Equipping the Board for Financial Leadership ML159
COPYRIGHT REPRINT PERMISSION Copyright © 2016 Neighborhood Reinvestment Corporation d/b/a NeighborWorks® America. All rights reserved. Requests for permission to reproduce these course materials should be directed in writing to: Copyright Reprint Permission Training Division Neighborhood Reinvestment Corporation/b/a NeighborWorks America 999 North Capitol Street, NE, Suite 900 Washington, DC 20002 (800) 438-5547 E-mail:
[email protected] www.neighborworks.org
ML159: Equipping the Board for Financial Leadership
ML159: Equipping the Board for Financial Leadership
TABLE OF CONTENTS
TAB 1:
Course Overview
TAB 2:
Slides
TAB 3:
Worksheets
TAB 4:
Models
TAB 5:
Tools
TAB 6:
Case Study
TAB 7:
Resources
ML159: Equipping the Board for Financial Leadership
ML159: Equipping the Board for Financial Leadership
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ML252: Money and Mission: Ensuring Effectiveness and Sustainability through Successful Financial Leadership
COURSE OVERVIEW COURSE NUMBER: ML159, part of the Management and Leadership Track COURSE TITLE: Equipping the Board for Financial Leadership COURSE LENGTH: One day (8 hours – including breaks and lunch, 6 hours of content). COURSE DESCRIPTION: Board members will develop a robust and concrete understanding of their roles as fiduciaries of the organization. Executive and financial staff will learn ways to help board members step fully into their fiduciary roles. This interactive, outcomes-oriented session focuses on the functional responsibility of fiduciaries to ensure that the organization they serve acquires and allocates assets effectively and efficiently while creating worthwhile community benefit. We identify what strong fiduciary conversations look and feel like; the decisions we expect from board engagement in these conversation; the models, systems, and structures that support these conversations; and the financial architecture, processes, and data that inform the decision-making process. At its core we are looking at leveraging the organization’s financial processes to advance the organization’s community benefit goals. The seminar covers the topic of fiduciary leadership and strategy, financial planning and architecture, financial reporting and communication, and financial auditing and compliance. In this course participants will:
Learn to tie the financial, programmatic, operational, and leadership efforts of the organization together to develop a richer understanding of the organization’s impact to strengthen how financial information is used to support mission-focused decision making Review strategies that ensure that organizational leaders account for and allocate resources to effectively fulfill mission today while also reinforcing sustainability moving forward Work with their leadership team and other peers to develop strategies for implementing change, to strengthen the financial systems, processes, and communications that support board fiduciary success
IDEAL ATTENDEES: The greatest benefit is to organizations that are able to commit a team of leaders to the program including Treasurer, Board Chair, Chief Executive (Executive Director) and/or CFO. COURSE OVERVIEW: Financial leadership unlocks the power of financial management as a strategy, evaluation, and leadership development process that increases an organization’s potential to successfully create community change. Tying the financial, programmatic, operational, and leadership efforts of an organization together develops a richer understanding of the organizations we serve, the benefit of our work in the community, and ensures that we are acting as responsible fiduciaries by accounting for and allocating organizational resources so that they contribute to effectively fulfilling the mission today while also reinforcing our sustainability moving forward. This financial leadership curriculum brings together board members and financial practitioners as learning leadership teams. The program engages participants in active learning focused on exploring the fiduciary context and financial assessment needed to leverage financial management for greater organizational and community benefit.
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ML159: Equipping the Board for Financial Leadership COURSE OBJECTIVE: The objective of ML159 is to equip board and financial staff at nonprofit organizations with a concrete understanding of the fiduciary responsibilities of individual board members and the board as a whole. Board members will leave the course with increased financial literacy including key questions to ask and red flags from each major topic of the course. Financial staff members will leave with strategies of how to help increase the financial literacy of board members. CORE COMPETENCIES and LEARNING OBJECTIVES: Fiduciary Responsibility Competency 1.1: Develop a working definition of “fiduciary responsibility” and “fiduciary conversations” and identify what is required to advance these within the board Learning Objectives: Participants will identify what fiduciary conversations entail and be able to identify the conditions that support these types of conversations. Competency 1.2: Identify the connection between financial systems and processes and an organization’s strategy, mission, and intended community benefit Learning Objectives: What is the role of vision, mission, and outcomes in financial processes? Using frameworks for grounding organizational work on the intended community outcomes of an organization, participants will identify several strategies they can use to create a shared and common understanding about the role of outcomes in organizational decision making. Participants will record the goals they have for their financial systems in the Action Planning Guide. Competency 1.3: Develop strategies that focus leadership conversations and actions on organizational outcomes and sustainability, not simply financial viability Learning Objectives: How do you ensure efficacy in the organization? Participants will identify key organizational outcomes and the strategies/tactics they will use within their own boards to elevate “fiduciary responsibility and engagement,” including the use of matrix tool(s) to use as strategy screens for evaluating organizational efforts against organizational outcomes. Strategic Budgeting Competency 2.1: Utilize an expanded definition of a comprehensive budget process to incorporate the process as the development of organizational financial architecture and thus to select key activities for their action plan Learning Objectives: What characteristics indicate a sustainable organization? Using a visual depiction of two organizations, the participant will discuss with the entire class which of the two exhibits a more sustainable organization and what elements make it so, learning their mistakes through the facilitated class discussion. Does the budget process extend throughout the year as a planning-monitoringevaluation process and deliver a multi-year budget? Using their brief assessment of this question, the classroom content, and table discussion of effective
ML159: Equipping the Board for Financial Leadership strategies to implement this practice, the participant will enter in his/her action plan 1-3 critical budget process practices to modify upon returning to the organization. Competency 2.2: Participants will identify the policies and tools they need in place to move their organization’s budget process to a more comprehensive practice and will include those they consider most important in their action plan Learning Objectives: Are the financial systems designed to align with the programmatic structure of the organization? Using their brief assessment of this question, slides that demonstrate how to align systems and programs through accounting structure, and table discussion of effective strategies to implement this practice, the participant will enter in his/her action plan any missing alignment practices to modify upon returning to the organization. What is the true cost of a program? Using a brief “fill in” test and slides addressing core aspects of the operating budget, the participant will list the income and expense included in the true cost of a program and identify the errors or omissions in his/her answers through full class discussion and the subsequent presentation. Competency 2.3: Participants will apply their better understanding of the differences between an operating budget and a capital budget and the important considerations in both by choosing critical missing best practices in both for future action in the plan they take back to their organization Learning Objectives: Does the organization create a budget that clearly identifies incoming resources and their allocation based upon the strategic and annual work plan objectives of the organization, and identifies the true cost of programs including allocation of staff and common costs? Using their brief assessment of this question, PPT content discussing the various elements of the operations budget, and table discussion of effective strategies to implement best practices, the participant will enter in his/her action plan 1-3 budget practices to modify upon returning to the organization. Does the organization effectively budget for capital and operating reserves and have strategies to fund those budgets? Using their brief assessment of this question, their organization’s budget, and table discussion of effective strategies to budget for and raise reserves, the participant will enter in his/her action plan 13 actions to address the capital sustainability strategy of the organization. Financial Reporting Competency 3.1: Participants will understand which financial statements contain the answers to which financial factors and benchmarks of health. Learning Objectives:
Why the Budget v Actual P&L is NOT Enough. Participants analyze a balance sheet and then discuss with the class as a whole whether or not they want to be part of the organization with this balance sheet.
ML159: Equipping the Board for Financial Leadership
Have we provided context for our financial statements and the right level of detail for the board? After a review of the four primary financial statements used in organizations (balance sheet, profit and loss, cashflow statement, cashflow projection), participants will evaluate with their table peers the best practices in preparing and using their board financial statements. Let’s examine our financials. Participants review their board financial report against a check list of questions, and compare their own organizational reports in preparation for capturing action items.
Competency 3.2: Participants will consider the ways they can improve the financial leadership materials and discussions as a board and as board members.. Learning Objectives:
The board uses financial reports to assess the organization’s strategies for mission fulfillment and financial sustainability. Using their brief assessment of this question, PowerPoint content on the various uses of reporting, and table discussion of best practices, the participant will enter in his/her action plan 1-3 modifications to their board financial reports. The board adjusts its agenda to encourage leadership discussions using the financial reports. Using their brief assessment of this question, PowerPoint content on the various uses of reporting, and table discussion of best practices, the participant will enter in his/her action plan 1-3 modifications to their board financial reports. Our board uses ratio, graphic and benchmark analysis can improve financial discussion at a staff and board level. Participants review ratio analysis and “read” with the instructor and class several slides showing graphic analysis of organizational progress and analysis with the facilitator before demonstrating their ability to analyze five-year time-series graphs of an organization’s balance sheet and business model and identify concerns shown in the analysis on a continuum of importance
Fiduciary Auditing & Compliance Competency 4.1: Participants will utilize their 990 and the Guidestar website to tell their mission effectiveness by adding organizational context and mission results to both. Learning Objectives:
After introducing the 990 and Guidestar website, participants discuss with the class the context that Guidestar provides their 990 reports, NeighborWorks’ encouragement of Guidestar’s levels of excellence, and their current use of Guidestar to provide context to their financials.
Competency 4.2: Participants will analyze their audited financial statements to determine if those statements indicate a healthy sustainable organization. Learning Objectives:
Introducing the process behind gaining a “clean” audit, participants discuss with the class what that phrase means, how to utilize an audit to ascertain effectiveness and to judge sustainability. Participants will assess if their organization’s audit accurately reflects the community benefits and the business model of the organization.
ML159: Equipping the Board for Financial Leadership Course Instructors: Justin Pollock and Claudia Schechter Claudia Schechter’s consulting philosophy: “Over the past 15 years, new tools and strategies have brought a better understanding of the need for financial sustainability and broad development to nonprofit organizations. With dedicated boards and staffs, nonprofits rarely lack good ideas. But implementing growth strategies taxes stretched resources. I work with nonprofits to help them use the tools at hand and those I have developed in my own nonprofit experience to cost-effectively manage the growth they envision.” Since 2001, Claudia has provided strategic financial consulting through referrals by funders and word of mouth. She also helps public lands agencies and their nonprofit partners begin and enhance their partnerships. Claudia served as the CFO and COO of the National Park Foundation and helped build several nationally known nonprofits over 40 years. She also served Secretary of the Interior Bruce Babbitt as Director of Operations for the Department of the Interior. Justin Pollock is founder of Orgforward, a consultancy working with community benefit agents and capacity builders to develop leadership and strategies that create communities where equity, dignity, and a healthy environment exist for everyone. His focus is on strengthening the connection between vision and the leadership, programming, finance, and infrastructure needed to make change happen and on supporting organizational leaders with what they need to effectively govern and operate their organizations. With more than 20 years of experience in the education and community benefit fields, Justin has trained and presented to board, staff, and volunteers from agencies ranging from small startups to large well-established organizations on topics of governance, financial management, planning, supervision, leadership development, and organizational sustainability Course Structure & Time Frame: The course uses one day (8 hours – including breaks and lunch, 6 hours of content). The seminar is taught by a team of facilitators, one an organizational development practitioner and one an organizational financial sustainability practitioner. The curriculum is divided into four primary sections and delivered as follows: Fiduciary Responsibility – What’s really at stake and included? Budgeting – What have you adopted when you approve a budget? Financial Statements – What are the questions we need to ask and what formats help improve our discussions and thus our decision making? The audit and 990 – How do you as a board member use these required financial documents as analytic tools and communication devices?
ML159: Equipping the Board for Financial Leadership
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ML159
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Equipping the Board for Financial Leadership: Embracing Fiduciary Responsibility (ML159)
Presented By
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Table Intros
Introduce yourself and discuss: What led you to decide to come to this session What are you hoping to walk away with, better understand, be able to do, etc.
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Welcome
Brief Around-the-Room for Networking
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Your Name Organization’s Name Your Role A ‘hope-for’
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ML159
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Workshop Focus Areas Fiduciary Responsibility Connecting Finance and Outcomes Budgeting Understanding all that is Involved Financial Statements Fostering Fiduciary Discussions and Decision Making Auditing & Compliance Leveraging Required Financial Documents for Analysis & Communication Provided on behalf of
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Your Materials
Slides
Models
Root to Canopy Case Study
Resource Guide (online)
Worksheets
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Fundamental Fiduciary Question
Are we effectively and efficiently investing the resources/assets the organization acquires to advance community benefit and achieve our outcomes in a manner that is sustainable over time? 6
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An Organization IS Interdependent Program Capacity Demand, design, effectiveness. mission outcomes
Leadership Capacity Organizational Capacity People, systems, and resources available to pursue program activities
Asset Capacity Business model, financial reserves, donor base, partnerships, etc.
