Financial Planning for Your Non-Profit Introduction Double Bottom Line Developed under cooperative agreement with HHS, HRSA, HAB Access Ryan White TA at careacttarget.org
Mission Bottom Line Progress of Mission Meeting needs of communities served
Financial Bottom Line Meeting budget targets Secure funding Effective Operational Infrastructure
Why plan? Long term financial planning gives you a guide for your organization s fiscal health. If an organization is fiscally healthy, it can better meet its programmatic goals.
Fiscal Health Strategic Business Plan Budget Integration
End of Introduction
Module 1: Long Term Strategic & Financial Planning
Module Objectives Importance & Objectives of a long term financial plan Common Components of a Business Plan Methodologies & Strategies for creation of long term business plans
What is a Business Plan?
Business Plan Road Map to your organization s future Financial data integrated with programmatic data Upfront thinking Growth Goals
Why create a business plan?
Importance of a Business Plan Reduce risk in decision making Aid in fundraising efforts Aid in allocation of resources Gives your organization a clear financial direction Sets revenue goals
Components of Your Business Plan Goals, Results & Challenges Market Conditions Revenue & Expense Projections
Goals, Results & Challenges Where does your organization want to be in 3-5 years? What are the expected accomplishments? What are the hurdles to accomplishing these goals & results?
Market Conditions Who are you serving? What portion of the general market are you trying to reach? Who is doing similar work in your area? Why are you different and/or better?
Revenue Projections What are your funding sources? Identification of new sources of revenue What resources will you need to complete your goals?
Expense Projections What are your staffing & infrastructure needs? What will new programs and objectives cost? Will there be expansion and what is its impact?
Practical Steps Decide time frame covered (3-5 years) Identify stakeholders Identify person responsible for creation of the document Create a timeline for completion and STICK TO IT
Forecasting Methodologies Qualitative Quantitative
Qualitative Forecasting Gut Instinct based on knowledge of market Opinions Forecasting is an art Challenges?
Quantitative Methodology Uses historical data to project Identifies previous trends Uses statistical models Challenges?
Mixture of the Two Methodologies Use qualitative methods to adjust quantitative models You know your market but gut instinct will not get you there alone Use qualitative methods to support and verify your expertise in your field
More Practical Steps Get input from program staff Do not let group thinking influence the outcomes Present to Board of Directors for approval
End of Module 1
Module 2: Budgeting
Module Objectives Importance of Annual Budgeting Potential Structure(s) of Annual Budgets Methodologies for creating an Annual Budget
What is an Annual Budget? Tool A means to an end
Budget - Purpose Annual plan to allocate resources in order to meet program objectives Sets balance between revenue and expense Conforms to long term plans Primarily an internal document
Budget Types Capital Budget Operating Budget Program Budgets
Budget Structure Should conform to existing systems and objectives Reflect organizational structure Reflect funder sources
Main Elements Chart of Accounts Cost Centers/Program Areas Revenue & Cost
Chart of Accounts Natural expense structure Reflects Accounting system structure Examples include salaries, fringe benefits, rent, office supplies, professional services
Cost Centers/Program Areas Budget should be divided according to organizational structure and activities Program activities divided in a way that makes sense for your organization Examples: General & Administrative, Fundraising, Education Program, Community Outreach, etc.
Revenue & Cost Budget should reflect areas of revenue & costs associated with each program activity (if relevant)
Sub-Divisions Departmental Budgets Grant Budgets Program Budgets
Creating your budget Create a timeline for completion of the budget Choose a structural template Identify staff roles & responsibilities
Staff Roles Identify one staff member to coordinate the budget process (finance staff if available) Creation is a group effort Include Program staff in process Make program directors responsible for specific budget areas Organization Head (Executive Director) makes final staff decisions Submit to Board of Directors for final approval
Goals & Objectives Clearly identify the year s major goals, objectives and activities Identify continuing activities Any new activities? Any activities eliminated?
Identify Major Assumptions What overarching assumptions impact the whole organization of multiple components/departments?
