It s time to... GROW your NPO! WELCOME!

Transcription

1 It s time to... GROW your NPO! WELCOME!

2 #GrowYourNPO Murray Short, MBA, CPA, CA Not-for-Profit Partner, RLB LLP

3 Grow Your NPO? How Your Accountant Can Help Does this seem familiar?

4 Why do You Want to Grow Your NPO? It would be really nice not to have to manage cash daily To develop new programs/services For long-term needs (e.g. capital expansion) To build contingency funds

5 Cash Flow Management Some questions to ask: How stable are our revenues? Do we have a good sense of the timing of our expenses? How vulnerable are we to a loss in grant revenues if there is a change in government? Are there any risks which could result in a loss of support of members/donors? How vulnerable are we to a significant lawsuit? Is there competition from other NPOs for services our organization provides?

6 Understanding Funding Cycles and Seasonality of Cash Flows Do the timing of your cash in-flows match the timing of your cash out-flows? Probably not. For many organizations, cash out-flows are spread more evenly throughout the year (e.g. salaries and benefits, premises costs, etc.) than in-flows Understanding the timing of cash in-flows can be critical for an organization s success Map out your cash position over the past 3 years

7 Understanding Funding Cycles and Seasonality of Cash Flows How can you modify your cash in-flows to better match your cash flow needs? Prepayments from funders/clients? Structure of funding agreements try to avoid reimbursement of expenses after the fact! How can you modify your cash out-flows to better match your cash in-flows? Timing of purchases Timing of payments

8 Short-Term use of Overdraft/ Lines of Credit Can be a reasonable method of managing periods when cash flows are known to be tight Should be considered a short-term solution to a short-term problem

9 Understanding Profitability of Programs/ Service Offerings

10 Understanding Profitability of Programs/ Service Offerings Each program s expenses should be compared to the revenues it generates Expenses for all programs should include direct and indirect costs: Direct costs staffing costs specific to that program, other costs which can be directly attributed Indirect costs - allocation of organizational expenses (e.g. indirect salaries and benefits, premises costs)

11 Understanding Profitability of Programs/ Service Offerings Each program s revenues should at least offset the direct costs of running it, unless the Board has determined that the program is important enough to the organization s mission that it is worth operating the program at a deficit Understand that the choice is being made to allocate resources to this program over other options, and you may be exposing the organization to financial risks

12 Long-Term Financial/ Cash Flow Planning

13 Long-Term Financial/ Cash Flow Planning Understand your organization s long-term needs, including: Major capital purchases or other significant, irregular expenditures Trends such as declining or flat government funding vs. increasing staffing costs A one year budget or one year cash flow projection will not help

14 Long-Term Financial/ Cash Flow Planning For long term capital purchases that are not expected to be funded externally or emerging trends that may create a shortfall, budget for surpluses in the years before to cover the cost (or down payment) from equity Specific five or ten-year capital budget may also be beneficial

15 EQUITY - What is The Right Level of Surplus for Not-For-Profits? General guideline 3 to 9 months of operating expenses in equity: Excludes equity invested in capital assets Excludes externally restricted funds Includes internally-restricted, contingency and unrestricted funds Range will vary based on the stability of your funding Can consider cash and liquid investments rather than equity, as well Should consider non-operating needs, as well e.g. capital

16 Helping 10C grow! Julia Grady, Co-Founder, Executive Director (See link on RLB s Not-for-Profit services webpage)

17 Financial Projections Approached by Julia in June 2015 re: building purchase (not the Acker s Furniture store) 10C had business plan, projected capital/renovation costs, tenants and rents, other revenues, etc. AND a community bond idea However, as Julia noted, financial presentation was not a strength Thus they didn t have an easily understood format to present to investors

18 Financial Projections RLB clarified certain projections and came up with a draft version When the Acker s Furniture store became available, projections changed significantly After several revisions, came to a final model

19 Other Support RLB Provided Consulted on corporate structure of 10C regarding building purchase and renovation Creative means of arranging a donation of $125,000 to the project 10C is not a charitable organization RLB invested in a 10C community bond

20 Conclusion Creativity in revenue generation is becoming more of a necessity for NPOs and charities Understand your reasoning for needing funds and ensure the funding you re seeking is meeting your needs Understand the risks of new ideas, but don t shy away from them Ensure the new venture fits within corporate structure/charitable objects OR consider new organization for the venture Engage professional support where necessary

21 THANK YOU! Any questions?