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Example of Our Fiduciary Curiosity Program Advancement Foundation
NOW!
Root to Canopy
200,000.00
Two Hundred Thousand and 00/100
Have Fun Launching the Pilot
What questions would you want answered before accepting Provided on behalf of
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Supporting Fiduciary Responsibility • Encourage Dialog / Conversation • Set Context – Explicitly Link Finance to Vision & Strategy (Means vs Ends) • Connect Systems - Finance and Programs • Broaden Financial Knowledge • Build Accountability • Focus on Sustainability – beyond just viability
Don’t need to be financial scholars, just financially literate 9
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Fiduciary-Focused Conversations
Worksheet
What do better fiduciary conversations look like? • What would board members be talking about? • What questions would you want board members asking of themselves? Of the organization? Financial Leadership is the ability to determine and put in place the conditions that support these types of conversations 10
Image from Animals Australia website
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Conversations: You Choose the Focus
* Orgforward: Modified From David Rock - Quiet Leadership 11
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Fiduciary Engagement Cycle
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Your Model – Foundation for Being a Fiduciary
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Being a Fiduciary Requires Context Reports Budget Financial Systems
© 14 Orgforward
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Foundational Context – Community Outcomes Fiduciary Responsibility Requires AND 1. How do you describe the desired community the organization works to create?(Vision) 2. What capacity is required within the community to achieve the above vision? (Community Capacity) 3. What specific benefits or capacity does the organization work to advance and what approach does it use to accomplish that work? (Outcomes)
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Sustainability Screens – The Big Bridge Strategy Screens Answers: “should we do or continue this effort?”
What consistent criteria does your organization apply in deciding whether to invest in, reduce, or eliminate a program/effort?
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Are We Advancing What Matters While Missions are important… Outcomes are what really matter
For each effort we engage in … 1. To what degree do we EXPECT it to advance each outcome 2. To what degree DOES if advance each outcome 3. What investment do we make in this effort 17
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Vetting Efforts Against Outcomes
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Connecting Outcomes to Finances
Benefit
Profitability Community
Effectiveness
Matrix Map Answers “what is the return on our efforts & investments”
Efficiency 19
*Book: The Sustainability Mindset – Zimmerman & Bell
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Effectiveness
A Matrix Map
Profitability Provided on behalf of
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Communicating Models
Connecting •
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Community Benefit Approach Strategy Programming Assets (Financial Model)
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Asset Model - Understanding Basic Resource Flow Who in the organization knows, where the financial assets… come from go % earned income – from what % foundation support – avg size grant % donated – avg size gift % in-kind % investment / endowment
% on staff – doing what % on materials % on services % on facilities % on general operations % on reserves / debt
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Linking Financial Knowledge to Outcomes & Strategy The Organizational Profile: Links Assets, Allocations, & Aspiration Business Profile: Root to Canopy is a $1.2 million agency with 2/3 of our income from earned income strategies, primarily through fees for service and county contracts, and 1/3 from philanthropic support (50% grants, 25% Ind. Giving, 25% Corp Sponsorships). Our primary expenditures are the staffing (61%) and consulting (25%) required to fulfill our mission through our four major program areas – Thrive, Prosper, Fanfare, and Flourish – of which Flourish is the largest program at roughly 50% of expenditures. Our success and sustainability are highly dependent on the skills of both our paid staff and volunteer arborists as well as the public interest in establishing and maintaining a “green” overhead canopy. Provided on behalf of
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Linking Financial Knowledge to Outcomes & Strategy The Organizational Profile Assets, Allocations, & Aspiration Building a Profile Statement 1. XYZ’s is an organization with a revenue stream that
comes from x% …. (if in-kind or volunteers are significant, include them) 2. Those resources are used to deliver x, y and z … (include specific program and admin) 3. To be effective, we must invest in the following resources/strategies…
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Worksheet (p.6)
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ML159
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Workshop Focus Areas Fiduciary Responsibility Connecting Finance and Outcomes Budgeting Understanding all that is Involved Financial Statements Fostering Fiduciary Discussions and Decision Making Auditing & Compliance Leveraging Required Financial Documents for Analysis & Communication Provided on behalf of
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Fiduciary Engagement Cycle
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Financial Inquiry – Where to look for answers Fiduciary Responsibility Requires Resource Knowledge Asset Engagement aka - income & in-kind
Asset Allocation
aka - expenses and utilization
Operating Financial Plan aka - budgeting
Capital Reserves & Resilience aka - net-asset balance
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When we, as board members, approve an annual budget, what are we REALLY approving?
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A Budget Tactility Approves… (Non Fiduciary) Vision / Mission
Vision of Community Community Benefit/Impact Strategy Program Mix Infrastructure / Systems Activities
Business Model Asset Strategy
Generate Assets ($/) Utilize Assets ($/) Provided on behalf of
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Revenue Allocations 30
Reserves
Development
Administration
B RESTRICTED
RESTRICTED
© Claudia P. Schechter
Worksheet
Program
Development Administration Reserves
AA
Program
Expense Allocations
The Nonprofit Conundrum
UNRESTRICTED
UNRESTRICTED
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Revenue Allocations
Restricted $
Reserves
Development
B
Administration
Program
Development Administration Reserves
AA
Program
Expense Allocations
The Nonprofit Conundrum
Restricted $ Unrestricted $
Unrestricted $ FLEX
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© Claudia P. Schechter
Re-Align Thinking About Organization Model
Each of our programs is built around, supported by, and shares responsibility for Core Mission Support functions Source: A Graphic Re-visioning of Nonprofit Overhead, Nonprofit Quarterly, By Curtis Klotz of Nonprofits Assistance Fund, August 16, 2016 Provided on behalf of
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Highlighting Underfunded Program Challenges Some programs are only partially funded by contributions or by earned revenue. The expenses not covered include a proportionate share of the Core Mission Support. This creates a Gap in funding for the finance, human resources, governance, and fundraising infrastructure that support the entire organization. 33
Source: A Graphic Re-visioning of Nonprofit Overhead, Nonprofit Quarterly, By Curtis Klotz of Nonprofits Assistance Fund, August 16, 2016 Provided on behalf of
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Deepen Thinking – A 3-Dimensional Budget
OPERATING BUDGET
Program
Program
Program
The flat plane budget Operating Budget
Reserves
IN-KIND, PASS THRU FACTORS
Operating Budget
Reserves
Reserves
CAPITAL BUDGET
The 3-dimensional budget Provided on behalf of
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Two-Part Organizational Budget Operating Budget
Associated with Statement of Activities (Income Statement / P&L) Planning income and expenses for a single fiscal year to perform immediate mission agenda
Capital Budget
Associated with Statement of Financial Position (Balance Sheet) Sets annual capital targets with explicit funding sources/strategies Done on multi-year basis Looks at overall assets (reserves) Provided on behalf of
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Operating Budget
Associated with Statement of Activities (Income Statement / P&L) Planning income and expenses for a period of time to achieve mission outcomes
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Income Model - Asset Engagement
Income and in-kind model How to we determine if the organization is financially healthy and sustainable? What will it take to get those answers? What can we look to for “meaningful” answers? How do we know if the model is reasonable and healthy for the organization? Provided on behalf of
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Sustainability A sustainable business model begins with accurate income projections, not with program outlays.
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Asset Engagement Model Sources Financial In-Kind Partners
Scale Timing (Cash Flow) Trends (historical and projected) Internal – changes in sources and scale External – changes in environment (regulation, economy, …) 39
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Expense Model - Asset Engagement
Expenses and asset allocation model How to we determine if the organization is financially healthy and sustainable? What will it take to get those answers? What can we look to for “meaningful” answers? How do we know if the model is reasonable and healthy for the organization? Provided on behalf of
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Expense Models – Fully Costed Program Budgets Direct Expense: Unique to Program Direct Expenses: Shared by Programs (aka Common Costs)
Share of Core Support Functions (aka Overhead)
• Direct staffing • Program specific admin staffing • Program specific materials, fees, licensing, facilities, etc • Rent, utilities, phone • Office supplies, business machines (copier/printer…) • Insurance, licensing, fixed assets (furniture, vehicles…) • Business administration staffing (finance, HR, IT, Marketing) • External relations (partnerships, PR, community outreach) • Board support • Fundraising Provided on behalf of
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Direct Expenses – What it takes to determine Determining What We Pay For Do we know: Which assets are financial vs nonfinancial Asset dependencies Assumptions behind asset development Assumptions behind asset utilization 42
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Structure and Accounting Alignment Are the financial systems designed to align with the programmatic structure of the organization? PROGRAM
Restricted/ Unrestricted
FUNDER
ACCOUNT
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Structure and Accounting Alignment VISION Our vision is for a healthy urban living environment which integrates the natural and manufactured ecosystems, within which all people can experience, contribute to, and benefit from their physical community.
MISSION Root to Canopy advances this vision by working in communities with historic canopy deficiency disorder (HCDD) in developing the skills and support needed to build independent and sustainable canopy rich communities.
PROGRAMS Our Fanfare, Prosper, Thrive, and Flourish programs …
Program Services Fanfare
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Prosper
Thrive Flourish Sources of Funds Uses of Funds
Support Services FundGov./ Raising Admin.
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Budgeting Analysis – Planning & Performance
Beyond income and expense balances what questions do we want answered about an organization’s budgeting and financial performance?
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A Better Board Leadership Discussion The board has important perspectives to bring take advantage of the board's diverse knowledge and community base with strategic questions: Are there specific mission or financial objectives that we want for the next 1-2-3 years? Are there desirable new projects, program expansions, or changes in compensation? Are there large expenses for which we should be saving? Is our dollar allocation generally in line with our priorities? How are we using unrestricted income to support mission priorities? Is the need or desire for outcomes changing? Provided on behalf of
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Capital Budget
Associated with Statement of Financial Position (Balance Sheet) Sets annual capital targets with explicit funding sources/strategies Done on multi-year basis Looks at overall assets (reserves)
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Capital Budget: Planning for Sustainability Strategy: ensure net assets and capital needs are resourced by building a Capital budget Budget for operating reserves Reduce a deficit, make debt payments, pay down a line of credit? Purchase equipment, repair facilities, or make leasehold improvements Funds to support new initiatives (innovation) 48
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Operating Reserves “Nonprofit” does not mean “no surplus allowed”
YES! We Do Want/Need Reserves
Promotes Donor/Funder Confidence Sound Investment in sustainable organization Improves Cash Management - Reduces Stress Permits acceptance of reimbursable grants Provides Financial Flexibility Meeting contingencies, handling emergencies Changing course, unwinding Provided on behalf of
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Reserves Terms & Concepts Unrestricted Net Assets
Available
Not Available
Unrestricted Net Assets available for designation by the board
Equity in Fixed Assets, Deposits, Long-term Receivables
Undesignated Operating Funds
Board-Designated Operating Reserves
Board-Designated Reserves
Undesignated portion of available net assets Working Capital
__ % of annual operating expenses
Special Purpose or Building Reserves
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Net Assets – In Pictures BOARD
Operating Cash
Operating Reserves
Special Purpose Funds
Source https://marquetteeducator.files.wordpress.com 51
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Budget & Performance Budget Details Program-based – Asset Allocation Trends Common Costs – Infrastructure Investment
Projection Accuracy Budget to Actual (Year-End Statement of Activity) Reasonable / Explainable Variances Systemic under/over projection habits
Contingency & Reserve Investment Cash Flow Indicators Cash vs. Non-cash assets & expenses Provided on behalf of
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Budget Formats and Audiences
Worksheet
Let’s examine your organization’s budget . . .