Creation Methodologies Line Item Budgeting Program Budgeting Zero Based Budgeting Grant Budgeting
Line Item Budgeting Uses previous year s data with changes based on percentage changes for each expense
Program Budgeting Focuses on Program expenses and income results
Zero Based Budgeting All activities are returned to zero each year and justifications given for each item each year
Grant Budgeting Budgets created for funders with restrictions on ways funds can be spent
Annual Operating Budget Usually consists of a mixture of these four methods
Additional Thoughts Delegation of budget authority to staff increases ownership of program and financial activities Make the internal budget as detailed as possible write down ALL assumptions Presentation to Board of Directors need not include every detail Have budget approved 1-2 months before beginning of fiscal year
End of Module 2
Module 3 Integration of Financial Planning
Module Objectives Integration of Financial Plans into Accounting & Financial Systems Methodologies of supporting & fostering budget accountability & reporting Typical roles of management & financial staff in financial planning
Financial Systems Integration Accounting System Financial Processes
Accounting System/Software Choose an Accounting System that can integrate all data points needed to track your budget Enter all budgets into the system This will facilitate reporting. Cross check accounting systems with other sources (member/fundraising databases)
Financial Systems Structure Clearly define roles of staff Code all revenues & expenses in a consistent format with your budget Require consistent coding methods
Roles of Staff Executive Management Finance Management Program Staff Board of Directors (Finance Committee)
Executive Management Responsible for overall fiscal health and delivery of mission Often has check signing authority (final control of systems) Assigns financial responsibility where appropriate Makes final changes/decisions to submitted staff budgets Takes action where/when appropriate Reports to Board of Directors Understanding & Awareness of Finance is essential
Board of Directors (Finance Committee/Treasurer) Responsible for big picture fiscal health Approves budget Reviews oversight reports including Budget to Actual reports Authorizes amendments to budgets
Program Management Staff Codes/Authorizes payment of invoices Responsible for oversight in assigned budget categories/cost centers Reviews periodic budget reporting and acts accordingly
Finance Staff Enforces & implements all financial internal controls Directs program & executive management staff in approved fiscal management procedures Produces reports for staff and board of directors Oversees operation of accounting system including proper coding of costs & revenues Coordinates Financial and Annual Budget planning processes
Reporting Why? Forecasting Analysis for changing course Accountability
Reporting Structures Budget to Actual Reports Dashboard Reports A-133 & Independent Audits IRS 990
Budget to Actual Reports Tracks revenues & expenses and correlates the data to budget numbers Provides a detailed picture of organizational and program health Provided to all staff with budget responsibility
Dashboard Reports At a Glance internal reports Includes key metrics in fiscal health of the organization to assess current fiscal health
A-133 & Independent Audits Assesses fiscal position of the organization Includes Schedule of Functional Expenses
IRS 990 Divides expenses into 3 categories: General & Administrative Fundraising Program Activities
What To Do With These Reports? Meet periodically as a group to review reports Use reports as a guide to change organizational goals/behaviors
Additional Thoughts Make sure your staff has a clear understanding of the financial systems and goals Use reporting to adjust behavior Sometimes more oversight is necessary
