Power in Numbers: Breaking Down Budgets & Financials

Board Roles & Responsibilities Budget Preparation Review and Approve Framework Provide Guidance Approve the Budget Monitor results Measure, evaluate and adjust

Treasurer Responsibilities Include oversight role in the following: Chair the Finance Committee Finances Reporting Compliance Financial Planning Process Policies & Procedures Expertise Resource to Staff & Board Liaison between Board & Staff

Finance Committee Responsibilities Include: Review of Financial Statements Provide analysis & recommendations for improvement Involved in policy formulation Actively participate in oversight & controls Audit (unless you have an Audit Committee) Standing vs. Advisory committee

Financial Goals As provided by the Board and/or Executive Management Income Growth Rate New funding sources   Expense Net Income Growth % Increase Containment Flat Reduction % Decrease  

The Six Core Competencies of Financial Management PLANNING CONTROLLING REPORTING Budgets Procedures Accurate, meaningful Forecasts Review Systems and timely financial Projections Continuous Improvement statements Annual Business Plan Audits COMPLIANCE ORGANIZATION RETENTION Legal Training Plan Records Storage GAAP Staff Evaluations Funder Software Tools

Budgets A budget expresses an organization’s goals and objectives in dollars and cents.   A budget is a financial plan that estimates the monetary receipts and expenditures for an operating period. The budget needs to be at the level of detail for someone to adequately monitor performance and make effective decisions.

Budgets By monitoring actual results to the budget throughout the operating period, it can provide an early warning to the board and management that financial goals are or are not being met. The budget becomes an essential financial management tool that will help the board and management monitor and control ongoing organization activities throughout the period.

Types Of Budgets Organization Program Capital Fund Raising Events Operating Budget (or annual budget) - Shows planned revenue and expenses, usually for the coming year Cash Budget- Cash you expect to receive and pay over the near term, for example a month Program Budget- A budget for each major service you provide to clients

Planning Provide Budget Guidelines Financial Goals Timeline Realistic Meaningful Measureable Linked to Strategic Plan Timeline Establish Dates For Completion Board Approval Implementation Time Horizon and Reporting Periods

Preparing a Budget Timing of Budget Activity Who should be involved in the budget process? What are the steps in the budget process? Preparing a monthly budget

Provide Budget Guidelines Level of Detail Type of Revenue and Expense By Activity Program Event Department Responsibilities Who Does What

Budget Development Where the numbers come from: History Activity Based Economic Assumptions A combination of the above What to include in the budget: All sources of revenue and all expected expenditures In some cases, In-Kind Contributions

Planning Process Budget Approval Forecasts Projections Updates Verify budget is in accordance with the Mission Verify budget meets guidelines Forecasts Periodic updates or revisions to original budget Projections Cash Flow Updates Periodic revisions

Time Period Determine what period the budget covers: Less than a year One year Multiple years Other considerations Fixed period versus a rolling budget Time increments within the period Based on the fiscal year, what is the start date and final approval date with dates for completion of all tasks in between.

Expense Categories Staff Program Travel Occupancy Salaries & Wages Payroll Taxes (FICA-Social Security Tax, Federal ,State and City) Benefits (Health, Dental, Life, Worker Compensation, Unemployment Insurance, etc.) Program Supplies, postage etc. Travel Local Mileage Airfare, Hotel, Meals (etc.) Occupancy Rent Utilities Insurance  Professional Services Accounting Legal Information Technology

Link To Strategic Plan Does the one-year or a three to five year plan tie to: Financial Goals Planned changes to programs & services Any other planned changes which may impact revenue or expenditure flows

Financials

Effective Financial Statements …are timely (generally, they are produced on a monthly or quarterly basis) …are meaningful (they should be understandable, with footnotes and other explanations when necessary) …are accurate (it’s hard to make good decisions when you don’t have the right information!)

Cash Flow Statements Do we have enough cash for operating expenses? Usually goes month by month or quarter by quarter. Provides the information needed to establish your “burn rate”.

Statement of Activities Also known as the P&L or Profit & Loss Statement. How am I doing according to the budget? Tracks income and expenses by program. Shows whether you have a surplus or deficit both overall and by program. Allows you to evaluate the sustainability of programs.

Statement of Financial Position Also known as a Balance Sheet How does my organization look on paper to funders and donors? Tracks Assets and Liabilities Assets: cash, investments, equipment, furniture, accounts receivable. Liabilities: loans, accounts payable, payroll taxes, accrued vacation.

Statement of Financial Position Assets minus liabilities equals net assets (current and prior year net assets)

Net Assets How healthy is my organization financially? 3 kinds of Net Assets Unrestricted = funders and donors allow you to use it as you choose. Temporarily restricted = until a program or a time period is completed. Permanently restricted = the principle is never spent, only the income it provides from interest.

Net Assets Tracks how much of your current and prior year net assets fall into those 3 categories. Allows you to look at the big financial picture – not just monthly or yearly.

Financial Activities Checklist

Financial Activities Organization prepares financial statements on a budget versus actual and/or comparative basis to achieve a better understanding of their finances. Organization prepares cash flow projections. Organization monitors unit costs of programs and services through the documentation of staff time and direct services and the use of a process for allocation of management and general and fundraising expenses. Organization has established a plan identifying actions to take in the event of a reduction or loss in funding. Organization files IRS 990’s in a timely basis.

Financial Activities All expenses of the organization are approved by a designated person before payment is made. Organization has a written policy related to investments. Organization has a review process to monitor that they are receiving appropriate and accurate financial information whether from a contracted service or internal processing. Organizations that purchase and sell merchandise take periodic inventories against theft, to reconcile general ledger inventory information and to maintain an adequate inventory level. Organization periodically forecasts year-end revenues and expenses to assist in making sound management decisions during the year.

Questions and Answers

Contact Information Sonia Plata Program Manager 313-664-2099 soniaplata@newdetroit.org www.newdetroit.org Nan Jessup Finance Director 510-452-4520 x303 nan@grassrootsfundraising.org www.grassrootsfundraising.org