What works in this format? What might you add? Does your board have sufficient information? Is the format accessible? How might you improve it? Does it help us understand our business model? Important control points? Financial sustainability? Income worksheets Staffing worksheets Allocation and common cost worksheets Provided on behalf of
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Policy Tools: Year-Round Budget Process Begin FY: Analyze past year End FY: Prepare budget and amend future budgets and cashflow Engage Board and Staff in strategic work planning
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Examine Program Results and Sustainability
Re-examine current budget and program progress
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Policy Tools: Budget Process Timeline
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Outcomes / Strategic Goals Action Plan Final Draft Budget
Approved Budget
Financial Reporting
Draft Budget Treasurer Senior Staff Program Staff
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Data & Financial Models
Finance Committee
Board Provided on behalf of
What we adopt when we approve a budget? As an individual What would you add to the checklist of budget best practices? How would you rate your board’s practices? As a group What about the budgeting process works, doesn’t work for us? Worksheet
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ML159
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Workshop Focus Areas Fiduciary Responsibility Connecting Finance and Outcomes Budgeting Understanding all that is Involved Financial Statements Fostering Fiduciary Discussions and Decision Making Auditing & Compliance Leveraging Required Financial Documents for Analysis & Communication Provided on behalf of
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Fiduciary Engagement Cycle
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Financial Statements What conversations do we want to have and what questions do we need answered?
If you are reporting financial information, make it accessible and make it matter.
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Reporting – A Sense Making Tool
Effective outcomes achievement Investment of resources & the returns Financial and operational integrity Viability AND Sustainability Growth in results & benefit to community (proven & expected) Provided on behalf of
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Discussions and Decision-Making that Matter
• Monitoring Progress
•Evaluating Assumptions
•Making Change
• Outcomes Strategy • Asset Allocation Investments Expenditures
• Asset Engagement • Operating Model • Infrastructure Provided on behalf of
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Connecting Operations to Outcomes Community Outcomes
STRATEGY SCREEN
STRATEGY
Resource Engagement & Utilization
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REPORTS Provided on behalf of
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Understanding Standard Financial Reports How does a given report contribute to… Sense Making What can this report help board members understand? Business / Operating Model Assessment What does this tell board members about how we function and our current state? Decision Making What questions should the board be asking and how should this be informing actions moving forward? Provided on behalf of
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Reporting – Know Your Inventory Standard Financial Reports Statement of Position (Balance Sheet) Statement of Activity (P&L, Income Statement) Cash Flow Projections Accountability (990, Audit, Annual Report) Analytic Reports Ratios Graphs Mission Outcomes Cost per service unit Return on Mission (ROM/ROI)
Time Series Industry Comps
Cost per outcome Number of clients
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Model Statement of Activities Sense Making • How is the organization progressing against the plan (operational budget) • What outcomes are we achieving from this investment so far Business Model Assessment • What assumptions about revenue and expenses models are correct/incorrect Decision Making • Is our current path sustainable 66 @Model created by Elizabeth Foley
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Statement of Activity Programs or functional expense? Both! Compared to what? Budget, projected YE, previous year if applicable, … Begs the ? – is this variance good, bad, indifferent?
Roll-ups vs detail depending on audience Board (Org Level Detail, Expense Roll-Ups)
Clearly states restricted and unrestricted Tells your in-kind business model Supplemented with narrative! Provided on behalf of
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Cash Flow ALIGNED with budget structure TIMELY within 5 days of end of month PAST actuals accuracy of budget assumptions What do we need to change… Annual trends in operating fund availability
FUTURE projections basis for year-end positions Any bad news on the horizon… Plan future expenditures and payments
Projections are People Powered!!! Provided on behalf of
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Sample Statement of Position (Balance Sheet) CASH ACCT RECV
$100,000 $25,000
GRANTS RECV
$200,000
FIXED ASSETS
$900,000
S-T LIABS
$220,000
L-T LIABS
$275,000
NET ASSETS $730,000
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Sense Making What is this helping you understand? What requires more clarity? Operating Model What elements of how we are structured or how we operate can you learn from looking at this? What potential “structural/systemic” issues might there be red flags about? Decision Making What types of decisions can this info help us make? Provided on behalf of
Provided to Neighborworks by Orgforward
23
ML159
10/15/2017
Statement of Position Concepts Coverage/Risk • Quick ratio • Current ratio
Aging • Receivables • Payables
Fixed Asset Investment Inventory Deferred Income
Equity / Net Assets • Unrestricted •Available •Fixed •Reserves
• Temporarily restricted •Time •Purpose
• Permanently restricted
Provided on behalf of
70
Statement of Position What does it tell you about your organization? Cumulative results of all the years of operations (surpluses, deficits, investments) Key to financial reconciliation & control
Coverage and cashflow Aging and cashflow Fixed assets and building burdens Whose money we are using…unrestricted and restricted funds
Supplement with Narrative Context
Annotation, treasurer’s memo Good opportunity for sustainability ratios and percentages (coming later) Provided on behalf of
71
Understanding Asset Restriction - Utilization
Source: Nonprofit Finance Fund 72
Provided on behalf of
Provided to Neighborworks by Orgforward
24
ML159
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Model Statement of Position (Balance Sheet) Fits onto one page Uses columns for context Creates mini-balance sheets showing what is available for operations, board-designated Separates restricted balances Compares to prior year Notes provide explanations of significant balances Notes A B C D E
Two gov't grants; payments expected within next 3 months. Deposits for rent and utilities Deferred Revenue; Pass through (funds temporarily held for others) Non-liquid fixed assets net of any related debt; purchase authorized by board Grant for next fiscal year
Current Year TOTAL to 3/31/16 ASSETS Current Assets Checking/Savings Accounts Receivable Other Current Assets Total Current Assets Fixed Assets Building & Improvements Furniture & Equipment Accum. Depreciation & Amort. Total Fixed Assets Other Assets
TOTAL ASSETS
60,516 192,834 2,010 255,360
Unrestricted Key Board Temp to Operations Designated Restricted Notes
25,516 192,834 2,010 220,360
3,500 3,500 -
-
258,860
220,360
2,440 10,233 15,189 27,862
2,440 10,233
25,000
10,000
25,000
10,000
3,500 3,500
-
28,500
10,000
-
-
-
-
A B
Prior Year
12/31/15
50,516 192,834 2,010 245,360
3,500 3,500 248,860
LIABILITIES & EQUITY Liabilities Current Liabilities Accounts Payable Payroll Liabilities / Accrued Wages Due to / Due from Operating Reserve Other Current Liabilities Total Current Liabilities Long Term Liabilities/Mortgage Total Liabilities Net Assets Unrestricted UR-Undesignated UR-Board Designated Reserve UR-Property, Plant & Equipment Total Unrestricted Temporarily Restricted Total Net Assets
TOTAL LIABILITIES & NET ASSETS
15,189 27,862
27,862
27,862
192,498 25,000 3,500 220,998 10,000 230,998
192,498
258,860
C
25,000 3,500
27,862
D
192,498
28,500
-
192,498
28,500
10,000 10,000
220,360
28,500
10,000
2,440 10,233 15,189 27,862
E
194,998 15,000 3,500 213,498 7,500 220,998 248,860
73
@Model created by Elizabeth Foley
Provided on behalf of
Accounting Changes Ahead (2018) FASB – Liquidity and Coverage (Quantitative & Qualitative) Quantitative: Availability of financial assets to meet cash needs for general expenditures within one year of balance sheet date Qualitative: How a nonprofit manages its available liquid resources
74
Provided on behalf of
Accounting Changes Ahead (2018) FASB – Liquidity and Coverage (Quantitative & Qualitative) Quantitative: Availability of financial assets to meet cash needs for general expenditures within one year of balance sheet date Qualitative: How a nonprofit manages its available liquid resources
75
Provided on behalf of
Provided to Neighborworks by Orgforward
25
ML159
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Statement Formats and Audiences
Worksheet
Let’s examine your organization’s board financial report . . . What works in this format? What might you add? Does your board have sufficient information? Is the format accessible? How might you improve it? Does it help us understand our business model? Important control points? Financial sustainability? Does the agenda encourage leadership discussions using the financial reports? Provided on behalf of
76
Understanding Analytic Ratios Liquidity Measures
Sustainability Measures
Months cash on hand Net working capital Current ratio
Net Assets Comp Leverage Reserve Ratio
Profitability Measures
Efficiency Measures
Surplus Margin / Profit Margin Return on Assets
Program, fundraising % Program expense covered by program revenue
Provided on behalf of
77
Analytic Reports: Ratios Dec 31, 15
Dec 31, 15
Dec 31, 14
$ Change
% Change
Total Equity
954,922
92%
228,137
726,785
319%
TOTAL LIABILITIES & EQUITY
1,042,152
100%
280,906
761,246
271%
Coverage (Cash:Current Liabilities) $
4.79
$
3.56
$
1.23
35%
Coverage (Current Assets:Current Liabilities) $
10.78
$
5.67
$
5.11
90%
Accts Receivable Aging Current
Accts Payable Aging
Operating Reserves Coverage
1 - 30
31 - 60
61 - 90
> 90
TOTAL
15,855
465,000
0
0
0
480,855
12,485
0
0
0
0
12,485
0.18
~ Two Months
FY 14 Expense= 456,845
= Available Unrestricted Net Assets/ Annual Expense
78
Provided on behalf of
Provided to Neighborworks by Orgforward
26
ML159
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Analytic Reports: Your Business Model Over Time Income Sources 2008 - 2012
Expenses 2008-2012
1000000
600,000
900000
500,000
800000 700000
400,000
600000
300,000
500000 400000
200,000
All other expenses held basically steady
300000 200000
100,000
100000 0 Dec 31, 08
Dec 31, 09
Dec 31, 10
Dec 31, 11
Dec 31, 12
FY 2008
FY 2009
FY 2010
FY 2011
FY 2012
Provided on behalf of
79
Analytic Reports: Dashboard
Provided on behalf of
80
Analytic Reports: Mission Outcomes: Storytelling? THE IMPACT If 50% of elderly adults who receive in-home care from Jewish Social Services Agency (JSSA) in Maryland were instead placed in nursing homes, the total annual cost would be 15 times higher – or $96 million a year – than the $6 million it costs for JSSA to provide services and keep those 1,000 elders in their homes. THE IMPACT When the transitional housing program at Friends of Guest House helps a woman released from prison re-enter society successfully, it costs the community 65% less than if she went back to prison for one year.
81
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Provided to Neighborworks by Orgforward
27
ML159
10/15/2017
Statement Formats and Audiences
Worksheet
Let’s examine your organization’s board financial report . . . What works in this format? What might you add? Does your board have sufficient information? Is the format accessible? How might you improve it? Does it help us understand our business model? Important control points? Financial sustainability? Does the agenda encourage leadership discussions using the financial reports? Provided on behalf of
82
Workshop Focus Areas Fiduciary Responsibility Connecting Finance and Outcomes Budgeting Understanding all that is Involved Financial Statements Fostering Fiduciary Discussions and Decision Making Auditing & Compliance Leveraging Required Financial Documents for Analysis & Communication Provided on behalf of
83
The audit and 990 – How does a board member use these required financial documents as analytic tools and communication devices?
If you are reporting financial information, make it accessible and make it matter. 84
Provided on behalf of
Provided to Neighborworks by Orgforward
28
ML159
10/15/2017
External Financial Reports Reports
Audit (Review, Compilation) A133 Audit 990 – IRS Nonprofit Organization Information Return Annual Report
Recipients
Nonprofit organizations have a legal obligation to make financial statements public. Taxpayer Bill of Rights 2 requires all 501(c)(3) organizations to send the 3 most recent 990s upon request. 990s are posted on-line at www.GuideStar.org. Senate Finance Committee – SOX has resulted in some additional reporting requirements for accountability.
Government - Federal - State - Local General Public - Donors - GuideStar Funding Sources and other Special Audiences
85
Provided on behalf of
86
Provided on behalf of
Anatomy of Risk – Know the Commitment Every Decision Is a Commitment A commitment to something we will do in the future Do we understand the commitment? Do we understand what it will take to honor it? What may compromise our ability to honor it? 87
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29
ML159
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Anatomy of Risk: Understand Source Structural Risk
Environmental Risk
Program expansion Staff growth Benefits obligations Capital liabilities Org Culture Systems
Economy Regulation Funders Shifts in demand Reputation Acts of God Provided on behalf of
88
Audits Internal: Program managers approve program P&L’s and funder invoices Finance & audit committee reviews statements monthly Board committee reviews documentation annually when 990 is prepared
External: Audit vs. review vs. compilation All states have audit thresholds Often tied to contributions
Provided on behalf of
89
Reflection • • • •
90
Your Biggest Take Away What jumps out What Aha did you have What question(s) are coming up for you
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30
INSERT TAB 3
© 2017 Orgforward LLC
ML159 Discussion & Planning Guide
Part 2: • What would support board members in being able to have those conversations?
Part 1: What would better fiduciary conversations that link assets and outcomes look like? • What would board members be talking about? • What questions would you want board members asking of themselves? Of the organization?
