Make $ Make Nonprofit Essentials Conference August 9, 2016 Minneapolis, MN. Curt Klotz, Finance Director Nonprofits Assistance Fund 2016

Transcription

1 Make $ Make 2016 Nonprofit Essentials Conference August 9, 2016 Minneapolis, MN Curt Klotz, Finance Director Nonprofits Assistance Fund 2016

2 About NAF Nonprofits Assistance Fund invests capital and expertise in nonprofits through loans, training, practical guidance, and financial management resources.

3 Goals Introduce three common financial statements Income statement Balance sheet Cash flow statement Uses of the statements Analysis of the statements

4 Income Statement A Based on activity during a specified time period Can compare trends and budget versus actual amounts Income Expenses = Change in Net Assets (or Net Income)

5 Income A Support Grants Donations Other Contributions Revenue Contracts Fees for services or program revenue Sales In-kind Contributions of goods or services rather than cash

6 In-Kind Know the rules around what can be included as in-kind and what cannot There are differences between how donors may treat inkind contributions and how nonprofits may treat them Special requirements for contributions valued over $5,000 (IRS Form 8283) When booking in-kind, the revenue matches the expense Be sure to consult IRS contribution publications and your auditors for more information

7 Expenses A Personnel Salaries and wages for staff Includes other employee pay related expenses: Payroll taxes Health, dental and other insurances Other benefit expenses Usually the largest expense for nonprofit organizations Occupancy Rent or mortgage interest Depreciation (if owned) Utilities Building maintenance

8 Expenses (Cont.) A Program related expenses Interest expense Interest portion of loan payments are recorded as an expense Depreciation Property and equipment are depreciated Non-cash expense to recognize the value of using a fixed asset (ex. building, vehicle, computer) each period Taxes Sales taxes Unrelated business income tax

9 Change in Net Assets A Total of all income minus total of all expenses equals Change in Net Assets Other names: Profit/(Loss) Income/(Loss) Surplus/(Deficit) Net income for the period of the statement Can be a surplus or a deficit For example, the Surplus is $1,372 REMEMBER THIS NUMBER!

10 Contributions & Restrictions Donors may place restrictions on the use of their contributions Restrictions may be time-based or use-based or both Boards may not restrict funds. Instead, boards designate funds for specific uses. These funds remain unrestricted.

11 Types of Restrictions Unrestricted Contribution is available for general use TEMPORARILY RESTRICTED Restrictions based on time or specific use Often program specific grant Permanently Restricted Original contribution amount must stay in tact Interest and earnings on the original contribution can be used Often in the form of an endowment

12 Temporarily Restricted Funds on the Income Statement C When received Temp Restricted column for the appropriate support line item When restrictions are met negative amount in Temp Restricted column and positive amount in Unrestricted column of Net Assets Released from Restrictions account (line 6)

13 Temporarily Restricted Funds on the Income Statement C Surplus/(Deficit) line on the Income Statement displays the Surplus or Deficit for both the Unrestricted Column and the Temporarily Restricted Column. Surplus/(Deficit) in unrestricted column = operating income or loss Surplus in Temp Restricted column = funds available for future years (retain original purpose or time restriction) Deficit in temp restricted column = funds awarded in prior periods that were released in the current period

14 Balance Sheet B Shows your net worth Balances are displayed as of a certain date Reserves can be found here. The cumulative total of the entire history of your organization The future can be seen here Assets = Liabilities + Net Assets Assets - Liabilities = Net Assets

15 Assets B Items OWNED by the nonprofit Provide economic benefit to the nonprofit The nonprofit has the right to access the item Must be able to be displayed in dollar value

16 Assets (cont.) B Current assets are resources that are cash or may be converted to cash in the next 12 months Long-term assets are resources available to be converted to cash after 12 months

17 Assets (cont.) B Receivables Dollars owed to the organization for goods or services provided to others Grants, pledges, or government contract dollars owed to the organization

18 Assets (cont.) B Fixed Assets Equipment, furniture, fixtures, buildings Have estimated useful lives of multiple years Purchases are capitalized as fixed assets on the balance sheet and depreciated over time

19 Liabilities B Items OWED by the nonprofit Current liabilities are due within 12 months Long-term liabilities are debts or loans due after 12 months

20 Liabilities Payables B Amounts due to others for goods or services the organization received Amounts due to others for loans (notes)

21 Net Assets B Displayed by unrestricted and restricted Can display board designated amounts Sum of income less expenses since the start of the organization Dollars that you have to go forward Note the change in net assets amount of $1,372. It ties to (comes from) the Income Statement!