End of Module 3 Developed under cooperative agreement with HHS, HRSA, HAB Access Ryan White TA at careacttarget.org
ABC, Inc. Revenue 2007 Annual Budget General & Admin Fundraising Public Education Public Services Total Program Fees 90,000 150,000 240,000 Restricted Grants 350,000 500,000 850,000 Unrestricted Donations 50,000 50,000 Interest on Investment 200,000 200,000 Total Revenue 250,000-440,000 650,000 1,340,000 Expenses Salary 50,000 50,000 200,000 350,000 650,000 Payroll Taxes 6,250 6,250 25,000 43,750 81,250 Fringe Benefits 7,500 7,500 30,000 52,500 97,500 Legal Fees 15,000 3,000 1,000 1,000 20,000 Financial Consultants 10,000 5,000 11,000 13,000 39,000 Program Consultants 10,000 75,000 15,000 100,000 Rent 15,000 6,000 50,000 60,000 131,000 Utilities 2,250 900 7,500 9,000 19,650 Insurance 3,000 2,000 9,000 10,000 24,000 Supplies 8,000 5,000 15,000 50,000 78,000 Travel 4,000 3,000 5,000 8,000 20,000 Capital Purchases 5,000 2,000 8,000 20,000 35,000 Total Expenses 126,000 100,650 436,500 632,250 1,295,400 Net Income 124,000 (100,650) 3,500 17,750 44,600
ABC, INC Grant Budget Federal Year 1 Year 2 Year 3 Year 4 Year 5 Total Personnel 150,000 154,500 159,135 163,909 168,826 796,370 Fringe 37,500 38,625 39,784 40,977 42,207 199,093 Travel 20,000 20,600 21,218 21,855 22,510 106,183 Equipment - - - - - - Supplies 20,000 20,600 21,218 21,855 22,510 106,183 Contractual 400,000 412,000 424,360 437,091 450,204 2,123,654 Total 627,500 646,325 665,715 685,686 706,257 3,331,483 Non Federal Match - Personnel 37,500 38,625 39,784 40,977 42,207 199,093 Fringe 9,375 9,656 9,946 10,244 10,552 49,773 Travel 5,000 5,150 5,305 5,464 5,628 26,546 Equipment - - - - - - Supplies 5,000 5,150 5,305 5,464 5,628 26,546 Contractual 100,000 103,000 106,090 109,273 112,551 430,914 Total 156,875 161,581 166,429 171,422 176,564 732,871 Total Expenditures 784,375 807,906 832,143 857,108 882,821 4,064,353
ABC, Inc. 2007 Annual Budget to Actual Report General & Admin Fundraising Revenue Budget Actual Variance Fav/Unf Budget Actual Variance Fav/Unf Program Fees - - - - Restricted Grants - - - - Unrestricted Donations 50,000 20,000 (30,000) 40% - Interest on Investment 200,000 175,000 (25,000) 88% - Total Revenue 250,000 195,000 (55,000) 78% - Expenses Salary 50,000 52,000 (2,000) 104% 50,000 20,000 30,000 40% Payroll Taxes 6,250 6,100 150 98% 6,250 2,324 3,926 37% Fringe Benefits 7,500 7,300 200 97% 7,500 3,000 4,500 40% Legal Fees 15,000 12,000 3,000 80% 3,000 560 2,440 19% Financial Consultants 10,000 11,000 (1,000) 110% 5,000 3,982 1,018 80% Program Consultants - 0% 10,000 2,900 7,100 29% Rent 15,000 16,000 (1,000) 107% 6,000 3,000 3,000 50% Utilities 2,250 3,000 (750) 133% 900 356 544 40% Insurance 3,000 2,678 322 89% 2,000 986 1,014 49% Supplies 8,000 8,974 (974) 112% 5,000 1,300 3,700 26% Travel 4,000 3,000 1,000 75% 3,000 1,409 1,591 47% Capital Purchases 5,000 4,045 955 81% 2,000 1,500 500 75% Total Expenses 126,000 126,097 (97) 100% 100,650 41,317 59,333 41% Net Income 124,000 68,903 (55,097) 56% (100,650) (41,317) 59,333 41%
ABC, Inc. Revenue Program Fees Restricted Grants Unrestricted Donations Interest on Investment Public Education Public Services Budget Actual Variance Fav/Unf Budget Actual Variance Fav/Unf 90,000 89,756 (244) 100% 150,000 152,987 2,987 102% 350,000 325,983 (24,017) 93% 500,000 498,573 (1,427) 100% Total Revenue 440,000 415,739 (24,261) 94% 650,000 651,560 1,560 100% Expenses Salary Payroll Taxes Fringe Benefits Legal Fees Financial Consultants Program Consultants Rent Utilities Insurance Supplies Travel Capital Purchases Total Expenses Net Income 200,000 187,000 13,000 94% 350,000 361,383 (11,383) 103% 25,000 24,578 422 98% 43,750 45,988 (2,238) 105% 30,000 28,474 1,526 95% 52,500 54,938 (2,438) 105% 1,000 1,100 (100) 110% 1,000 595 405 60% 11,000 12,785 (1,785) 116% 13,000 14,576 (1,576) 112% 75,000 77,938 (2,938) 104% 15,000 16,394 (1,394) 109% 50,000 48,092 1,908 96% 60,000 58,983 1,017 98% 7,500 6,893 607 92% 9,000 9,143 (143) 102% 9,000 9,134 (134) 101% 10,000 9,875 125 99% 15,000 16,753 (1,753) 112% 50,000 45,098 4,902 90% 5,000 4,989 11 100% 8,000 5,094 2,906 64% 8,000 8,273 (273) 103% 20,000 17,837 2,163 89% 436,500 426,009 10,491 98% 632,250 639,904 (7,654) 101% 3,500 (10,270) (13,770) -293% 17,750 11,656 (6,094) 66%
