used to reduce expenses in the relevant categories . <br />It’s as if the money never was part of the c4. <br />Revenue Approach<br />Treated as revenue in its own category (OLCV called it “c3 services” and “PAC services”)<br />And the expenses also show up in identical amounts as “c3 services” and “PAC services.”<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  35. 35. Where are we?<br />We have a system to account for money as it comes into the organization.<br />We have a system to account for money as it’s spent by your organization.<br />The spending accounting includes timesheets to account for staff salaries.<br />We have a system of accounting for shared expenses/revenue.<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  36. 36. Budgeting<br />Accounting – Tracking money as it comes in and goes out the door.<br />Budgeting – Planning for money<br />A fiscal management system treats your budgeting and accounting system together, so they are one larger system. More effort in the short run, but pays off with less work on the long run.<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  37. 37. Purposes to Budgeting<br />The negative view<br />To waste your time coming up with info that your board won’t actually use other than to bicker during meetings, thus wasting more of your time.<br />The positive view<br />Planning out your expected revenue so you know what resources you’ll have available.<br />Planning out strategically where you’re going to focus your spending. <br />Seeing how you’re doing versus what you planned, so you can adjust as required.<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  38. 38. Budgeting “System”<br />No magic system. <br />Will share system I developed over time at OLCV – that I believe can be adapted in a simpler form even by very small State LCVs.<br />System is for an accounting appoach that tracks expenses by programs.<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  39. 39. Step 1: Staff Work Plan<br />Two Outputs:<br />For each staff person, how much % of the year you expect them to work on any given program.<br />Used to project the amount of each person’s salary/benefits go towards each program.<br />For the staff overall, how much % of the staff salaries will go towards the c4, the c3, and the PAC.<br />Used to project the amount of shared overhead that will be paid for by the c4, the c3, and the PAC.<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  40. 40. How do you create the work plan?<br />Top Down<br />Figure out what percentage of time you want people to work on each program, and just create a work plan that adds up to it.<br />Bottom Up<br />For each employee, for every month (or quarter), figure out how much time it will take them to do what you need done. Then use Excel formulas to figure out the overall percentages.<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  41. 41. Why I chose the bottom up approach?<br />Because it means the program needs drive the budget and not the other way around.<br />Because it’s useful as a personnel management tool.<br />Of course, while I always start bottom up, I do critically evaluate the result and then make adjustments if necessary to make the budget balance or match up with grant funds available for certain programs of the c3.<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  42. 42. Step 2: Staff Salary Worksheet<br />Primary output:<br />For each staff person, their effective annual cost, combining their salary (including any projected pay raises) and their benefits. <br />Purpose: <br />To know the overall cost of a staff person that’s going to be split up into all of their programs.<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  43. 43. Step 3: Program Area Worksheet<br />One section for each program of the c4, the c3, and the PAC.<br />For any given program, a list of all the line items of spending for the program.<br />For example with the Scorecard, you may have:<br />Printing<br />Design<br />Postage<br />Staff Person A<br />Staff Person B<br />Overhead<br />Total<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  44. 44. Where do you get these numbers?<br />Based on your program plans! The goals and objectives of your strategic plan should drive what you budget, not “what you think ahead of time you can afford.”<br />Based on your history<br />For staff, by multiplying their % of time in the program (Step 1) by their effective overall cost (Step 2). By linking to the Worksheets in Steps 1 and 2, this formula will calculate automatically. <br />For the program’s “share” of joint c4/c3 administrative expenses, by taking the percentage of the overall staff work plan that the program represents and multiplying it by the overall projection for spending in the “shared overhead” program (e.g. rent, etc.).<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  45. 45. Now we’re ready to craft the budgets your board will see<br />You will need three more worksheets, one for each of the 501c4, 501c3, and PAC.<br />Within each, you will list:<br />Your expected starting cash position<br />Your revenue (broken out by each category)<br />Your expenses (broken out by program area)<br />Important point: Starting Cash is NOT revenue.<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  46. 46. Where’s your revenue come from?<br />The magic 8 ball!?<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  47. 47. Revenue<br />You need a fundraising plan that adds up what you expect from each method of raising money!<br />Fundraising planning demands another 90 minutes that we don’t have.<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  48. 48. What about expenses?<br />You already have it!<br />Step 3 – the Program Worksheet contains totals for each program.<br />In this worksheet, you just need to go over and pull the numbers from the program worksheet. If you use formulas, it will come over automatically if you make changes to your program plans.<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  49. 49. Does it add up?<br />Your total revenue minus your total expenses represents your expected net revenue.<br />As a rule of thumb, you will usually want to budget for some net. But occasionally, there may be scenarios where you will budget for a loss during the fiscal year.<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  50. 50. So what happens then?<br />The Unicorns and Leprechauns Scenario<br />Your projected revenue is higher than your projected expense in all three organizations. <br />If it’s a lot higher, you can go back in and adjust upwards some of your planned program expenses (eg. get a fancier website upgrade)<br />The Normal Scenario<br />At least one, if not all, of your budgets has a too large net loss. So what do you do?<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  51. 51. Options in the “Normal” Scenario<br />My initial revenue projections always start out conservative. My first step is to adjust those upwards to be more aggressive. <br />If that’s enough, you can stop.<br />Then I’ll go through the Program Expense Worksheet and see where there’s ‘excess’ to cut. Maybe print fewer Scorecards. Maybe cut back on the cost of the website redesign. <br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  52. 52. The imbalanced organization scenario<br />One organization has a first draft budget with a significant net loss and another has a counterbalancing net gain.<br />Can you still meet your program goals if staff works more time in the organization that’s more flush and less in the one that’s stressed. If so, I switch over the workplan. <br />And if not, you may still need to switch over the staff time and then go back and adjust downward your goals for what will get accomplished in Organization A and upwards in Organization B.<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  53. 53. What if the numbers still won’t add up?<br />You’ve been as aggressive as you can imagine in projecting revenue.<br />You’ve cut expenses to the bone.<br />At some point, you need to think about cutting out an entire program, or a staff person. This usually is a broader strategy question where you may want to consult the board or board subcommittee before doing.<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  54. 54. What’s next?<br />Present budgets to be adopted by the board<br />Make sure your key staff understand the budgets, particularly programs where they have control.<br />Create a monthly version of the budget. AFTER board adoption, not before. <br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  55. 55. So where are we?<br />We have an accounting system<br />We have a budgeting system<br />The last piece to our fiscal management system is the production of financial statements.<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  56. 56. Financial Statement #1<br />The balance sheet .<br />These are your assets and your liabilities. <br />It’s what you own. And what you owe. <br />It’s a snapshot at a specific point in time (the end of a fiscal year, the end of a month, etc.). <br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  57. 57. Financial Statement #2<br />Your income/expense statement.<br />It’s how much income and how much expenses were accounted for during a specific unit of time. <br />Ideally, you should be able to produce a statement at the end of every month showing what happened that month and what’s happened during the fiscal year up through that month.<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  58. 58. Income/Expense Statements and Budgets<br />Your income/expense statement should also compare your actual performance to what you budgeted. <br />Definitely on a yearly basis.<br />Ideally also on a monthly basis.<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  59. 59. Some concluding advice<br />Invest in these systems. The time invested will pay off over the long run both for you and your organization.<br />Excel, Excel, Excel.<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />
  60. 60. And there you have it . . . <br />Your very own<br />Fiscal <br />Management<br />System<br />Jonathan Poisner Strategic Consulting, Fiscal Management Systems for State LCVs, April 2010<br />

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