FIDUCIARY CONVERSATIONS Imagine financial conversations that are about sustainability and vision?
2
Are we effectively and efficiently investing the resources/assets the organization acquires to advance community benefit and achieve our outcomes in a manner that is sustainable over time?
What specific benefits or capacity does the organization work to advance and what approach does it use to accomplish that work? (Outcomes)
What capacity is required within the community to achieve the above vision? (Community Capacity)
How do you describe the desired community the organization works to create? (Vision) Example: “A place/community where … exists”
ARTICULATED PURPOSE & STRATEGY
3
Fiduciary Leadership
Matrix Map
Profitability
Benefit Community
4
1. XYZ’s is an organization with a revenue stream that comes from x% …. (if in-kind or volunteers are significant, include them) 2. Those resources are used to deliver x, y and z … (include specific program and admin) 3. To be effective, we must invest in the following resources/strategies……
~3 sentences:
Simple Business Profile Statement
5
B3. I am confident that I and my fellow board members understand the program investments/costs in our organization and agree that the projections are achievable.
B2. I am confident that I and my fellow board members understand the asset/revenue generation in our organization and agree that the projections are achievable.
B1. The board has a system for regularly and consistently assessing the strategy and program portfolio of the organization to determine what to continue, stop, divest, or invest in?
How strongly do I agree (1 to 5)
What steps can you take to improve this within the organization
Fiduciary Conversations for your Board Table
6
B5. The financial systems are designed to align with the programmatic structure of the organization. (Does the organization create a budget that clearly identifies the true cost of programs including allocation of staff and common costs based upon the strategic and annual work plan objectives of the organization?) B6. The budget process allows board members to fully engage in their fiduciary responsibilities?
B4. I am confident that I and my fellow board members understand the capital needs in our organization and agree that we have protected our assets through reserve policies and funding.
Rating)
What steps can you take to improve this within the organization
7
FIXED ASSET RESPONSIBILITY (RESERVES)
RESTRICTIONS (BORROWING FROM FUNDERS)
COVERAGE (LIQUIDITY)
YOUR ANALYSIS • what can you say about the following? • what questions arise for you in each area?
DISCUSSION NOTES:
8
B9. I am confident that I and all my fellow board members understand the trends in our current business model and agree on the opportunities and risks in those trends
B8. I am confident that our finance committee members have reviewed our organization’s financial statements and bring to us the critical financial discussions/decisions needed to help sustain our mission.
B7. I am confident that I and all my fellow board members understand our organization’s financial statements and agree on the critical financial discussions/decisions needed to help sustain our mission.
Rating)
What steps can you take to improve this within the organization
9
10
INSERT TAB 4
Approach
Community Vision
Root to Canopy Theory of Change We envision a healthy urban living environment for everyone that integrates the natural and manufactured ecosystems, within which all people can experience, contribute to, and benefit from their physical community
Guiding Frameworks
Root to Canopy advances this vision by working in communities with historic canopy deficiency disorder (hcdd) to develop the skills and support needed by citizens to build independent and sustainable canopy rich communities. We embrace and promote the following principles through our work in the community Environmental Diversity
Community Health
Areas of Focus
We will contribute to our vision of the community by advancing positive outcomes in the following areas
Increased Tree Canopy
Progra ms Business Model
Civic Engagement
People invest in building and sustaining community's green space
Thrive
Municipal policy alignment
Prosper
People are actively enjoying and using canopied community spaces
Fanfare
Flourish
Root to Canopy is a $1.2 million agency with 2/3 of our income from earned income strategies, primarily through fees for service and county contracts, and 1/3 from philanthropic support (50% grants, 25% Ind. Giving, 25% Corp Sponsorships). Our primary expenditures are the staffing (61%) and consulting (25%) required to fulfill our mission through our four major program areas – Thrive, Prosper, Fanfare, and Flourish – of which Flourish is the largest program at roughly 50% of expenditures. Our success and sustainability are highly dependent on the skills of both our paid staff and volunteer arborists as well as the public interest in establishing and maintaining a “green” overhead canopy.
INCOME BY SOURCE Other Income 0%
Education Fees 2%
EXPENSE
Individual Donations 8%
Corporate Donations 7% Foundation Grants 18% Workplace Giving Campaigns %1
Service Fees 55%
County Contracts 11%
Consulting Income 3%
INCOME BY PROGRAM General & Fundraising 8%
Admin 1%
Thrive 11%
Supplies & Eqpt. 2%
Insurance/Fees/Busi ness Costs 2%
Occupancy 6%
Communication 2% Program Investments 2% Compensation 61%
Consultants & Prof. Services 25%
EXPENSE BY PROGRAM Prosper 6%
Fundraising 9% Public Education 2%
Public Education 1%
Travel 0%
General & Admin 6%
Thrive 18% Prosper 6%
Fanfare 12% Fanfare 13% Flourish 61%
Flourish 46%
Additional Net Assets after Reserve Contribution
Total Expense Net Operating Income Addition to Reserves
Functional Expense Compensation Consultants & Prof. Services Program Investments Communication Supplies & Eqpt. Travel Occupancy Insurance/Fees/Business Costs
Fanfare Prosper Thrive Flourish Total Program Expense Fundraising General & Admin Total Expense
Program Expenses
Contributed support Earned revenues Total Income
Income
12,500
529,000 400,350 35,000 35,750 21,775 15,000 97,000 40,200 1,174,075 62,500 50,000
158,770 183,770 103,645 521,435 967,620 115,305 91,150 1,174,075
USE THIS SPACE FOR APPROPRIATE COMPARISONS, 416,200 GIVEN AUDIENCE 820,375 1,236,575
SUMMARY BUDGET - PUBLIC Budget Page 1 of 5 Root to Canopy Summary Budget
Compensation Consultants & Prof. Services Program Investments Communication Supplies & Eqpt. Travel Occupancy Insurance/Fees/Business Costs
Compensation 528999.5 Consultants &400350 Prof. Services Program Investments 35000 Communication35750 Fanfare Prosper Thrive Flourish Fundraising General & Admin Supplies & Eqpt.21775 Travel 15000 Root to Canopy FY 2015 Budgeted Use of Resources for Occupancy 97000 Operations Insurance/Fees/Business 40200 Costs
Corporate Donations Individual Donations 148,500 Corporate Donations 65,000 Foundation Grants Foundation Grants 202,700 County & State Contracts County & State 147,500 Contracts Consulting Income Consulting Income 23,000 Service Fees Service Fees635,675 Other Income 14,200 Other Income Fanfare 158770 Prosper 183769.6 Root to Canopy FY 2015 Programs Thrive 103645.5 Flourish 521435 Fundraising 115304.7 General & Admin 91149.69
Individual Donations
Root to Canopy Income Sources: FY 2015 Budget
Case 2
105,559 7,070 4,300 15,750 1,200 500 17,244 7,147 158,770 (76,270)
(76,270)
529,000 400,350 35,000 35,750 21,775 15,000 97,000 40,200 1,174,075 62,500 50,000
12,500 Use of FY 2014 Fund Balances less projected FY 2015 Fund Balances
Programs to analyze
10,400
1,927
121,153 3,270 14,975 2,300 8,750 3,500 25,328 4,497 183,773 1,927
45,000 23,000 68,000 185,700
50,000 67,700 117,700
Prosper
-
(8,645)
76,134 3,510 1,500 2,520 1,700 750 12,394 5,137 103,645 (8,645)
95,000 95,000 95,000
Thrive
-
121,741
105,781 345,000 12,000 9,700 8,025 9,250 18,861 12,817 521,434 121,741
7,500 635,675 643,175 643,175
Flourish
113,175
71,639 20,500 500 2,755 900 500 12,394 6,137 115,325 113,175
228,500
135,000 15,000 75,000 3,500 228,500
Fundraising
33,879 39,214 22,116 111,266 (110,149) (26,887) (30,762) 10,475 Heart Program… New effort… Keep watch Needs Add income Add income Primary attention source? source? Contributor on pay off
12,500 12,500 82,500
147,500 23,000 12,500 635,675 1,700 820,375 1,236,575
Share of FR & G&A Total contribution to fund balances
10,000 60,000 70,000
Fanfare
145,000 65,000 202,700 3,500 416,200
Summary Page Income Contributed Income Individual Donations Corporate Donations Foundation Grants Workplace Giving Campaigns Total Contributed Income Earned Income Program Income County & State Contracts Consulting Income Education Fees Service Fees Other Income Total Earned Income Total Income Expense Compensation Consultants & Prof. Services Program Investments Communication Supplies & Eqpt. Travel Occupancy Insurance/Fees/Business Costs Total Expense Net Operating Income Contribution to Reserves Net addition to Fund Balance after Reserves
Budget Page 2 of 5 Root to Canopy Summary FY 2015 Budget for Board of Directors
-
23,725
(89,451)
48,756 21,000 1,725 2,725 1,200 500 10,778 4,467 91,151 (89,451)
1,700 1,700 1,700
General & Admin
61,355
61,355
463,333 433,333 8,112 16,267 16,000 2,667 68,800 30,133 1,038,645 61,355
85,000 26,000 10,000 494,000 3,300 800,000 1,100,000
60,000 35,000 119,000 3,300 300,000
Previous Year Estimated YE
Case 3
A 1 2
B
C
D
E
F
G
H
I
J
Prosper
Thrive
Flourish
Fundraising
Mgt/ G&A
Root to Canopy Compensation Budget Budget Page 3 of 5
3
4
Position
Init
Fanfare
5 Executive Director
1.00
25.00%
6 Thrive Program Director
1.00
5.00%
7 Prosper Manager
1.00
10.00%
8 Prosper Associate
1.00
9 Fanfare Manager
1.00
10 Flourish Program Director
1.00
11 Fundraisisng Associate
1.00
25.00%
5.00%
10.00%
90.00%
20.00%
15.00%
5.00%
90.00%
0.0%
95.00%
5.00%
95.00% 10.00%
5.00%
5.00%
0.0%
5.00%
0.0%
70.00%
0.0%
100.00% 10.00%
0.0% 0.0%
0.0%
12 Office Manager
1.00
5.00%
5.00%
5.00%
20.00%
5.00%
60.00%
0.0%
13 Accountant
1.00
10.00%
10.00%
10.00%
40.00%
10.00%
20.00%
0.0%
14
0.00
0.0%
15
0.0%
16 Program % of total employee Total 17 hourly effort
9.00
160.0% 18%
26%
13%
19%
13%
11%
100.0%
18
9.00
1.60
2.35
1.15
1.75
1.15
1.00
9.0
19
Program FTEs
235.0%
115.0%
175.0%
115.0%
100.0%
FY 2013
20 Executive Director
22,969
22,969
4,594
9,188
18,375
13,781
-
21 Thrive Program Director
3,369
-
60,638
-
3,369
-
-
22 Prosper Manager
5,513
49,613
-
-
-
-
-
23 Prosper Associate
-
34,913
-
-
-
1,838
-
24 Fanfare Manager
60,050
-
-
-
3,161
-
-
25 Flourish Program Director 26 Fundraisisng Associate
-
-
-
61,250
-
-
-
5,513
5,513
2,756
2,756
38,588
-
-
27 Office Manager
1,684
1,684
1,684
6,738
1,684
20,213
-
28 Accountant
6,463
6,463
6,463
25,850
6,463
12,925
-
29
0
-
-
-
-
-
-
-
30
Total
105,559
121,153
76,134
105,781
71,639
48,756
-
31 FY XX Starting Salary
32 Compensation Table
Pension
33 Benefits % 34
Bonus Pool Taxes % Allocation Applied
0.025 Position
35 Executive Director
FTE
0.02
FY529,023 0XX Total Compensation @ 1
Health Care
0.08
0.1
Init
1.00
75,000
1,875
1,500
6,000
7,500
91,875
91,875
36 Thrive Program Director
1.00
55,000
1,375
1,100
4,400
5,500
67,375
67,375
37 Prosper Manager
1.00
45,000
1,125
900
3,600
4,500
55,125
55,125
38 Prosper Associate
1.00
30,000
750
600
2,400
3,000
36,750
36,750
39 Fanfare Manager
1.00
51,600
1,290
1,032
4,128
5,160
63,210
63,210
40 Flourish Program Director
1.00
50,000
1,250
1,000
4,000
5,000
61,250
61,250
41 Fundraisisng Associate
1.00
45,000
1,125
900
3,600
4,500
55,125
55,125
42 Office Manager
1.00
27,500
688
550
2,200
2,750
33,688
33,688
43 Accountant
1.00
55,000
1,375
1,100
4,400
2,750
64,625
64,625
-
-
-
-
-
-
-
434,100
10,853
8,682
34,728
40,660
529,023
529,023
44 45 46 47
9.00 Ck
-
Case 4
A
B
I
L
M
N
O
P
Q
Fanfare
Prosper
Thrive
Flourish
Fund-raising
Mgt/ G&A
Root to Canopy Budget Contributions Budget Page 4 OF 5
1 2 3 4 5
Individuals
6 7
Year End Appel
90,000
8
Springr Appeal
20,000
9
Board members
10
10,000
25,000
10,000
-
-
-
135,000
-
-
-
-
-
-
-
Membership Fees
11 12
Workplace Giving
13 14
Combined Federal Campaign
15
United Charities Campaign
3,500 -
16 17
-
-
-
-
3,500
-
-
15,000
-
Corporations
18 19
Community 1
12,500
20
Community 2
12,500
21
Community 3
12,500
22
Other TBD
12,500
23
Gen. Op. Support
24
15,000 -
50,000
-
Foundations
25 26
A
27
B
20,000
28
C
15,000
29
D
30
E
31
F
32
G
25,000
10,000 10,000 10,000
33
H
40,000
34
I
12,000
35
J
36
Other TBD
37
Total
15,000 15,700
30,000
60,000
67,700
-
-
75,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
70,000
117,700
-
-
228,500
-
Government
38 39
F
40
St
41
LC
42
Events
43 44 45 46 47
48 Community Organizations/ Faithbased 49 50 51
TOTALS
52
Contributions Total
53 54
Earned Income TOTALS
416,200 820,375 1,236,575
Case 5
Root to Canopy Earned & Program Income Budget Page 5 OF 5 Funding Source/ FunderName
Fanfare
Prosper
Thrive
Flourish
Fundraising
Management/G&A
EARNED REVENUES Government - Federal (Root to Canopy has no federal grants)
-
-
-
-
-
-
7,500
-
-
95,000
-
-
-
Government - States State Community Environments Contract
45,000
State County Education Grant
7,500
-
45,000
-
Government - Local County A
20,000
County B
25,000
County C
25,000
County D
25,000 -
-
Consulting Income Corporate Clients
7,000
Individual Clients
9,000
Public Buildings
7,000
TOTAL PROGRAM INCOME
-
23,000
-
-
-
-
-
68,000
95,000
7,500
-
-
Fees for Services Household Eduction Program
12,500
Canopy Service Fees
635,675
Other Earned Income Interest & Dividends
1,000
Rental
700
TOTAL EARNED REVENUE
12,500
TOTAL EARNED REVENUE
820,375
68,000
95,000
643,175
-
1,700
Case 6
Root to Canopy Treasurer’s Memo to the Board of Directors From Yours Friendly, Treasurer, on behalf of the R2C Finance Committee For the November 2015 Board Meeting
Strategic Topics:
At the November board meeting we will discuss the draft FY 2016 budget. In our September FY 2016 budget goals discussion, the board asked the committee to examine our fee for service Flourish program, with particular attention to the use of contractors to fulfill this program. The analysis is part of your budget package. We also include projections for our growing individual and corporate fundraising, another priority established in our FY 2015 budget when we added a development specialist to our staff. We have held several discussions with the State about expanding our Prosper (hcdd-poor communities) program. These are too preliminary to budget for in FY 2016, but we have included a separate pro forma showing how an activity such as under discussion with the State might play out in financial terms.
