1. 1 May 26, 2015 YWCA USA Financial Leadership & Management Program Demystifying Expenses: Categorizing and Cost Allocations (Part 1) for every woman 1 Join us on Twitter: @SpectrumSteve

2. 2 WELCOME

3. 3 Today’s Conversation The Dual Bottom Line Determining True Costs –Specific vs. Shared Costs –Program vs. Supporting –Cost Allocation

4. 4 Financial Leadership Model

5. 5 a)Staffing b)Internal Controls

6. 6 Tenets of Financial Leadership 1.Move beyond mission vs. money thinking. 2.Cultivate financial leadership on the staff and board. 3.Understand your business model. 4.Recognize the relationship between strong infrastructure and strong programs. 5.Set the tone of accountability and sustainability.

7. 7 Financial Leadership Model a)What am I looking at? b)How do I assess?

8. 8 Assessing Financial Health Immediate Financial Health –Cash to pay bills –Cash flow projection –Budget Long-term Financial Health –Reserves –Profitability –Income diversity

9. 9 Financial Leadership Model

10. 10 The Dual Bottom Line

11. 11 The Dual Bottom Line Surplus Deficit Surplus ProgramsOrganization

12. 12 The Dual Bottom Line Revenue Deficit Surplus Expenses Profitability or

13. 13 Understanding Your

14. 14

15. 15 What goes into the price? Coffee BeansWater Paper

16. 16 What goes into the price? Coffee Beans Technology Gas for roasting Strategic Planning Costs Marketing & Advertising Equipment Accounting Water Paper

17. 17 Nonprofits need to do the same thing! Coffee Beans Paper Water Gas for roasting Equipment Marketing & Advertising AccountingTechnology Strategic Planning Costs

18. 18 So, why don’t we?

19. 19 JARGON Specific Costs Shared Costs Admin Costs Indirect Costs Direct Costs Nonprofit WorldFunder World

20. 20

21. 21 Peeling the Onion: Categorizing Expenses Specific Expenses Specific Program Program AProgram B Specific Supporting AdministrationFundraising Common or Shared Expenses Allocated to both categories

22. 22 Program Costs Program AProgram BAdministrationFundraising Specific Costs Shared Costs Admin Costs

23. 23 Peeling the Onion: Categorizing Expenses Specific Expenses Specific Program Program AProgram B Specific Supporting AdministrationFundraising Common or Shared Expenses Allocated to both categories

24. 24 Specific vs. Shared: Definitions Those expenses that relate to an individual program or activity of the organization. Those expenses that are used by multiple programs or activities of the organization. Specific ExpensesShared Expenses

25. 25 Specific vs. Shared: Examples Program supplies Client transportation Development Director’s Salary Office supplies Rent Telephone & utilities Liability insurance Technology support Specific ExpensesShared Expenses

26. 26 Specific vs. Shared: Footnote Expenses are categorized as specific or shared by HOW THEY FUNCTION, NOT by what they are. For example: Pens and paper for classrooms Pens in the office supply cabinet

27. 27 Peeling the Onion: Categorizing Expenses Specific Expenses Specific Program Program AProgram B Specific Supporting AdministrationFundraising Common or Shared Expenses Allocated to both categories

28. 28 Program vs. Supporting: Definitions “Activities for which the organization was created to conduct.” Fulfill the purposes or mission of the organization. All activities of a nonprofit organization other than program services. Program ServicesSupporting Services

29. 29 Program Services: Examples Support Groups Shelter DV Prevention Program Outreach and Awareness Youth Development Employment / Economic Development

30. 30 Supporting Services: Administration Expenses associated with organization function and management. These include: Board expenses and other costs associated with oversight and general management. Legal, accounting, finance, budgeting, general record keeping. Salary of ED except what’s allocable to programs & fundraising These DO NOT necessarily include: Rent, telephone, utilities, office supplies, postage Receptionist’s salary All of the ED’s salary

31. 31 Understand Staffing Costs

32. 32 Peeling the Onion: Categorizing Expenses Specific Expenses Specific Program Program AProgram B Specific Supporting AdministrationFundraising Common or Shared Expenses Allocated to both categories

33. 33 What is allocation? Allocation is the systematic process of splitting certain expenses between activity centers (cost centers) based on several factors.

34. 34 The Regulatory Environment

35. 35 2CFR Part 230 / OMB Circular A-122 All costs must be: Reasonable Allowable Allocable Consistently applied Documented

36. 36 Acceptable Basis Units of service costs Cost-to-Cost allocation Full time equivalents (FTE’s) Payroll expenses Square footage Specific expenses

37. 37

38. 38

39. 39 Allocation Calculation Program FTE’sAllocation Percentage Total FTE’s – Shared FTE’s (Percentage of shared costs given to program) For Economic Development: 2.70 0.22 or 22% (14.70 – 2.20) = 12.5

40. 40

41. 41 Economic Development Shared Allocation: $105,950 * 22% = $23,309

42. 42 Excluded Costs Fundraising Lobbying Alcoholic beverages Entertainment costs Investment mgt. Housing and personal living expenses for officers

43. 43 Nonprofit Expenses $127,670 $23,309 Admin Costs Specific Costs Shared Costs Admin Costs

44. 44 Peeling the Onion: Categorizing Expenses Specific Expenses Specific Program Program AProgram B Specific Supporting AdministrationFundraising Common or Shared Expenses Allocated to both categories

45. 45

46. 46 Nonprofit Expenses $127,670 $23,309 Admin Costs Specific Costs Shared Costs Admin Costs

47. 47 Peeling the Onion: Categorizing Expenses Specific Expenses Specific Program Program AProgram B Specific Supporting AdministrationFundraising Common or Shared Expenses Allocated to both categories

48. 48 Administration Allocation Calculation Program + Shared Expense Allocation Percentage (Total Expenses - Admin Exp.) For Economic Development: (127,670 + 23,309) = 150,979 0.2268 or 22.68% (732,675 – 67,031) = 665,644

49. 49 Economic Development Admin Allocation: $67,031 * 22.68% = $15,204

50. 50 Nonprofit Expenses $127,670 $23,309 $15,204 Specific Costs Shared Costs Admin Costs $166,183

51. 51

52. 52 Homework: Determine True Costs Determine the true costs of programs by: Use our template for a program. Use our template for your Association. Use your own template and describe the process.

53. 53 Resources Sample Financial Statements

54. 54 Recap Categorize Costs Correctly Understand Your Staffing Costs Allocate Costs True Program Costs include: Specific expenses Shared expenses Admin expenses Specific vs. Shared Program vs. Supporting Staffing Plan Shared and Admin Costs Choose a relevant basis

55. 55 Your Questions

56. 56 YWCA FLM: Discussion Site http://ywcaflm.ning.com/

57. 57 Next Webinar: June 22 Demystifying Expenses Part 2: Categorizing Expenses and Cost Allocation Discussion / Your Questions Homework Review –Homework is not due until after the next webinar!

58. 58 Steve Zimmerman Spectrum Nonprofit Services www.spectrumnonprofit.com stevez@spectrumnonprofit.com 414-727-1029