22 Balance Sheet Classifications D Balance sheets can be displayed with columns for unrestricted and temporarily restricted. The change in net assets (line 24) will tie to the unrestricted and temp restricted amounts on the surplus/deficit line on the income statement (line 40).

23 Cash Flow Statement Based on activity during a specified period of time Displays the dollar flow of money in and out of the organization to arrive at the cash balance at the end of the period Separated into three sections Operations core business activities Investing fixed assets (equipment/buildings) & investments (stock, mutual funds) Financing debt and loans Two methods direct and indirect Currently the indirect method is required in audited financial statements

24 Indirect Method E Operating section Starts with the surplus or deficit for the year Removes all non-cash transactions Depreciation Income not yet received (receivables) Expenses not yet paid (payables) Family Advocacy Network Statement of Cash Flows For the Twelve months Ending December 31, 2012 Cash Flows from Operating Activities Change in net assets (Surplus) $ 26,372 Adjustment to reconcile change in net assets to net cash provided (used) by operating activities: Depreciation expense 1,000 (Increase) decrease in assets: Accounts receivable (120) Grants and other receivables 1,500 Prepaid expenses 50 Increase (decrease) in liabilities: Accounts payable 875 Other payables (45) Deferred revenue 100 Net Cash provided by (used for) operating activities $ 29,732

25 Indirect Method E Investing section Outflow of money for assets purchased Inflow of money for assets sold Financing section Inflow of cash for money borrowed during the year Outflow of money to pay down loans Sum of changes in the three areas is the net change in cash for the period Add the change to the prior period cash balance to arrive at the current period cash balance Family Advocacy Network Statement of Cash Flows For the Twelve months Ending December 31, 2012 Cash Flows from Investing Activities Purchase of property and equipment (5,000) Cash Flows from Investing Activities (5,000) Cash Flows from Financing Activities Borrowings on line of credit 5,000 Payments on line of credit (200) Cash Flows from Financing Activities 4,800 Net Increase (Decrease) in Cash 29,532 Cash at Beginning of the Year 20,026 Cash at End of the Year $ 49,558

26 Analyzing Financial Statements Financial statements can be analyzed to determine questions that should be asked How do you analyze financial statements? Compare current period balances to budgeted balances Compare current period balances to prior period balances (trend analysis) Compare account balances or ratios to benchmarks or goals

27 Financial Analysis Tools

28 Budget Variance Review Which budget variances are significant? What causes budget variances? How can budget variances be addressed?

29 Reliance Ratio The reliance ratio measures an organization s dependence on certain sources or certain types of income. Amount of largest type of income Total income

30 Reliance Ratio From the Income Statement:

31 Reliance Ratio Amount of largest type of income = $330,000 Total income = $905, % of income reliant on one income type

32 Example Balances that Lead to Questions Negative net assets balance Negative unrestricted net assets balance Increasing payroll payable or payroll taxes payable Example of negative unrestricted net assets balance F Temporarily Unrestricted Restricted Total Net Assets 23 Beginning of Year 1,589-1, Change in Net Assets (2,245) 10,000 7, Total Net Assets (656) 10,000 9,344

33 Uses for Financial Statements Grant applications and reports Annual reports IRS Form 990 preparation Provide information to donors These are all examples of external ways to use financial statements.

34 Uses for Financial Statements Project future balances or year end balances Calculate ratios and benchmarks Compare actual results to budgeted results Measure performance against internal thresholds Measure performance against external thresholds These are all examples of internal ways to use financial statements.

35 Thank You!