Finance Committee Calendar:
Root to Canopy’s fiscal year ends 12/31/2015. We have contacted our auditor and scheduled fieldwork for March 10. Review list of contractors, vendors, and leases: this is an annual task on our committee calendar. We don’t anticipate any action for the board. Review investment policies and performance: this is an annual task on our committee calendar. We will examine the laddering of our CDs and whether any other strategy might meet our reserve goals more appropriately.
Financial Statement Notes: Statement of Position (Balance Sheet) 1. We have reduced our receivables, but not our income. This accounts for the smaller total asset amount. 2. We are fully current on payables. The $15K represents the special places fund set aside by the board. 3. We have made progress toward our reserve and are on target to deposit $50,000 in December 2015.
Statement of Activity (Profit & Loss) 1. We project R2C will meet its earned income goals for the year. The good news: thanks to our investment in fundraising, we project a better year end than budgeted. (See line 5 on the Statement of Activity). 2. Our program actual to budget varies, but the variance doesn’t indicate problems. We are meeting targets for activity in each program, and the growth over last year is significant. 3. Line 15 shows the new investment in fundraising staff. 4. Line 22 shows the program investments we agreed upon for FY 2015, including the development of our educational program and better equipment packs for our arborists. 5. We had budgeted additional travel funds that may not be fully used. We did not reduce our projected year end.
Cashflow Projection 1. We have maintained 2+ months operating cashflow in our operating account (see cashflow projections). 2. We will transfer $50,000 to our reserves in December.
Case 7
76%
Board Meetings Community Projects
Fundraising Events
71%
In Council committee Review with Planning Commission Discussion with Chief of Planning Not active
Board Participation
77%
County A County B County C County D
Progress on water retaining site development regulations:
BALANCE SHEET To-Date Cash/Savings 551 Receivables 85 Fixed Assets 7 Other Assets 25 TOTAL ASSETS 667 Payables 34 Accrued Exp Other Liabilities TOTAL LIABILITIES 34 Undesignated 246 Board-Designated 241 Restricted 90 Year's Profit
57 TOTAL NET ASSETS 633 TOTAL LIAB+Net Assets 667
In Thousands
300 250 200 150 100 50 -
Feb
Mar
April
May
75%
91%
77%
75%
78%
78%
79%
77%
% Bud
Prior Year 216.4 583.7 400 800.1 641.1 200 101.0 742.1 58.0
Jun
Jul
Aug
Projected Cash Flow
In Thousands To-Date Budget 319.9 416.2 645.5 820.4 965.4 1,236.6 752.6 967.6 155.8 206.4 908.4 1,174.0 57.0 62.6
As of: 9/30/2015
FY11
Sep
Oct
Avail Unr. NA
FY10
Nov
-
# Participants to-date
Arborists (Small/Minority)
Fee-Paying Customers
County sites on plan
Education Participants
Completion: hdcc Trees
Completion: hdcc sites
1,000
Program Participation
Goal
2,000
Dec
Op. Reserves
FY12 FY13 to date
Unrestricted Net Assets Trend
75% through fiscal year
Cash includes operating cash accounts, numbers are THOUSANDS. Reserves shown as blue line. Oct - Dec amounts are projected.
Jan
PROFIT & LOSS Contributed Revenue Earned Revenue TOTAL Program Expenses Support Expenses TOTAL Net from Operations
Root to Canopy
3,000
Case 8
Accrual Basis
FIRM: Roots to Canopy
Balance Sheet Prev Year Comparison As of September 30, 2015
Note that this is a full balance sheet with rows hidden to allow the roll up.
Roots to Canopy Balance Sheet
Sept 30, 2015 Sept 30, 2014
$ Change
% Change
Notes
ASSETS Current Assets Checking/Savings Total 1001 · Operatng & MM Accounts Total 1002 · Certificates of Deposit Total 1009.X Retired CD's Total Checking/Savings Total Accounts Receivable
220,396 305,128 525,524 45,638
206,567 13,829 220,369 (4,442) 89,200 N/A N/A 516,137 9,387 37,168 8,469
7% -1%
(9,365) 83,650 74,285 17,946 92,231 663,392 6,573 7,357 677,322
(8,365) 83,650 75,285 16,946 92,231 645,536 3,673 3,706 652,914
(1,000) (1,000) 1,000 17,857 2,900 3,651 24,408
-12% 0% -1% 6% 0% 3% 79% 99% 4%
15,000 9,900 24,900 24,900
15,000 14,052 29,052 29,052
(4,151) (4,151) (4,151)
0% -30% -14% -14%
69,445 510,000 16,040 56,937 652,422 677,322
27,185 500,000 25,400 71,277 623,862 652,914
42,259 10,000 (9,360) (14,340) 28,559 24,408
155% 2% -37% -20% 5% 4%
1 1
2% 23%
Other Current Assets 1210 · Pledged Receivables & Grants 1215 · Allowance for Doubtful Accts 1210 · Pledged Receivables & Grants - Balance Due Total 1210 · Pledged Receivables & Grants Total 1300 · Other Current Assets Total Other Current Assets Total Current Assets Total Fixed Assets Total Other Assets TOTAL ASSETS
2 2
LIABILITIES & EQUITY Liabilities Current Liabilities Total Accounts Payable Total Other Current Liabilities Total Current Liabilities Total Liabilities Equity 3000 · Unrestricted Net Assets 3100 · Board Desig. Operating Reserve 3500 · Restricted Net Assets Net Income Total Equity TOTAL LIABILITIES & EQUITY
3
Coverage Ratio: Operating Account Dollars per Dollar of Liabilities
$
8.85
Reserves Operating Reserves as Ratio of Annual Budget
43.4%
Target =
50%
NOTES to Balance Sheet 1 2 3
Case 9
Roots to Canopy
Accrual Basis
Balance Sheet Prev Year Comparison As of September 30, 2013
BALANCE SHEET PULLED RIGHT OFF QUICKBOOKS AS COMPARISON Section 3 Page 4 Sep 30, 13 Sep 30, 12 $ Change % Change
Notes
ASSETS Current Assets Checking/Savings 1000 · Cash Accounts 1001 · Operatng & MM Accounts 1045 · Operating Account 1049 · Credit Card Deposits Acct 1050 · Payroll Account 1052 · Money Market Total 1001 · Operatng & MM Accounts
4,529 17,604 3,082 195,182 220,396
2,852 10,136 1,360 192,219 206,567
1,677 7,468 1,721 2,962 13,829
59% 74% 127% 2% 7%
55,725 53,545 30,000 71,778 55,450 38,630 305,128 525,524 525,524
55,447 71,250 55,174 38,499 220,369 426,937 10,410 10,410 10,410 10,410 10,410 16,328 10,410 10,410 89,200 516,137
278 53,545 30,000 527 277 131 (4,442) 98,587 (10,410) (10,410) (10,410) (10,410) (10,410) (16,328) (10,410) (10,410) (89,200) 9,387
1% 100% 100% 1% 1% 0% -1% 23% -100% -100% -100% -100% -100% -100% -100% -100% -100% 2%
45,638 45,638
37,168 37,168
8,469 8,469
23% 23%
(9,365) 74,285
(8,365) 83,650 75,285
5,646 6,725 5,575 17,946 92,231
5,646 6,725 4,575 16,946 92,231
(1,000) (1,000) 1,000 1,000 -
-12% 0% -1% 0% 0% 0% 22% 6% 0%
1002 · Certificates of Deposit 1042 · CD 001 1046 · CD 002 1047 · CD 003 1048 · CD 004 1054 · CD 005 1059 · CD 006 Total 1002 · Certificates of Deposit Total 1000 · Cash Accounts Retired CD's 1059.2 · Retired CD's 1059.3 · Retired CD's 1059.4 · Retired CD's 1059.5 · Retired CD's 1059.6 ·Retired CD's 1059.7 · Retired CD's 1059.8 · Retired CD's Total 1009.X Retired CD's Total Checking/Savings
1
Accounts Receivable 1200 · Accounts Receivable Total Accounts Receivable Other Current Assets 1210 · Pledged Receivables & Grants 1215 · Allowance for Doubtful Accts
1210 · Pledged Receivables & Grants - Balance Due83,650 Total 1210 · Pledged Receivables & Grants 1300 · Other Current Assets 1055 · Investment in Mutual Funds 1060 · Prepaid Insurance 1070 · Insurance Escrow Deposit Total 1300 · Other Current Assets Total Other Current Assets
Page 1 of 2
Case 10
Roots to Canopy
Accrual Basis
Balance Sheet Prev Year Comparison As of September 30, 2013
BALANCE SHEET PULLED RIGHT OFF QUICKBOOKS AS COMPARISON Section 3 Page 4 Sep 30, 13 Sep 30, 12 $ Change % Change Total Current Assets
663,392
645,536
17,857
3%
36,826 20,099 (72,693) 22,342 6,573 6,573
36,826 20,099 (82,693) 19,442 (6,327) 3,673
10,000 2,900 12,900 2,900
0% 0% 12% 15% 204% 79%
7,357 7,357 677,322
3,706 3,706 652,914
3,651 3,651 24,408
99% 99% 4%
15,000 15,000
15,000 15,000
-
0% 0%
7,152 2,749 2,749 9,900 24,900 24,900
6,152 5,122 2,778 7,900 14,052 29,052 29,052
1,000
16%
(29) (5,151) (4,151) (4,151) (4,151)
-1% -65% -30% -14% -14%
69,445 510,000 16,040 56,937 652,422 677,322
27,185 500,000 25,400 71,277 623,862 652,914
42,260 10,000 (9,360) (14,340) 28,560 24,409
155% 2% -37% -20% 5% 4%
Notes
Fixed Assets 1800 · Fixed Assets 1080 · Office Equipment 1081 · Office Furniture 1085 · Accumulated Depreciation 1090 · Leasehold Improvement Total 1800 · Fixed Assets Total Fixed Assets Other Assets 1400 · Security Deposit Total Other Assets TOTAL ASSETS LIABILITIES & EQUITY Liabilities Current Liabilities Accounts Payable 2000 · Accounts Payable Total Accounts Payable Other Current Liabilities 2010 · Client fee credit 2100 · Payroll Liabilities 2110 · FSA Health Withholding Total 2100 · Payroll Liabilities Total Other Current Liabilities Total Current Liabilities Total Liabilities Equity 3000 · Unrestricted Net Assets 3100 · Board Desig. Operating Reserve 3500 · Restricted Net Assets Net Income Total Equity TOTAL LIABILITIES & EQUITY
Page 2 of 2
Case 11
As of September 30, 2015
Functional Expense Compensation Consultants & Prof. Services Program Investments Communication Supplies & Eqpt. Travel Occupancy Insurance/Fees/Business Costs
43 44 45 46 47 48 49 50 51
Program growth over previous year Fundraising per dollar of contributed support $ Net Income as % of Income
30 Total Expense 31 Net Operating Income 41 Addition to Reserves 42 Net Income
20 21 22 23 24 25 26 27 28 29
Fanfare Prosper Thrive Flourish Total Program Expense Fundraising General & Admin Total Expense
6%
56,937 124% 0.21 6%
100% 6% -
36% 44% 3% 3% 2% 1% 8% 3%
9% 13% 8% 57% 88% 7% 5% 100%
908,503 56,937 -
330,540 400,514 26,253 28,773 18,384 7,495 72,666 23,878
82,482 118,782 76,746 519,557 797,567 66,053 44,883 908,503
1 2 3 4 5
40,774
(290,334) (9,226) (50,000)
(110,180) (103,505) (8,751) (9,591) (6,128) (12,498) (24,222) (15,459)
(30,000) (38,218) (6,454) (190,443) (265,115) (15,947) (14,367) (295,429)
Significant change in income Program growth/change/net Push on contributions Planned program investments Change in travel policies
16,163
1,198,837 66,163 50,000
440,720 504,019 35,004 38,364 24,512 19,993 96,888 39,337
112,482 157,000 83,200 710,000 1,062,682 82,000 59,250 1,203,932
Program Expenses
12 13 14 15 16 17 18 19
10 11
352%
76% 86% 0%
75% 79% 75% 75% 75% 37% 75% 61%
73% 76% 92% 73% 75% 81% 76% 75% -
79% 76%
815,000 1,265,000
(169,447) (299,560)
71%
(130,113)
450,000
33%
On these two lines you can break out what's unrestricted and what's not yet released from restrictions Earned revenues 645,553 67% Total Income 965,440 100%
319,887
Contributed support
Actual as % of Projected Year End
5 6 7 8 9
$ Over/ Under Projected 75%
% of Effort
Year End projections
Ordinary Income/Expense Income
Actual Jan Sep 2015
3 4
2
Root to Canopy Statement of Position (P&L)
12,500
1,174,075 62,500 50,000
429,000 500,350 35,000 35,750 21,775 15,000 97,000 40,200
105,419 127,560 88,667 715,163 1,036,809 76,408 60,858 1,174,075
820,375 1,236,575
416,200
Budget
P
R
7,848
742,245 57,848 50,000
309,962 325,725 6,084 12,231 12,127 1,873 51,672 22,571
62,525 88,460 56,240 433,915 641,140 42,650 58,455 742,245
583,704 800,093
216,388
Prior Year Jan - Sept 14
S
T
726%
122% 98% 0%
107% 123% 432% 235% 152% 400% 141% 106%
132% 134% 136% 120% 124% 155% 77% 122%
111% 121%
148%
Prior Year % Change
U
INCOME STATEMENT FOR THE BOARD > Compares effort > Compares to expected outcome > Compares to budget & previous year > Includes program & function > Includes narrative
455%
77% 91% 0%
77% 80% 75% 80% 84% 50% 75% 59%
78% 93% 87% 73% 77% 86% 74% 77%
79% 78%
77%
75%
Actual as % of Budget
Q
FIRM: Root to Canopy Board Statement of Activity with Projected YE, Budget and Previous Year Comparison
A B C D E F G H I J K L M N O 1 Note that two QBks reports are placed into the second and third tabs in this Excel workbook and the data from those linked to this format.
Accrual Basis
V
Case 12
5
4
3
2 2 2 2
1
Notes
W
Roots to Canopy
Accrual Basis
Profit & Loss Prev Year Comparison January through September 2015
STATEMENT OF ACTIVITY (P&L) PULLED RIGHT OFF QUICKBOOKS AS COMPARISON
SECTION 3 PAGE 5
Jan - Sep 15 Jan - Sep 15
$ Change
% Change
Ordinary Income/Expense Income 4000 · Contributed Income 4010 · Individual & Corporate Donations 4020 · Foundation Grants
102,981 105,930
34,342 65,285
68,639 40,645
200% 62%
4,030 1,946 5,976 214,887
1,466 2,245 3,711 103,338
2,564 (298) 2,266 111,550
175% -13% 61% 108%
2,000 8,000 5,467 9,735 25,201
1,000 4,300 2,734 2,155 10,188
1,000 3,700 2,733 7,580 15,013
100% 86% 100% 352% 147%
92,933 14,500 107,433 132,634
43,478 18,940 62,418 72,607
49,455 (4,440) 45,015 60,028
114% -23% 72% 83%
490,700 490,700
435,314 53,066 488,379
55,386 (53,066) 2,321
13% -100% 0%
17,697 17,697
17,092 17,092
3,550 640 331 4,521 645,552 860,440
3,880 1,610 188 5,678 583,756 687,093
264,939 26,494 39,107 330,540
257,682 25,768 25,311 1,200 309,962
(1,200) 20,578
-100% 7%
(0)
0
373,521 25,690 1,303 400,514
303,093 22,632 325,725
70,428 3,058 1,303 74,789
23% 14% 100% 23%
(0)
(0)
205 7,130 30 9,338 400 9,150 26,253
205 90 4,689 1,100 6,084
7,040 30 4,649 (700) 9,150 20,169
0% 7816% 100% 99% -64% 100% 332%
0
(0)
380 2,717 11,968
150 3,189 2,116
230 (472) 9,852
153% -15% 466%
4030 · Workplace Giving Campaigns 4031 · Combined Federal Campaign 4032 · United Charities Campaign Total 4030 · Workplace Giving Campaigns Total 4000 · Contributed Income
105,000
113,000
4500 · Earned Income 4510 · Program Income 4506 · Consulting Income County A County B County C County D Total 4006 · Consulting Income 4015 · THRIVE Contracts State Contracts County Contracts Total 4015 · THRIVE Contracts Total 4510 · Program Income 4520 · Service Fees 4521 · Service Fees - Arborial Services 4526 · County Reimb. Contracts Total 4520 · Service Fees 4530 · Education Fees 4531 · Continuing Education Total 4530 · Education Fees
605 605
4% 4%
Other Revenue 4050 · Interest Income 4075 · Rental Income 4080 · Miscellaneous Income Total Other Income Total 4500 · Earned Income Total Income
(330) (970) 143 (1,157) 61,797 173,346
-9% -60% 76% -20% 66% 25%
52
Expense 5000 · Compensation 5010 · Salaries 5014 · Employer Taxes 5020 · Employer Benefits 5025 · FSA Reimbursement Total 5000 · Compensation
7,257 726
3% 3%
5100 · Consultants & Prof. Services 5120 · Consultants 5130 · Audit and Legal 5140 · Temporary Services Total 5100 · Consultants & Prof. Services 5200 · Program Investments 5234 · Professional Development 5236 · Educational Materials 5244 · Books and Publications 5246 · Continuing Education Expenses 5252 · Membership / Registration Fees 5280 · Reduced Education fees Total 5200 · Program Investments 5300 · Communication 5340 · Advertising 5362 · Postage 5364 · Printing
Page 1 of 2
Case 13
Roots to Canopy
Accrual Basis
Profit & Loss Prev Year Comparison January through September 2015
STATEMENT OF ACTIVITY (P&L) PULLED RIGHT OFF QUICKBOOKS AS COMPARISON
SECTION 3 PAGE 5 5374 · Telephone & Communications Total 5300 · Communication
Jan - Sep 15 Jan - Sep 15 13,709 6,777 28,773 12,231
$ Change % Change 6,932 102% 16,542 135%
0
(0)
(0)
(0)
(0)
-
(0)
(0)
5400 · Supplies & Eqpt. 5447 · Depreciation 5454 · Office Furniture Expense 5456 · Office Machines and Service 5458 · Office Supplies Total 5400 · Supplies & Eqpt.
2,320 4,297 1,114 10,653 18,384
2,372 1,170 8,585 12,127
(52) 4,297 (56) 2,068 6,257
-2% 100% -5% 24% 52%
7,495 7,495
1,873 1,873
5,622 5,622
300% 300%
6,945 65,721 72,666
51,672 51,672
6,945 14,049 20,994
100% 27% 41%
4,375 291
5,932 3,276 -
(1,556) (3,276) 291
-26% -100% 100%
5500 · Travel 5575 · Travel/Mileage Total 5500 · Travel 5700 · Occupancy 5755 · Maintenance and Repairs 5768 · Rent Total 5700 · Occupancy 5800 · Insurance/Fees/Business Costs 5830 · Other (Miscellaneous) 5843 · Bad Debts 5845 · Bank Service Charges 5850 · Insurance 5850-01 · Professional Liability 5850-02 · Directors & Officers 5850-03 · Workman's Comp & Business owner 5850 · Insurance - Other Total 5850 · Insurance 5853 · Merchant Fees 5866 · Refund 5860 · Payroll Expenses Total 5800 · Insurance/Fees/Business Costs Total Expense Net Ordinary Income
5,945 3,000 1,978 10,923 2,749 3,167 2,372 23,878 908,502 (48,063)
4,896 2,855 1,126 8,877 510 1,622 2,354 22,571 742,244 (55,151)
1,049 145 852 2,046 2,239 1,545 19 1,307 166,258 7,088
21% 5% 76% 0% 23% 439% 95% 1% 6% 22% 13%
105,000 105,000
113,000 113,000
(8,000) (8,000)
-7% -7%
105,000 56,937
(921) (921) 113,921 58,770
921 921 (8,921) (1,832)
100% 100% -8% -3%
Other Income/Expense Other Income Restricted Income Unreleased: Foundations Total Other Income Other Expense 4085 · Unrealized gain(loss)-investmnt Total Other Expense Net Other Income Net Income
Page 2 of 2
Case 14
16,685 17,750 23,600
Program Investments
Communication
Supplies & Eqpt.
255,493
270,060
(14,567)
(14,567)
100,984
2,933
5,588
226
458
215
3,337
35,576
52,651
86,417
77,119
9,298
Jul 15
243,954
255,493
(11,540)
(11,540)
99,869
1,588
5,467
138
894
1,542
616
33,455
56,168
88,329
60,624
27,705
Aug 15
220,396
243,954
(23,557)
(23,557)
113,240
5,671
7,139
124
5,025
3,744
1,363
36,864
53,311
89,683
60,685
28,998
Sep 15
186,151
220,396
(34,245)
(34,245)
91,966
1,270
9,459
108
3,410
2,618
1,744
21,666
51,690
57,721
55,724
1,997
Oct 15
183,340
186,151
(2,811)
(2,811)
77,498
5,601
886
179
2,696
1,542
2,229
13,077
51,287
74,687
61,062
13,625
Nov 15
205,426
183,340
22,087
22,087
79,028
1,227
6,482
141
3,065
1,609
46
12,427
54,031
101,114
65,575
35,539
Dec 15
7,792
7,792
(16,518)
(6,550)
250
249
1,100
(250)
(315)
(22,650)
11,648
(8,726)
(24,925)
16,200
25,280
25,280
1,074,721
30,750
68,500
2,001
22,500
18,000
17,000
282,000
633,970
1,100,001
800,000
300,000
Variance Est. 2015 to Budget YE Projections
250,844
205,426
45,418
45,418
288,242
10,093
18,517
813
3,288
3,781
6,756
64,023
180,972
333,660
216,891
116,769
Q1 2016
290,497
250,844
39,653
39,653
294,007
10,295
18,887
829
3,353
3,857
6,892
65,304
184,591
333,660
216,891
116,769
Q2 2016
Case 15
Note that Budget Cash Balance includes CDs but Cashflow cash balance is the operating cash. Note that the shading shows what has been reconciled. July-Sept are completed and this report project October through NOTES ON THIS FORMAT Q2 of 2016. Note that the first six months of 2015 are now hidden as columns.
539,209
23,072
Net Cash, End of Month
Ending Cash Balance
(10,000)
Balance Sheet Cash Changes
516,137
33,072
Inflow-Outflow, Activities
Beginning Cash Balance - See note
1,058,203
24,200
Insurance/Fees/Business Costs
Total Cash Out (Expense)
68,750
Occupancy
2,250
259,350
Consultants& Prof Serv.
Travel
645,618
Compensation
Expense
1,091,275
775,075
Earned Income & Other Income
Total Cash In
316,200
2015 Budget
Contributed Income
Income
Roots to Canopy Projected Cashflow as of 09-30-2015
July 2015 through June 2016 As of Sept 2015
Projected Cash Flow
Case 16
INSERT TAB 5
Organizational Capacity People, systems, and resources available to pursue program activities
Leadership Capacity
Provided on behalf of
Asset Capacity Business model, financial reserves, donor base, partnerships, etc.
Program Capacity Demand, design, effectiveness. mission outcomes
An Organization IS Interdependent
© Orgforward
Finance Requires Context
Provided on behalf of
Financial Systems
Budget
Reports
Vetting Efforts Against Outcomes
Provided on behalf of
Provided on behalf of
Source: A Graphic Re-visioning of Nonprofit Overhead, Nonprofit Quarterly, By Curtis Klotz of Nonprofits Assistance Fund, August 16, 2016
Each of our programs is built around, supported by, and shares responsibility for Core Mission Support functions
Re-Align Thinking About Organization Model
Provided on behalf of
Data & Financial Models
Program Staff
Senior Staff
Draft Budget Finance Committee
Treasurer
Final Draft Budget
Financial Reporting
Action Plan
Provided on behalf of
Board
Approved Budget
Outcomes / Strategic Goals
Long Term Bond Mortgage Loan (over 1 year)
Current Liabilities Accounts Payable Accrued Expenses Payroll Liabilities Deferred Revenue Line of Credit Current Portion of Loan
Assets < Liabilities > = Net Assets
Debit Balance
Credit Balance
Net Assets
Liabilities +
Assets =
Statement of Financial Position
Reserves Terms & Concepts
Provided on behalf of
Temporarily Restricted Permanently Restricted
* Operating Net Assets * Operating Reserves * Other Reserves
Unrestricted
Other Assets Deposits Long-term Investments Long-term Receivables
Fixed Assets Furniture & Equipment Real Property Accumulated Depreciation
Current Assets Cash Receivables (Short term) Inventories Prepaid Expenses
Source: Nonprofit Finance Fund Provided on behalf of
Understanding Asset Restriction - Utilization
© Orgforward
Infrastructure
Assets
Vision Advancement
Leadership
Provided on behalf of
Programs
Organizational Wellness & Sustainability
Intended Benefit to the Community
Direct Beneficiaries – Those who directly benefit from the work of the organization
Whom do we expect to benefit?
Beneficiaries
Organizational Outcomes
Backers – Those who provide resources to the organization
Which specific conditions or outcomes will this organization’s work specifically create or influence from the above list…
What conditions does this organization work to actively influence and/or change?
Community Outcomes
What values are embedded in that vision of our community?
What needs to be in place within the community to achieve the benefit we hope for?
What community level benefit do we hope for?
Community Benefit Mapping Tool
Indirect Beneficiaries (Backers)
©2016 Orgforward (available online at www.orgforward.net/usefulstuf)
Success Indicators
Assumptions
Types of Programming/Strategies
Next steps: What leadership, resources, and infrastructure will support the organization’s strategy?
What theories and/or assumptions do we have about why we do the work the way we do it?
What approaches do we believe will create the benefit identified above?
What is the proof that the organization’s work and approach are effectively creating the intended outcomes for beneficiaries?
How will we know that we are successful at creating the benefit and conditions we intended?
Direct Beneficiaries
How do the beneficiaries actually benefit? - What opportunity is the organization creating for each beneficiary?
Community Benefit Mapping (cont)
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Whom do we expect to benefit? This section asks you to identify the sub-set of the community your organization directly benefits. The specific community may have two potentially distinct members. Direct Beneficiaries generally refers to the people or entity that you are in direct contact with and receives/benefits from the services you offer. If there is an indirect beneficiary, whose benefit can be directly linked to the service you are providing to your primary beneficiary, you may include them, but indicate that they benefit indirectly. Backers are those that provide resources to the organization. Since some beneficiaries may also be backers (they pay fees or contribute), you will likely have some overlap.
What conditions/outcomes does this organization work to actively influence and/or change? In the broader landscape of conditions listed above, there are specific conditions an organization focuses on making possible. Which specific conditions is the organization focusing on making possible through its work? These are the targeted outcomes, the organization will work to advance within the community.
What needs to be in place within the community to achieve the benefit we hope for? In order to create the community we envision, what conditions need to be in place in the community. This is not limited to the conditions the organization focuses on. It is the larger view of the entire community and all the conditions that need to be in place for the envisioned community you want to naturally occur. What would people need to have, access, believe, or want in order to achieve the community benefit we aspire to?
What community level benefit do we hope for? This section asks you to identify the vision the organization has for the broader community. This is not a vision of what the organization will be, but rather a vision of what the organization wants the broader community to be. Values: In this subsection, list the values that are at the heart of the vision. What values do the people in the organization need to embody to support that vision and guide their decisions and actions.
The worksheet sections (in order as they appear):
The worksheet is a tool for identifying and unpacking an organization’s vision of the community within which we all live and understanding the specific community benefit the organization makes possible. It serves to build a shared understanding of why the organization exists (vision) and how it intends to create community benefit (mission). (It is not intended to evaluate or lead to a rewrite of the mission – although it might)
Worksheet Instructions
Community Benefit Mapping (cont)
©2016 Orgforward (available online at www.orgforward.net/usefulstuf)
Next Steps: What leadership, resources, and infrastructure will support the organization’s strategy? Consider what organizational structure best supports a healthy and sustainable organization that can deliver on the strategy identified.
What theories and/or assumptions do we have about why we do the work the way we do it? We all have reasons for why we do the work we do in the way that we do it and what change we expect to result from the work. Here, we ask you to articulate that theory. Our theory often has assumptions or beliefs that are at the core of why we think our way is the “best” way. Take a moment to try and identify those assumptions.
What activities do we believe will create the benefit identified above? What are the actual activities the organization engages in to create the change we hope to see? What programs or organizational efforts do we engage in?
How will we know that we are successful at creating the benefit and conditions we intended? At the end of the day, how will you know that the community the organization serves is seizing and benefiting from the work of the organization and that the organization’s method for doing it is effective at creating the desired change?
How do the beneficiaries actually benefit? This section provides space to be more specific about your approach and identify the specific opportunities the organization makes possible for each beneficiary listed above. Notice that Backers are now considered Indirect Beneficiaries as they should be benefiting too from the opportunities the organization is making possible.
Community Benefit Mapping (cont)
Long Term (Conditions Δ)
Short Term (Immediate Gains)
Systems & Activities (Actions)
Constituents (Entities Reached)
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Mid Term (Actions Δ)
Execution (what will be done) - Internal
The model / philosophy / theory that is the basis for the program’s approach to creating the outcomes above (a.k.a: what will it take to create the outcomes/conditions above?)
Outcomes (what will different community/individually) - External
Strategy
Program Outcomes / Benefits - What specific organizational outcomes will this program advance (links to organization’s strategy)
Program Operations Model
(Resources Required)
Assets
Insurance/Government Fees, etc:
Evaluation/Data:
Travel:
Facilities:
Equipment / Supplies:
IT:
Communications:
Contractor / Professional Fees:
Special program costs:
Direct Expenses Salaries/Benefits:
Expense/Cost Drivers What will determine the scale of direct expenses for this program (Salary/Hrs Worked, # of sessions, ???)
Special capital cost requirements? (equipment replacement, etc.)
Carrying portion of fundraising & administration costs (based on allocation policy)
Other Expenses (Overhead / Indirect) Allocation of Indirect Costs – Factors the will influence these costs Allocation Policy Special factors – exceptions or extraordinary allocations Special funder requirements Established indirect rate
Other Financial Drivers Are there any other factors that may impact the financial viability of the program (# of volunteers, environmental factors, partnerships, calendars, ???)
©2015 Orgforward LLC (available online at www.orgforward.net/usefulstuff)
Restricted Contributions, such as grants or donations:
Program Quick Budget Direct Revenue Earned revenue, such as fees for service:
Revenue/Profit Drivers What will determine the scale/amount of revenue this program will directly earn (# of participants, # of sessions, ???)
Financial Modeling
Program Operations Model
Indicator(s)
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Effectiveness Metrics – How will you measure the effectiveness of the program’s outcomes (Indicators = what you are looking for; measure = how you will measure for that) Outcomes Long Term Mid Term Indicator(s) Method(s) Indicator(s) Method(s)
Evaluation
Program Operations Model
Short Term Method(s)
Change in Assumptions (How will you assess whether the underlying assumptions behind the program are valid/appropriate)
Change in Financial Model (What do you need to monitor that could alter the basis of the program’s financial model and how will you monitor it)
©2015 Orgforward LLC (available online at www.orgforward.net/usefulstuff)
Sustainability Measures Change in Community (Scenario) (How will you track environmental/community changes that may impact the opportunities the program is designed to create)
Efficiency Measures – How will you measure the efficiency of resources used by the program Resources (Effort) Allocated Mission Outcomes Achieved (What measures will you use to determine how much of the organization’s (How will you measure this program’s contribution resources are being allocated and consumed by the program) to overall vision / mission fulfillment)
Program Operations Model
ML159- Equipping the Board for Financial Leadership Assessment Tools
Outcome
Efforts
Outcome
Strategy Screens
(Programs)
WORKSHEET PAGE - 1
ML159- Equipping the Board for Financial Leadership Assessment Tools
Using your organizational budget, quickly assess your asset sources. This may include partners and in-kind, or may all be cash. Income Source
% of Annual Budget
% of dedicated program budget?
% of unrestricted funds?
WORKSHEET PAGE - 2
Confidence in the projection, - 1..2..3..4..5 +
Tools used
ML159- Equipping the Board for Financial Leadership Assessment Tools The True Cost of Programs
Show how you compute the full cost of a program: INCOME SOURCES (NET): 1. 2. 3. SUM = NET OPERATING INCOME EXPENSE SOURCES: 1. 2. 3. 4. SUM = TOTAL COST OF PROGRAM DIFFERENCE = NET PROFITABILITY OF PROGRAM
WORKSHEET PAGE - 3
ML159- Equipping the Board for Financial Leadership Assessment Tools
Use your balance sheet to identify the following: What are your unrestricted assets? What amount is available for use? What do you need for operating cashflow? What are your operating reserves? What are your building reserves? What are other reserves? Use your budget to identify the following: What will you add to unrestricted assets? What amount is added through pay down in debt? What amount is added to your operating reserves? What amount is added to your building reserves? What amount is added to other reserves?
WORKSHEET PAGE - 4
ML159- Equipping the Board for Financial Leadership Assessment Tools Checklist with best practices filled out by individual prior to discussion. What would you add? How would you rate your board’s practices? Best Practice
Elements of that best practice
Your Rating - 1..2..3..4..5 +
We use a year-round budgeting/ planning/ monitoring process.
Linked to program results.
Linked to strategic plans.
Viewed as feedback data, not a goal in itself.
We project our budget two -three years out.
Always for capital reserves for buildings.
We roll our operating budget forward at least one year and amend as we go.
