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GuideStar Webinar (05/03/12) - Nonprofit Financial Health: New Tools for Analysis
The document discusses the importance of analyzing nonprofit financial health, outlining key considerations and best practices for assessing it through a structured five-step approach. It introduces the Financial Scan tool, which provides a comprehensive financial check-up for nonprofits, and emphasizes the significance of a clear financial story to inform decision-making for management, boards, and grantmakers. Overall, it aims to enhance understanding and communication of nonprofits' financial conditions to ensure sustainability and effective program delivery.
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GuideStar Webinar (05/03/12) - Nonprofit Financial Health: New Tools for Analysis
- 1. Nonprofit Financial Health: New Tools for Analysis 3 May 2012 1 © 2012, GuideStar USA, Inc. All Rights Reserved. This information is copyrighted subject matter owned by GuideStar USA and is protected by United States and international copyright law.
- 2. Today’s Facilitators Rebecca Thomas Vice President and Product Manager, NFF Scott Menzel Product and Customer Experience Manager, GuideStar Pamela Jowdy Senior Product Manager, GuideStar 2
- 3. Participant Poll #financialscan 3
- 4. Today’s Objectives 1. TheChallenge: Uncovering a nonprofit’s comprehensive financial story Why it matters Why now? 2. Nonprofit Financial Analysis 101: Considerations and best practices Assessing nonprofit financial health in five steps Income Statement and Balance Sheet demystified Profitability and Liquidity guidelines Financial Health Checklist 3. Financial SCAN: Anatomy of a Solution 4. Q & A #financialscan 4
- 5. The Challenge: Uncovering anonprofit’s comprehensive financial story #financialscan 5
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- 11. Nonprofit Financial Analysis101: Considerations and Best Practices #financialscan 11
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- 13. Five Steps toAssessing a Nonprofit’s Financial Health 1. Profitability 2. Revenue Dynamics 3. Expense Dynamics 4. Composition of Balance Sheet 5. Liquidity nonprofitfinancefund.org ©2012 Nonprofit Finance Fund® 13
- 14. Understanding Operating Performance: Statementof Activities/Income Statement Revenue Where does the organization’s money come from? Dynamics Is it reasonably diversified? Is it at risk? Do revenue streams appear reliable / consistent? How have expenses fluctuated over time? Expense Are expenses adjusted in line with changes in Dynamics revenue? Does the organization regularly cover its full costs Profitability with unrestricted revenue? Is the agency saving? If so, is it enough nonprofitfinancefund.org ©2012 Nonprofit Finance Fund® 14
- 15. Where Do IFind the Bottom Line? (Audits & Internals) ABC Center Statement of Activities Years ended June 30, 2008 ($ in thousands) Operating Activity Unrestricted Temp. Perm. Total Restricted Restricted Revenues, Gains and Other Support Support Foundations 113 58 – 171 Government 57 – – 57 Corporations 49 – – 49 Individuals 248 – – 248 Total Support 467 58 – 525 Investment Income 7 – – 7 Tickets, Dues, Other 484 – – 484 Net Assets Released from Restriction 749 -749 – – Total Revenue, Gains and Other Support 1,707 -691 – 1,016 Operating Expenses Program Services 1,004 – – 1,004 Supporting Services Administrative 209 – – 209 Development 49 – – 49 Total Supporting Services 258 – – 258 Total Expenses 1,262 – – 1,262 Change in Net Assets 445 -691 – -246 nonprofitfinancefund.org ©2012 Nonprofit Finance Fund® 15
- 16. Where Do IFind the Bottom Line? (Form 990: Not on the Income Statement!) Statement of Revenue: Sample Form 990 Statement of Functional Expenses: Sample Form 990 Total revenue $4,106,969 - Total expense $4,157,997 Surplus/(Deficit) ($51,028) nonprofitfinancefund.org ©2012 Nonprofit Finance Fund® 16
- 17. Where Do IFind the Bottom Line? (Form 990: On the Balance Sheet!) Balance Sheet from Sample Form 990 B.O.Y. B.O.Y. E.O.Y. Unrestricted net assets (end of year) $3,527,235 - Unrestricted net assets (beginning of year) $3,770,516 Change in unrestricted net assets ($243,281) nonprofitfinancefund.org ©2012 Nonprofit Finance Fund® 17
- 18. Beware! Unusual LargeSurpluses May Reflect Capital Unrestricted Revenue & Expenses (including non-operating) Operating Revenue & Expenses ($ in thousands) ($ in thousands) 1,800 1,800 1,600 1,600 1,400 1,400 1,200 1,200 1,000 1,000 800 800 600 600 400 400 200 200 0 0 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 Revenue, including non-operating Expenses (before depreciation) Audits rarely, and 990s never, segregate capital (i.e., for fixed asset purchases) from revenue. The unrestricted surplus may be inflated by these capital flows. nonprofitfinancefund.org ©2012 Nonprofit Finance Fund® 18
- 19. Surplus Size Matters: BreakingEven is Never Enough Like any organization, nonprofits need to cover the ‘full cost’ of delivering programs Tax Status is NOT a Business Model Full costs > Operating Expenses Full costs include: 10 10 Operating Fixed Asset Expenses Additions Debt Principal 0 Depreciation 1 Working Capital Reserves 10 10 nonprofitfinancefund.org ©2012 Nonprofit Finance Fund® 19
- 20. METRIC - OperatingResults: A Guideline Requires Financial Moderately Healthy Immediate Indicator Healthy Attention Surpluses consistently cover Breakeven Consistent Unrestricted results or Surplus/Deficit full costs, and/or contributing to periodic growing (as % of healthy balance surpluses deficits expenses) sheet and savings insufficient to cover full costs (-3%+) (3%+) (-3% to +3%) nonprofitfinancefund.org ©2012 Nonprofit Finance Fund® 20
