Jim Raines, Ph.D. Collaborative Health & Human Services PA 412 Public Budgeting & Finance

Assessing Financial Health ~ What are our immediate financial strengths and weaknesses? ~ What are our long-term financial strengths and weaknesses? ~ Do our constituents perceive us as effective and efficient? ~ Effective – Adequate to accomplish a purpose, producing the intended or expected result ~ Efficient – Economical in terms of time and/or money CHHS

Immediate Concerns ~ Paying Bills (Rent/Mortgage + Utilities) ~ Staff Salaries (Payroll + Benefits) ~ Cash Flow (Receipts > Disbursement) ~ On track for making Budget ~ Wise Investments CHHS

Paying Bills & Staff Salaries ~ What is the ratio between assets and liabilities? ~ If many of the assets are soft (grant-related), then what is the ratio between hard assets (cash) and liabilities? CHHS

Cash Flow ~ Cash flow is all about Timing. ~ If grants only reimburse the organization for expenses, then the agency must front the money until reimbursed. ~ The longer the lag time between expenditures and reimbursement, the more liquid assets the organization needs to cover the lag time. CHHS

Tracking the Budget ~ Do the current financial results match the expected financial plan? ~ Variances are differences between what is expected and what is actual happening. ~ Tracking the budget each month allows the organization to either work harder to increase revenues or lighten up expenditures. CHHS

Investing Wisely ~ Goal: To get the best possible return on idle cash ~ Potential Investments: ~ Certificates of Deposits (staggered) ~ Treasury Bonds (more risky) ~ Corporate Bonds (even more risky) ~ Executive Director & Board Treasurer must always ask, “Could we have done better?” CHHS

Long-Term Concerns ~ Comfortable Liquid Operating Reserve? ~ Are Core Activities performing financially? ~ Are we Recovering Costs from key funders? ~ Do we have a sustainable Portfolio of Activities? ~ Are our Income Streams both stable and diverse? CHHS

Liquid Operating Reserves ~ Liquid Operating Reserve is unrestricted money the organization has accumulated over time beyond what it needs to pay immediate bills. ~ The size of your liquid reserve is a measure of strength or weakness – it’s your “rainy day” fund. ~ “Culture of scarcity” organizations may neglect to even budget for a reserve. ~ The Better Business Bureau recommends no more than 3x the current operating budget in reserves. CHHS

Are Core Activities Performing? ~ Any business needs to generate surpluses somewhere to maintain a small reserve for money-losing activities. ~ Administrative activities are generally money-losers. ~ Fundraising activities are generally money-makers. CHHS

Cost Recovery from Key Funders ~ Nonprofits need to correctly “price” their services so that they are neither too high nor too low. ~ Develop and monitor an Activity by Funding Source report. ~ Finding gaps allows leaders to make changes: ~ Renegotiate grant & contract budgets ~ Include certain uncovered costs in future proposals ~ Add earned income strategies ~ Contain uncover costs until additional funding is found CHHS

Sustainable Portfolios? CHHS Keep and strengthen Star activities Keep and build sustainability of Heart activities Keep and increase mission impact of $ activities Close or transfer STOP activities.

Making it Real: The Ice Bucket Challenge ~ Look up the ALS organization. ~ How much did they raise in 2014 from the Ice Bucket Challenge? ~ How did this compare to their normal annual budget? ~ What quadrant above would you place the funds raised? ~ What would you do with the funds given the viral nature of the promotion? CHHS

Income Streams ~ Conduct a multi-year historical analysis combined with current data to see shifts in priorities/power of key donors. ~ Declining revenues from some sources will mean the need to increase revenues from other/new sources. ~ No single source of funding should be greater than 50% of organizational funding. ~ Diversification across income streams means having a variety of sources (individuals, corporations, foundations, government agencies) ~ Diversification within income streams means having a variety of funders within each type above. CHHS

Effectiveness & Efficiency ~ Do we have enough cash to match temporarily restricted net assets? ~ Are we releasing funds from restriction as planned? ~ Is our overhead rate appropriate? ~ Are our fundraising efforts cost-effective? ~ Is our cost per mission output competitive? CHHS