ABC, Inc. Revenue Program Fees Restricted Grants Unrestricted Donations Interest on Investment Total Revenue Total Budget Actual Variance Fav/Unf 240,000 242,743 2,743 101% 850,000 824,556 (25,444) 97% 50,000 20,000 (30,000) 40% 200,000 175,000 (25,000) 88% 1,340,000 1,262,299 (77,701) 94% Expenses Salary Payroll Taxes Fringe Benefits Legal Fees Financial Consultants Program Consultants Rent Utilities Insurance Supplies Travel Capital Purchases Total Expenses Net Income 650,000 620,383 29,617 95% 81,250 78,990 2,260 97% 97,500 93,712 3,788 96% 20,000 14,255 5,745 71% 39,000 42,343 (3,343) 109% 100,000 97,232 2,768 97% 131,000 126,075 4,925 96% 19,650 19,392 258 99% 24,000 22,673 1,327 94% 78,000 72,125 5,875 92% 20,000 14,492 5,508 72% 35,000 31,655 3,345 90% 1,295,400 1,233,327 62,073 95% 44,600 28,972 (15,628) 65%
ABC, INC: financial performance measures 2003 2004 2005 2006 budget/goals Q2 2005 Q3 2005 Q4 2005 Q1 2006 1) total revenue for the period $2,255,565 $1,874,372 $1,824,093 $2,080,129 $451,912 $461,409 $479,335 $472,424 2) total expense for the period $1,963,947 $2,003,874 $1,878,800 $2,079,265 $501,783 $437,495 $449,103 $460,141 net revenue $291,618 ($129,502) ($54,707) $864 ($49,871) $23,914 $30,232 $12,283 3) net revenue to total revenue for the period 11.9% -6.9% -3.0% 0.0% -11.0% 5.2% 6.3% 2.6% 4) % revenue change over prior period 27.4% -16.9% -2.7% 11.0% 4.7% 2.1% 3.9% -1.4% 5) 6) 7) % spending change over prior period -0.4% 2.0% -6.2% 3.8% 2.2% -12.8% 2.7% 2.5% % of accounts receivable over 90 days 19.6% 20.1% 21.3% 19.0% 22.6% 20.7% 20.0% 5.4% net cash flow for the period (thousands) ($14) ($171) $21 na $16 $40 $0 ($30) 8) cash as a % of operating expenses 16.5% 7.6% 9.2% na 26.4% 39.4% 38.5% 31.1% 9) 10) unrestricted cash as a % of total cash 56.6% 32.5% 36.0% na 19.5% 12.1% 26.7% 5.1% ratio of current assets to current debt: X:1 3.0 3.5 0.6 na 2.5 2.6 0.6 0.5 11) total Senior Associate fte's 8.5 9.5 8.3 8.4 8.4 8.4 12) revenue per SA $214 $219 $54 $55 $57 $56 Formulas and Bechmark Levels for Each Metric 1 = total revenue from statement of activities - note that these figures do not include in-kind revenue 2 = total expense from statement of activities - note that these figures do not include in-kind expenses 3 = net revenue total revenue: 7.7% or > establishes a one month reserve 4 = (total revenue current period - total revenue prior period) total revenue prior period: should generally be > than spending change 5 = (total expense current period - total expense prior period) total expense prior period 6 = AR > 90 days: ABC goal is to keep this at or below 20% 7 = net cash flow for the period: should be positive over the long term 8 = checking account balance total expenses: 8.3% or > for the year and 33.3% or > for the quarter means's one month's expenses are held in reserve 9 = unrestricted operating cash balance total checking account balance (exlcuding investment account): high %'s indicate more cash from fee for service activities and low %'s indicate higher grant or deposit balances 10 = current assets current liabilities: a ratio of 1:1 or greater means total assets exceed total liabilities 11 = total Senior Associate full time equivalents
ABC, INC Employee Timesheet Employee Pay Period Date General & Admin Fundraising Public Ed Public Serv Vacation Holiday Sick Total Hours Total Hours Percentage Employee Signature Supervisor Signature
ABC, INC Employee Expense Reimbursement Name: Department: Date: Supervisor: Expense Description Account Cost Center Class Amount Total: Employee Signature: Authorization Signature: