12 things your board should know about nonprofit financial statements financial literacy basics part 1

12 Things Your Board Needs to Know About
Nonprofit Financial Statements:
Financial Literacy Basics-Part I
Stephanie Spindell, MBA
Spindell Consulting

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

Spindell Consulting
 Feasibility Studies
 Financial Analysis
 Financial Literacy Training
 Financial Planning
 Organizational Effectiveness
 Performance Analysis
 Program Planning
 Revenue Enhancement
 Strategic Planning
 Sustainability

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

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

#1 Why do Financial Statements Matter?

Organization Plans/Forecasts
Competition
Your peer group or sector
Accurate and Quantitative Way to Measure
Performance Against:

Financial Statements Facilitate:
Management Discussion
Planning and…
Decision Making

AND……
Funders, stakeholders, vendors, etc. want to
Hear your financial story!

#2 Know THY Financial Statements

Is this Man Preparing Your Financial
Statements?

WHO? (CPA, internal accounting, finance, ED)
WHAT? (Audited, IRS 990, Unaudited)
HOW? (Method/basis of accounting or preparation)

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)

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)

Unaudited Financials
Any financial compilation or review of your organization that is NOT audited by an independent CPA

#3 Unaudited Financials Deserve Extra
Scrutiny
Why?.....

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

#4 Audited Financial Statements Include:
Statement of Activities
Statement of Cash Flows
Statement of Functional Expenses (required for specific
NFPs)

AKA Balance Sheet
Assets=Liabilities+ Net Assets

Assets:
What you own or others owe you
Liabilities:
What you owe to/ (hold on behalf of)
others

Assets
Can be converted to cash (or another asset)
Liquid or Non-liquid
Unrestricted or Restricted

#5 King of Assets
CASH is WHAT YOU NEED
to pay WHAT YOU OWE
immediately and in short term

Liquid Assets
CASH or readily converted to CASH
Less than one year maturity investment
Unrestricted funds from a donor

Non-Liquid Asset Examples
Property, Equipment
Long term investments
Restricted funds from donors (donor-imposed)
Endowment Fund

#6 Don’t Make this Mistake..
GAAP Revenue = CASH
Wrong. Why?.......

GAAP Accrual method of Accounting for
Revenue

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

#7 Or this Mistake:
Cash Flow = Cash

Cash flow = Cash In ─ Cash Out

#8 Growth in Net Assets…
Allows for organizational expansion and financial
flexibility

Net Asset Calculation
Assets minus Liabilities OR
Sum of annual surpluses or deficits over organization
lifetime
Change In Net Assets = Organization Profit/Loss

Net Assets
What’s left over after honoring obligations
Sometimes called capital

True or False:
Growth in net assets should give our Board comfort

Answer: It depends
Unrestricted Net Assets are what matter most
And……

#9 Liquid Unrestricted Net Assets…
Will pay your bills

Ask yourself these questions…..
What portion of your net assets are unrestricted?
What portion of your net assets are liquid?

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

Data Transparency
Sometimes Less is More
But…
Financials need to show detail when relevant and
necessary

#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. )

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

Analyzing Financial Data

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.?

#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

#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

Make sure you
Aim for transparency and certainty!
Be accountable for safeguarding organizational assets
Ask the right questions

Can you explain your financial story?

Spindell Consulting
stephanie@stephsconsulting.com
LinkedIn
Twitter
Facebook
917-306-2913

More?....
Coming Soon-
Part 1: Intro to Statement of Activities

12 things your board should know about nonprofit financial statements financial literacy basics part 1

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