FINANCIAL MANAGEMENT FOR EVERYONE

Transcription

1 NONPROFIT FINANCIAL MANAGEMENT TRAINING FINANCIAL MANAGEMENT FOR EVERYONE Developed by Nonprofits Assistance Fund

2 WHO WE ARE OUR MISSION IS TO BUILD FINANCIALLY HEALTHY NONPROFITS THAT FOSTER COMMUNITY VITALITY Sustainability looks different today. Meeting the challenge of a changed environment requires a deep understanding of how mission and money work together. Nonprofi ts Assistance Fund s fi nancial experts are here to help you strengthen your capacity to address unexpected events, fi nance new opportunities, and realize strategic goals. We fulfi ll our mission by helping you thrive. HOW WE CAN HELP Financial Advice When you need a trusted advisor, we are here to help. We can answer your immediate questions, increase your understanding of your organization s situation, and work with you to develop effective fi nancial practices. Nonprofit Lending For us, it s more than a loan. Our lending team understands the nuances of nonprofi ts. We craft fi nancial solutions for your unique needs and will stick with you to address the unexpected, setting you up for success. Trainings and Resources Having the right tools to manage your organization s money is essential to success. Our trainings and resources will help you develop practical skills, engage in strategic thinking, and build advanced fi nancial management capabilities. OUR TRAINERS Michael Anderson, Training Program Manager and Loan Officer: Michael holds a Master of Public Policy degree from the Humphrey Institute of Public Affairs. He serves as adjunct faculty at the University of Minnesota and on the board of PRG, Inc., a nonprofi t community development corporation. Kate Barr, Executive Director: Kate leads the strategic direction of our organization, developed our core training curriculum, and is a popular national speaker, trainer, and writer on nonprofi t management and fi nance. A former Senior Vice President of Riverside Bank, Kate holds a Master s degree from Hamline University and is adjunct faculty at Hamline and the Humphrey Institute. She also serves on the board of Neighborhood Development Center, Partners for the Common Good, and Western Bank. Steve Boland, Loan Officer: Steve has previously worked for Congressman Bruce Vento and served as Executive Director of the Saint Paul Neighborhood Network, Summit-University Planning Council, and the Greater Frogtown Community Development Corporation. He is pursuing a Master of Nonprofi t Management from Hamline University and serves on the board of Sparc. Phil Hatlie, Loan Officer: Phil has a special expertise in charter school fi nancing and management. Previously he served as Director of Finance and Administration for the Greater Minneapolis Council of Churches and Twin Cities Habitat for Humanity and Director of Operations for the HECUA. Phil serves on the board of the MN Conference United Church of Christ and on committees for Hearth Connection and Habitat for Humanity of Minnesota. Janet Ogden-Brackett, Associate Director: Janet has served as the Director of Operations and Financial Manager at Minnesota Environmental Initiative and worked at a CPA fi rm. She has participated in the Minnesota Council of Nonprofi ts Leadership Institute and is on the board of LegalCorps and Family Tree Clinic.

3 FINANCIAL MANAGEMENT FOR EVERYONE FOUR FOUNDATIONS I. Roles and responsibilities Roles of board of directors and staff are appropriate Responsibilities are clearly defined and understood II. Planning and budgeting Annual budget is thorough and realistic Financial considerations are a part of short and long-term planning III. Reporting and monitoring Financial records are accurate and reliable Financial information is monitored and used for decisions IV. Policies and controls Policies are developed to guide decisions Procedures are implemented to ensure accountability 1

4 I. ROLES AND RESPONSIBILITIES Who is responsible? Legal responsibility and operational responsibility Responsibility is within the organization Board s role Legal responsibility Board treasurer and finance committee Accountable to the public as a tax exempt organization Use financial resources to effectively fulfill the mission Use financial resources as directed by donors Use financial resources in a way that is consistent with values and ensures sustainability Executive director s role Authority as delegated by the board Implementation of policies and decisions Ensure that procedures are developed and followed Hire and manage appropriate financial staff or contractors Monitor daily activities and take action as needed Staff s role Responsibilities and authority as assigned by executive director or board Implementation of approved policies and budgets 2

5 II. PLANNING AND BUDGETING What is a budget and why do we need one? A plan to manage limited resources Decisions about goals and priorities A clear way to hold the organization and staff accountable Board role in budgeting Determine and support the mission and strategic plan Choose how to use resources Set goals for the organization s activities Approve a realistic budget Understand the key assumptions Approve budget before fiscal year begins 3

6 TYPES OF BUDGETS Overall organizational budget The most common budget, includes all items and all activities Program or project budget Complete budget for one specific activity area (part of organizational budget) Grant or contract budget Specific for a grant request, according to grantmaker s guidelines May be the same as an overall, program, or project budget Cash flow budget (projection) A plan for receipts and disbursements of cash for a time period Long-term budget Financial plan for more than one year, usually with less detail than an annual budget Used for planning Capital budget Separate plan for expenditures on fixed assets equipment, buildings, major repairs or renovations May cover more than one year 4