- 21. Understanding Balance Sheet Health:Statement of Position Assets Cash – How much? How “liquid?” Receivables – Are they slow to collect? Balance Fixed Assets – Are fixed assets being maintained? Sheet Liabiliti Liabilities Line of Credit – Is cash flow being managed Asse es through a line of credit? Appropriately? ts Net Debt – Is there a plan for repayment? Assets Net Assets Unrestricted Net Assets – Does the nonprofit & Reserves own more than it owes? How much is liquid? Temporarily Restricted Net Assets – Do they fully support core programs? Reserves – Any reserves? Suitable to needs? nonprofitfinancefund.org ©2012 Nonprofit Finance Fund® 21
- 22. Measuring Liquidity (Take-Home) Total Cash Months of Cash = (Total Expenses / 12) Months of Unrestricted Liquid Unrestricted Net Assets – Net Assets = (PPE – PPE Debt) portion of net assets (Total Expenses / 12) available for operations Working Capital = Current Assets – Current Liabilities nonprofitfinancefund.org ©2012 Nonprofit Finance Fund® 22
- 23. METRICS - Liquidity: AGuideline Requires Financial Moderately Healthy Immediate Indicator Healthy Attention 3+ months cash and working capital Sufficient to Months of cover cyclicality Less than one One ore more board of cash flow month and Liquidity designated reserves (aim for 3 declining for risk or months) opportunity Risk – Cash = Crisis nonprofitfinancefund.org ©2012 Nonprofit Finance Fund® 23
- 24. A Financial HealthChecklist Operating results are consistently positive (surpluses!) Full costs are regularly covered by reliable revenue Reinvestment in fixed assets to offset depreciation Evidence of ability to manage debt Liquidity is sufficient to withstand risk and pursue new opportunities nonprofitfinancefund.org ©2012 Nonprofit Finance Fund® 24
- 25. Is there a“right” answer? #financialscan 25
- 26. Financial SCAN : SM Anatomy of a solution 26 #financialscan
- 27. An annual financial “check-up” for review at management and board levels Visual and compelling report for communicating financial story and funding requirements Historical context to inform the annual budgeting process and strategic/business planning A quick way to inform consultants engaged for financial planning and other capacity-building efforts A training resource for new executives 27 board members and
- 28. An annual financial “check-up” before fund allocation Grantee and potential grantee peer benchmarking Clear visual representation of financial trends with a guide for interpreting results: program officer education Engage grantees in dialogue about their financial health and resource needs Documentation to support recommendations to boards 28
- 29. Charitable Giving Planning: Wealth Managers can use Financial SCAN to present grantee recommendations to individual clients in a consistent, sophisticated way. NPO Asset Management: Inform the development of income generation strategies and investment policy statement development for existing nonprofit clients. New Business Acquisition: Identify new nonprofit clients and use the comprehensive report as part of a pitch book to prospective nonprofit and high net worth individual clients. 29
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- 31. 31-Page PDF Report Financial Health Dashboard 13 Graphs with accompanying narrative and questions to consider Peer Comparables Dashboard Glossary and Definitions Date and time stamped All data sourced directly from Forms 990 31
- 32. Financial SCAN Demonstration OnlineReport Generation #financialscan 32
- 33. Recap Financial HealthDashboard 13 Graphs with accompanying narrative and questions to consider Peer Comparables Dashboard Glossary and Definitions Date and time stamped All data sourced directly from Forms 990 33
- 34. Common Questions 1. Iam a nonprofit and only want to run a report on my own organization once or twice per year. Is there a Financial SCAN product for nonprofits? 2. How big is the Financial SCAN universe? 3. How does Financial SCAN handle cases where a target organization does not have 5 years of data? 4. Does Financial SCAN include mission and impact data? 34 #financialscan
- 35. Product Information andQuestions www.guidestar.org/financialscan webinars@guidestar.org “This innovative new tool builds the financial management capacity of nonprofits and helps grantmakers engage with their grantees about financial health and funding needs. By creating a new standard for nonprofit financial analysis, the Financial SCAN underscores the relationship between strong finances and effective programs.” -- Kathy Reich, Director or Organizational Effectiveness Grantmaking David & Lucile Packard Foundation Financial SCAN Funder #financialscan 35
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- 37. GuideStar USA www.guidestar.org Foundedin 1994 Offices: Washington, DC and Williamsburg, VA 1.8 million organizations in the GuideStar database 18,554 nonprofits voluntarily provide information via GuideStar Exchange More than 6 million Form 990 images in the GuideStar database 8.3 million annual visitors to the GuideStar website 803,256 newsletter subscribers $11 million operating budget 37
- 38. Financial Health Dashboard 38 #financialscan
- 39. Graphs, Narrative andQuestions to Consider 39
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- 48. Nonprofit Financial Health: New Tools for Analysis 3 May 2012 48 © 2012, GuideStar USA, Inc. All Rights Reserved. This information is copyrighted subject matter owned by GuideStar USA and is protected by United States and international copyright law.