1. FINANCIAL MANAGEMENT: MOVING TOWARDS FINANCIAL SUSTAINABILITY © 2012 DALE NEEDLES

2. PURPOSE OF THE WORKSHOP Presentation on Financial Management – Why it is important? Understanding of Key Financial Terminology and Financial Reports A Review of some Key Financial Indicators that define Financial Health What is a Financial Dashboard and how can it be useful A Review of a Financial Sustainability Model Exercise on Calculating Financial Indicators

3. WHY IS FINANCIAL MANAGEMENT IMPORTANT Good Financial Management will orient an organization towards financial stability and sustainability Good Financial Management will positively impact the organizations ability to achieve its strategic and programmatic goals Good Financial Management helps to attract valuable resources by showing that the organization is accountable and a good steward of donated resources.

4. CORE COMPONENTS OF FINANCIAL MANAGEMENT Financial Management includes: Stewardship of an organization’s financial resources Allocation of those resources in alignment with the organization’s strategic and annual goals Monitoring and Assessing of financial data Integration of financial information into decision making Planning around financial goals (budgeting) Communicating financial information to a variety of stakeholders (reporting)

5. KEY TERMINOLOGY - ASSETS Assets = A resource of measurable financial valued owned by the organization Current Asset = Resources owned by a nonprofit that are available within a fiscal year Long Term Assets = Resources owned by a nonprofit that are not available within the immediate fiscal year Fixed Assets = Property owned by the nonprofit that has financial value

6. KEY TERMINOLOGY - LIABILITIES Liabilities = Any obligation, debt, or claim on a nonprofit’s assets Current = An obligation that is payable within the fiscal year Long Term = An obligation is not payable within the fiscal year

7. KEY TERMINOLOGY - EQUITY OR NET ASSETS Equity or Net Assets = The difference between a nonprofits Assets and Liabilities. It is the measurement of an organization’s FINANCIAL NET WORTH Unrestricted Assets = Net assets that can used without any donor imposed restrictions Temporarily Restricted = Net Assets that can be used based on donor imposed restrictions Permanently Restricted = Net Assets in which only the earnings can be used while the corpus must remain in tact (endowment)

8. KEY TERMINOLOGY - REVENUES Revenues & Support Unrestricted Income is that income in which there are not any donor imposed conditions Temporarily Restricted Income is income in which a donor has imposed restrictions which the organizations has agreed to fulfill Permanently Restricted Income is income in which the donor has imposed a restriction that the corpus of the gift can not be spent (permanent endowment)

9. KEY TERMINOLOGY - REVENUES C0NTINUED Revenues & Support Contributed Income is income from donations or grants and is generally divided into the following categories: individuals, private foundations, business and government Contract income is income generated through a contract in which the organization is providing some type of service to the contractor.

10. KEY TERMINOLOGY - REVENUES C0NTINUED Revenues & Support Asset Generated Income is income that is generated through an organization’s assets, generally investment income Related Business Income is income from an activity that is related to the mission of the organization such as a fee for service Unrelated Business Income is income from an activity that is unrelated to the mission of the organization.

11. KEY TERMINOLOGY - EXPENSES Expenses Functional Expenses are those functional areas of an organization’s work such as Programs, Fundraising, and Management & General Line Item Expenses are those specific line items expenses within a functional area such as personnel, office expenses, rent, communication, etc.

12. KEY TERMINOLOGY - EXPENSES C0NTINUED Expenses Pooled or Shared Costs are expenses that are shared by all functions and directly related to those functions, e.g. rent, utilities, communications, supplies, executive salaries. Indirect or Overhead Expenses consist of expenses that are related to the essential activities identifiable with no one of the primary functions but indispensable to the conduct of all of them such as finance function, governance (board) and human resource management.

13. FINANCIAL REPORTS Statement of Financial Position (Balance Sheet) Statement of Activities (Income Statement) Annual Budget and Project Budgets Cash Flow Projections/Reports

14. FINANCIAL REPORTS (CONTINUED) Monthly, Quarterly and Annual Actual to Budget Reports Donor Reports Financial Monitoring Dashboard Annual Government Reporting Annual Independent Audits

15. BALANCE SHEET AssetsFY 2011FY 2010 Non-Current Assets Long-Term Debt 262,495 251,845 Fixed Assets - Equipment 68,689 251,845 331,184 503,690 Current Assets Trade Receivables 393,545 526,151 Cash and cash equivalents 713,071 708,026 1,106,616 1,234,177 TOTAL Assets 1,437,800 1,737,867 Equity and Liabilities Equity Retained income (net assets) 603,843 621,030 Liabilities Non-Current Liabilities Long Term Debt 463,367 Current Liabilities Trade and other payables 370,590 474,517 Total Liabilities 833,957 937,884 TOTAL Equity and Liabilities 1,437,800 1,558,914

16. STATEMENT OF FINANCIAL POSITION AssetsFY 2011 FY 2010 Non-Current Assets Long-Term Debt 262,495 251,845 Fixed Assets - Equipment 68,689 251,845 331,184 503,690 Current Assets Trade Receivables 393,545 526,151 Cash and cash equivalents 713,071 708,026 1,106,616 1,234,177 Total Assets 1,437,800 1,737,867 Liabilities Non-Current Liabilities Long Term Debt 463,367 Current Liabilities Trade and other payables 370,590 474,517 Total Liabilities 833,957 937,884 Net Assets Unrestricted 203,843 221,030 Temporarily Restricted 200,000 Permanent Restricted 200,000 Total Net Assets 603,843 621,030 TOTAL Net Assets & Liabilities 1,437,800 1,558,914

