What financial reports does YOUR board need: Ensuring the mix fits your governance needs

Transcription

1 What financial reports does YOUR board need: Ensuring the mix fits your governance needs A Conversation with Hilda Polanco, Fiscal Management Associates and Ruth McCambridge, the Nonprofit Quarterly Sponsored by: Tweet us! #HildaOnFinance

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3 Financial Health and Strategy 1. Set annual and long term financial goals and plans: Understand the full costs of programming Plan for cash and capital needs Establish operating reserves and policies on their use Incorporate scenario planning Develop three-year financial plans 3

4 Financial Health and Strategy (continued) 2. Establish mechanisms for monitoring financial performance: Set Key Performance Indicators Develop performance dashboards Incorporate forecasting 4

5 Strategic Financial Goals Revenue Concentration and Predictability Expense Structure Program Delivery Model 5

6 Organization A s mission is to increase its participants academic performance and persistence. Programs include after-school enrichment and academic support. Three government funding sources make up the bulk of revenue and the organization often experiences cash shortages. Financial Monitoring Plan 1. Project Cash Flow to predict shortages 2. Observe trends the balance of receivables vs. cash 3. Track the available cushion, aka operating reserves 4. Monitor the Operating Surplus (Deficit) 5. Keep an eye on Revenue Mix and Concentration 6. Calculate Operating Results of key Programs to ensure full costs are covered

7 Organization B s mission is to make theater accessible to a broad audience. Programs include performances and classes. Revenue sources are diverse, but multi-year funding and operating reserves are dwindling and the organization is considering increasing fundraising and/or ticket prices as well as cost reductions. Financial Monitoring Plan 1. Observe trends in Unrestricted and Temporarily Restricted Net Asset balances 2. Track the available cushion, aka operating reserves 3. Monitor the Operating Surplus (Deficit) 4. Track Revenue Mix to determine which streams have declined most significantly 5. Analyze Ticket Sale and Class Registration trends alongside Revenue 6. Analyze major Expense Driver trends for cost reduction opportunities

8 Program Managers Executive Director Board of Directors Budget-to-actual revenue & expenses for the program(s) and grants/contracts they oversee Balance Sheet (and supporting schedules) Budget-to-actual revenue & expenses for each program organization-wide Year-end projection(s) Management narrative Balance sheet (and supporting schedules) Budget-to-actual revenue & expenses for each program organization-wide Cash flow projection Year-end projections Cash flow projection Performance dashboard 8

9 Management Narrative

10 Balance Sheet

11 Liquid Unrestricted Net Assets (LUNA) Represents the portion of an organization s unrestricted net assets that could be converted to cash relatively easily Measure of funds available for purposes such as supplying working capital, guarding against downturns, and pursuing new opportunities LUNA = Unrestricted Net Assets (Fixed Assets Mortgages) Benchmark: LUNA sufficient to cover 3-6 months of operating expenses is generally considered healthy, but this depends on an organization s business model, plans and goals. 11

12 Balance Sheet: Supporting Schedule

13 Balance Sheet: Supporting Schedule

14 Budget-to-Actual Revenue & Expense

15 Year-end Projection

16 16 Cash Flow Projection

17 Cash Flow Projection

18 A Performance Dashboard complements your other financial reports without replacing them Management Narrative Balance Sheet Budget vs. Actuals Year-end Projections Cash Flow Projections Performance Dashboard 18

19 To effectively communicate strategic-level, actionable results, a Dashboard must: Be presented in a user-friendly visual format Represent a manageable set of Key Performance Indicators (KPIs) that: Are easily quantified Can be measured based on available, high quality data Drive your business model Clearly show performance against a defined target Support risk-management by highlighting out-of-the-ordinary results The Goal is to support decision-making and facilitate communication 19

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22 KPIs can be defined across all areas of your organization Financial Health Fundraising & Development Programs & Service Delivery Human Capital Marketing & Communications Outreach & Advocacy Information Technology Risk Management & Governance Facilities & Capital Projects

23 QUESTIONS?

24 StrongNonprofits.org In collaboration with the Wallace Foundation, FMA has created a library of tools and resources to help organizations become fiscally fit Four Topic Areas: Planning Monitoring Operations Governance 24

25 Online Tutorials for StrongNonprofits.org FMA offers complimentary orientation one-hour webinars that feature an overview of the website and drill down on several of its key resources Upcoming webinar dates: December 1 at 2:00pm February 18 at 2:00pm To register, or see upcoming webinar dates: For a 15-minute, on-demand webinar tour of the site: 25

26 Resources and Links For access to NPQ s other webinars: To subscribe to NPQ s quarterly magazine: Sign up for NPQ s next webinar on nonprofit technology on November 5 th 1 p.m. ET!