7 BUDGET PROCESS Remember that a budget is a plan, based on assumptions Expect actual results to change Be prepared to make adjustments Making the budget process work What comes first income or expense? Roles and responsibilities for the budget Who to involve When to start Approve before beginning of fiscal year Allow enough time for discussion and adjustments Developing budget assumptions Assumptions used in the budget must be reasonable and realistic Make sure that budget assumptions are supported by specific workplans and clear responsibility for implementing the plans Understand the priorities and risks represented by the budget Start with realistic, current information Year to date results for income and expense Forecast through the end of the year Documentation for budgets Write everything down! What are your assumptions? 5

8 10 STEPS OF BUDGETING 1. Determine timeline 6. Develop draft income budget Set target date for board approval Allow time for each step and for review and discussion Approve before beginning of fiscal year Agree on goals Prioritize program delivery goals Set organizational financial goals Clarify annual goals from strategic plan Understand current financial status Review current year income and expense compared to budget Forecast to the end of the year Analyze and understand any variances Project income based on current fundraising and revenue activities Project new income based on new activities Review draft budget Verify that the draft meets program and organizational goals Review and discuss all assumptions Make adjustments, based on goals and capacity, to match income and expenses Review final draft for all goals and objectives Approve budget Present to any committees as needed Present to the board for approval 4. Agree on budget approach 9. Document budget decisions 5. Assign roles and responsibilities Agree on authority to make decisions Agree on how much uncertainty can be included (how many unknowns) Develop draft expense budget Determine costs (expenses) to reach program goals Determine costs to reach organizational and strategic goals Create a consolidated budget spreadsheet and file Write down all assumptions 10. Implement budget Assign management responsibilities Incorporate into accounting system Monitor and respond to changes as needed 6

9 III. REPORTING AND MONITORING WHY IS FINANCIAL RECORDKEEPING IMPORTANT? Benefits to the organization Information to manage and monitor activities Control use of funds as designated, contracted, and budgeted Ability to provide timely reports as required Avoid surprises or disruption to programs and organization Use information for communication about needs and accomplishments Demonstrates management strength Benefits to staff and board of directors Responsibility for financial matters is within the organization Ensure that mission is supported and programs are effective Ensure that expectations of accountability are met Operate according to all contracts and grants as signed Protect against any mismanagement perception Board sets direction and monitors accountability 7

10 FINANCIAL REPORTS SHOULD BE Accurate and consistent Available soon enough to be of use in monitoring and planning Understood in context of the organization s history and external environment Understood in relationship to program activities CORE FINANCIAL REPORTS Annual budget Income Statement (also known as Statement of Activities) Balance Sheet (also known as Statement of Financial Position) Cash flow reports 8

11 INCOME STATEMENT Income and expenses for a period of time Compare to budget for same period and provide explanation of significant variances 9

12 BALANCE SHEET Assets, liabilities, and net assets at a date in time Net assets designated as Unrestricted, Temporarily Restricted, or Permanently Restricted 10

13 CASH FLOW PROJECTION Anticipates cash receipts and cash disbursements for future time periods 11

14 ANNUAL COMPLIANCE Financial audit Required in Minnesota if revenues exceed $750,000 May be required by funders Audit firm tests information and issues opinion on accuracy and reports IRS Form 990 Required for all organizations and ensures that a nonprofit is accountable to the public 990 N - small organizations 990 EZ - simplified report new format introduced in 2009 Includes income and expenses, balance sheet, description of program expenses and accomplishments, and a variety of details and disclosures 12

15 IV. POLICIES AND CONTROLS WHY HAVE WRITTEN FINANCIAL POLICIES? Make responsibilities clear for both staff and board of directors Protect the organization Ensure oversight of financial matters Make sure that necessary tasks get done Promote efficiencies in operations Minimize risk of loss in assets or reputation Protect staff from over-exposure to risk DIFFERENCE BETWEEN POLICY AND PROCEDURE Authority and responsibility Specific steps to complete tasks Board s involvement in policy vs. procedures 13

16 FINANCIAL POLICIES Financial goals General budget target for surplus or program budgets Board designated reserves Delegation of authority What decisions will be made by the board or committee What decisions will be made by the executive director or staff Authority to approve contracts, expenses, and variances to budget Authority to set salaries and benefits and to hire new staff Assignment of responsibility Responsibility for oversight of financial records and accounting Responsibility for completion of key financial management tasks Internal controls Risk assessment to establish priorities Clear job descriptions and roles and responsibilities Regular review and oversight Separation of duties 14

17 FINANCIAL HEALTH CHARACTERISTICS OF FINANCIALLY HEALTHY NONPROFITS Board of directors and management hold themselves responsible for longterm stability in both programs and financial performance. Board members understand their roles and responsibilities in financial matters. A realistic and well-considered budget is prepared and approved by the board. Budgets are prepared in tandem with planning for programs and operating needs. Management and board are committed to managing with the goal of an operating surplus each year. Consistent, accurate, and timely financial reports are prepared and analyzed by qualified individuals. Management and board monitor financial results as compared to the budget and modify programs and activities in response to variances. Management realistically plans and monitors cash flow so as to be able to meet obligations. Financial policies are in place that establish, or have specific plans to establish, an operating reserve to finance cash shortfalls and program growth. Policies are established for major financial decisions and adequate and appropriate internal controls. Management is committed to compliance with all required legal and funder reporting. The board and management regularly review short-term and long-term plans and develop goals and strategies for the future. 15