17. INCOME STATEMENT Revenues FY 2011 FY 2010 Donations 2,000,000 1,800,000 Grants 600,000 400,000 Fees for Service 98,352 34,575 2,698,352 2,234,575 Cost of Activities (2,136,223) (1,740,512) Surplus after Activities 562,129 494,063 Other Income Interest received 35,511 48,237 Fair vale adjustment on Investments 12,616 (8,985) 48,127 39,252 Administration expenses (627,443) (590,920) Loss for the Year (17,187) (57,605)

18. STATEMENT OF ACTIVITIES REVENUES & SUPPORT FY 2011 FY 2010 Donations 2,000,000 1,800,000 Grants 600,000 400,000 Fees for Service 98,352 34,575 Interest received 35,511 48,237 Fair vale adjustment on Investments 12,616 (8,985) 2,746,479 2,273,827 EXPENSES Program Expenses 2,136,223 1,740,512 Fundraising 327,443 300,000 Management & General 300,000 290,920 2,763,666 2,331,432 Change in Net Assets (17,187) (57,605) Beginning Net Assets 621,030 678,635 ENDING NET ASSETS 603,843 621,030

19. FINANCIAL INDICATORS What are Financial Indicators? Financial data that summarizes organizational performance and a measurement of an organization’s financial health Financial data that helps decision makers assess the financial health of an organization

20. FINANCIAL HEALTH INDICATORS Current Ratio = Current Assets / Current Liabilities Defensive Interval (DI) = Net Assets or Equity / Monthly Expenses

21. FINANCIAL HEALTH INDICATORS (CONTINUED) Reserve Funds Indicator (RFI) = Unrestricted Net Assets / Monthly Expenses Savings Indicator measures increase or decrease in net assets

22. FINANCIAL HEALTH INDICATORS (CONTINUED) Functional Expense Ratio measures the proportion of each functional expense to total expenses Fundraising Effectiveness = FR Expense/Total Contributed Revenues

23. FINANCIAL HEALTH INDICATORS (CONTINUED) Budget Variances = meeting budget projections Cash Flow = meeting financial obligations

24. FINANCIAL DASHBOARD What is a Financial Dashboard? A monitoring tool that graphically represents when an organization is surpassing, meeting or falling short of its Financial goals Methodology: Need to identify indicators to monitor Set the parameters for each indicator Identify who will collect and track indicators Determine time frame for reporting on indicators Build the tool

25. FINANCIAL HEALTH DASHBOARD TABLE Financial HealthCelebrateMonitorTake Action Current Ratio3:1 or GreaterBetween 1:1 & 2.99:1Less than 1:1 Defensive Interval6:1 or GreaterBetween 3:1 & 5.99Less than 3:1 Reserve Funds Indicator3:1 or GreaterBetween 1:1 & 2.99:1Less than 1:1 Savings IndicatorNet increase less than 10% decrease 10% or greater decrese Fundraising Effectiveness 15% of Total ExpensesBetween 15% & 20%Greater than 20% Functional Ratios75% to 25%74-65% to 26-35%64% to 36% Budget VariancesLess than 5%Between 5% & 10%Greater than 10% Cash Flow Meet monthly expenses Need to postpone payments Behind 30 days in payments

26. NET ASSETS DASHBOARD CHART

27. CONTRIBUTED INCOME DASHBOARD

28. FINANCIAL SUSTAINABILITY MODEL Financial Sustainability is A Direction or Orientation towards Financial Goals Requires Assessment and Continuous Decision Making Must Encompass Program and Financial Elements (new concept)

29. NEW FINANCIAL SUSTAINABILITY INDICATORS In addition to the Financial Indicators that have been reviewed there are two additional Indicators: Fundability of key Activities Mission Impact of key Activities

30. FUNDABILITY & IMPACT SCORING TABLE ActivitySurplus/DeficitMission ImpactExpenses Project A 24,0003.6 890,000 Project B (185,000)3.05 580,000 Project C (100,000)1.8 220,000 Major Gifts 100,0002.25 70,000 Membership 45,0001.9 175,000 Events 60,0001.45 75,000

31. MATRIX MAP HEART HEART STAR Proj A Proj B Maj Gifts Fundability Proj C Members STOP STOP MONEY TREE Events Mission Impact

32. DECISION MAKING – STRATEGIC IMPERATIVES Star = Grow and Invest Heart = Contain Cost Money Tree = Increase impact Stop Sign = Eliminate

33. FINANCIAL SUSTAINABILITY MODEL Direction/Orientation: Identifying Key Financial Indicators and Setting Financial Goals Monitoring and Assessing Progress Towards the Goals (Financial Dashboard) Making Timely Decisions and Taking Action as Needed

34. CONCLUSION Good Financial Management will orient an organization towards financial stability and sustainability Good Financial Management will positively impact the organizations ability to achieve its strategic and programmatic goals Good Financial Management helps to attract valuable resources by showing that the organization is accountable and a good steward of donated resources.

35. MAPPING EXERCISES Exercise 1 Identify your organizations total Net Assets Calculate your organization’s Defensive Interval: Net Assets / Monthly Expenses Exercise 2 Calculate your organization’s Program to Non Program Percentage = Total Program Expenses/Total Expenses Exercise 3 Calculate your organization’s Fundraising Efficiency = Total FR Expense/Total Contributed Revenues

36. RESOURCES Financial Leadership for Nonprofit Executives by Jeanne Bell and Elizabeth Schaffer Financial Planning for Nonprofit Organizations by Judy Blazek Nonprofit Sustainability by Jeanne Bell, Jan Masaoka, and Steve Zimmerman needles.dale@gmail.com

37. QUESTIONS & DISCUSSION ?