We ensure our operating budget reflects our mission plans and priorities.
The expense budget reflects the mission priorities in the way resources are allocated.
Low mission efforts contribute to high mission ones.
We use income-based budgeting.
Understand the impact and timing of restricted contributions and releases
Ensure expenses are lower than the dependable income total.
Understand the risk associated with loss of each income source.
The capital budget protects our missioncritical assets.
We plan and fund operating reserves.
We pay attention to the balance among assets, debt, & our unrestricted net assets.
We care for our fixed assets through reserves and accountability.
Our staffing budget reflects our values as well as our needs.
We account for where staff spend their time.
We assess our staffing policies, including compensation, ladders up & out, and the balance among lower and higher paid staff.
We pay attention to infrastructure needs that add value to our results.
We provide our staff good tools and training.
We purposely look for partners who add value to our programming.
We use an accessible friendly format.
We prepare a budget narrative to accompany each budget.
We use context (labels, color, graphs, etc.) to clarify budget items and assumptions.
We use the finance committee to help ensure healthy board budget discussions.
Discussion about the budgeting process with the table group – what works, doesn’t work for us? Capture 1-3 action items from table discussion:
WORKSHEET PAGE - 5
ML159- Equipping the Board for Financial Leadership Assessment Tools
Let’s examine your organization’s financial packet for the board….
YOUR BOARD FINANCIAL STATEMENTS Context Elements: Presented by finance committee and/or treasurer?
Y/N
Your notes on value added:
Cover memo from finance committee and/or treasurer? Dashboard?
Footnotes on statements? Agenda has key discussion to hold, not blanket financial report? Ratio analysis is added to statements?
Your suggestion:
WORKSHEET PAGE - 6
ML159- Equipping the Board for Financial Leadership Assessment Tools
How does your board address the 990? Action Item 990 Board Review 990 Board Review
990 Content
990 Content 990 Content
990 Content
Guidestar Guidestar
Best Practice Board members receive 990 as draft for review Board members purposefully review the IRS policy questions Tell your story, and tell it consistently, in terms of results, not actions Properly allocate revenue and expenses Complete compensation disclosures (& apply IRS executive comp policy) Ensure transparent governance, policies, procedures and transactions with interested persons Board members have read their Guidestar info Guidestar site is fully used to tell organization’s community benefit story (to free level)
Our Practice
WORKSHEET PAGE - 7
Changes needed?
ML159- Equipping the Board for Financial Leadership Assessment Tools The meat of an audit: Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ORGANIZATION as of DATE, and the changes in its net assets and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Best Audit Practices Bid audit every 3-10 years
Our Audit Practices
If long time auditor, change senior reviewing audit Use firm with nonprofit expertise Ask for management letter Track changes made for each management letter Invite auditor to present to board meeting Meet in executive session with auditor to ask question about any fraud or abuse
WORKSHEET PAGE - 8
Notes/ Changes
INSERT TAB 7
GLOSSARY OF FINANCIAL TERMS FOR NONPROFITS Accounts payable The amount owed to others for services or merchandise received by the organization.
Accounts receivable The amount owed to the organization for services or merchandise provided to others.
Accrual-basis accounting A system of financial recordkeeping in which transactions are recorded as expenses when they are incurred (i.e. when a bill is received for merchandise or services provided to the organization) and as income when it is earned (i.e. when services or merchandise is provided by the organization, or the organization receives a commitment of a contribution) rather than when cash is paid or received. The alternative is Cash-basis accounting.
Accrued expense Costs of operation that have accumulated, but are not yet due or payable.
Accrued interest Interest costs that have accumulated, but are not yet due or payable.
Allocation A method of accounting that divides expenses among different program, administrative, and fundraising categories based on a formula that recognizes the use of the resources such as use of the facility or staff time.
Allowance for doubtful accounts An amount reflecting the portion of the accounts receivable which the organization reasonably believes it may not collect.
Assets What is owned by the organization.
Audit A financial report that has been tested and verified for accuracy and prepared in accordance with Generally
Accepted Accounting Principles. An essential component of the audit is the Opinion Letter.
Balance sheet A report showing the financial condition – Assets, Liabilities, and Net Assets - of the organization at a particular moment in time. Referred to as a Statement of Financial Position in the nonprofit sector.
© Nonprofits Assistance Fund 2006
Glossary of Financial Terms for Nonprofits Board-designated funds A condition placed by an organization’s board of directors on how an amount of money is to be used. A common type of board designation is for Operating Reserves. For accounting purposes, these funds are considered unrestricted because the condition was not specified by a donor.
Bridge loan A short-term loan with a specific repayment source.
Capital expenditure Payment of money to acquire fixed assets, such as a building or equipment
Capitalizing an asset Recording the cost of land, a building or equipment as fixed assets rather than as an expense when purchased.
Cash equivalents Funds which can be quickly and easily converted to cash; those bank accounts, money market funds or other investments which mature within 90 days.
Cash-basis accounting A system of financial recordkeeping in which transactions are recorded when cash is received or spent. The advantage over accrual-basis accounting is its simplicity.
Cash flow The movement of cash into and out of an organization; or the difference between cash receipts and cash disbursements during a period of time.
Cash flow statement A report of incoming and outgoing cash during a specified period of time.
Chart of Accounts A list of all accounts used in accounting system, including assets, liabilities, income and expenses.
Collateral An asset which is pledged to a lender until a loan is repaid. In case of default, the lender legally owns the right to obtain or sell the collateral to repay the loan.
Committed grant A contribution for which the organization has received a formal notification from the donor that an award will be made at a future date.
© Nonprofits Assistance Fund 2006
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Glossary of Financial Terms for Nonprofits Conditional promise to give A commitment by a donor to make a contribution to the organization if a specific requirement is met. The agreement becomes binding once the requirement is met.
Contribution A donation, gift or transfer of cash or other assets.
Current assets Cash, investments, receivables, and other assets that can be expected to be available as cash within twelve months.
Current liabilities Those liabilities due to be paid now or within the next twelve months.
Current portion of long term debt The amount of the principal payments due and payable on loans within the next twelve months, if the original term of the loan was longer than one year.
Deferred revenue Income for which payment has been received before it has been earned. It is reflected as a liability on the
Balance Sheet until it is earned and can be recognized as income in a future accounting period.
Deficit Expenses in excess of income; an operating loss or a negative change in Net Assets.
Depreciation The recognition, by recording an expense, of the decrease in value of a fixed asset over its expected physical or economic life. The value of Land is not depreciated.
Direct costs Those expenses which are specifically attributable to a program area or cost center.
Earned revenue Income received for providing services or goods, rather than as a voluntary contribution.
Financial Accounting Standards Board (FASB) The national governing board which sets the accounting standards known as Generally Accepted Accounting
Principles (GAAP).
Fixed assets An asset that has a relatively long useful life, usually several years or more, such as equipment, furniture, buildings and land. Also called Capital Assets. © Nonprofits Assistance Fund 2006
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Glossary of Financial Terms for Nonprofits Functional Expenses Categories of expense delineated by the type of expense: program services, management & general, and fundraising. Required for IRS form 990 and audited financial statements. Often reflect the use of allocations.
Fund accounting A system of accounting based on separating information into groups which reflect organizational divisions or donor-imposed restrictions.
General Ledger Accounting system tool for recording all transactions
Generally Accepted Accounting Principles (GAAP) The set of norms and standards of nonprofit accounting practices established by the Financial Accounting
Standards Board (FASB) to help ensure the accuracy and consistency of financial records and reports.
Grants Contributed assets given by an individual or another organization with no reciprocal receipt of services of goods. Sometimes are given with a legal restriction imposed upon its use.
Income Statement A financial report that summarizes income and expenses and resulting surplus or deficit for a given period of time. Also known in the nonprofit sector as the Statement of Activities.
In-kind contribution A contribution made of goods or services rather than cash.
Internal controls The system of practices, procedures and policies intended to safeguard the assets of the organization from fraud or error and ensure accurate recordkeeping.
Liabilities What the organization owes to others, including accounts payable, debts, mortgages and other obligations to pay.
Long-term debt/liabilities An obligation to pay a loan or other obligation with a maturity or due date of more than one year.
Net assets The difference between the organization’s total assets and its total liabilities on the balance sheet indicating the net financial worth for the organization. Net assets is the accumulation of the difference between cumulative income less cumulative expenses over the life of the organization. Divided into Unrestricted, Temporarily
Restricted, and Permanently Restricted net assets. © Nonprofits Assistance Fund 2006
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Glossary of Financial Terms for Nonprofits Net fixed assets The value of land, buildings, equipment and other fixed assets owned by the organization after the deduction of the accumulated depreciation of those assets.
Notes payable The amount an organization owes to others for loans.
Notes receivable The amount an organization is owed for loans made to others.
Operating expense General term for expenses incurred for all the activities of the organization.
Operating reserve An unrestricted fund balance set aside by the organization’s board to stabilize an organization’s finances by providing cash as a cushion for planned or unplanned future expense or losses.
Overhead The costs that cannot be identified with a program activity but are needed for the general administration of the organization. This expense is often distributed among programs based on a formula.
Permanently restricted funds Funds which the donor has indicated may not be spent by the organization, but which are invested to produce a stream of income that can be spent. Frequently called an endowment.
Pledge A formal commitment to make a contribution of a specific amount.
Prepaid Expense An expense that is paid before use of the good or service, such as insurance paid in advance.
Refinance To replace one loan with another, usually in order to extend the maturity, change the payment amount, or to consolidate several loans.
Release from Restrictions The accounting transaction used to transfer temporarily restricted funds into an organization’s unrestricted accounts when the restriction has been satisfied (such as when a special project is initiated).
Reserves An amount set aside by the Board to be used in case of losses or an unexpected expense.
© Nonprofits Assistance Fund 2006
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Glossary of Financial Terms for Nonprofits Restricted funds Contributions which are designated by the donor for a specific use. See also temporarily restricted funds and permanently restricted funds.
Revenue Income earned from services performed or merchandise sold (as distinct from support, or contributed income).
Secured loan A loan for which something of value is pledged in the case that repayment cannot be made.
Short term debt/liability A loan which is issued with a final payment date of one year or less.
Support Income from voluntary contributions and grants (as distinct from revenue, or earned income).
Technical assistance Help and advice provided on a specialized subject matter.
Temporarily restricted funds Contributions given by the donor or granting organization for a specific use or for use during a specific period of time. The limitation is satisfied at a defined time or when certain activities have been performed and the funds are released from restriction.
Unconditional promise to give A pledge to make a contribution of cash or another asset without requiring the organization to meet any condition prior to receiving the contribution.
Unrealized gain (loss) The increase (decrease) in value of an investment asset held by an organization but which has not been received through the sale of the asset.
Unrestricted funds Contributions given without the donor placing any restrictions or limitations as to their use.
Unsecured loan A loan made without collateral.
Working capital The portion of an organization’s assets which is not invested in fixed assets or obligated to pay current liabilities, but is available to fund day to day working needs; Also known as net current assets.
© Nonprofits Assistance Fund 2006
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THE 10 BEST WEBSITES FOR NONPROFIT FINANCIAL MANAGEMENT Maryland Nonprofits and the Standards for Excellence http://www.marylandnonprofits.org/ Greater Washington Society of CPAs http://www.nonprofitaccountingbasics.org/ Nonprofit Operating Reserves Initiative ~ Policy Development Toolkit http://www.nccs2.org/wiki/index.php?title=Nonprofit_Reserves_Workgroup Center for Nonprofit Risk Management http://www.nonprofitrisk.org Also has a great e-newsletter about nonprofit management. Nonprofit Finance Fund http://nonprofitfinancefund.org/about-nff/what-we-do Nonprofit Assistance Fund http://www.nonprofitsassistancefund.org/ CompassPoint Nonprofit Services http://www.compasspoint.org/ Also co-sponsors a good e-newsletter Board Café – Blue Avocado about nonprofit management http://www.blueavocado.org/frontpage Guidestar http://www2.guidestar.org/ Also has a great e-newsletter about nonprofit management. IdeaEncore Network https://www.ideaencore.com/ Also has a great e-newsletter about nonprofit management.
There are so many good resources on the web that there is no need to have an extensive library, but this book is by the experts and has rave reviews: Nonprofit Sustainability: Making Strategic Decisions for Financial Viability [Paperback ~ $30] Jeanne Bell (Author), Jan Masaoka (Author), Steve Zimmerman (Author)
Charter for the Finance and Audit Committee
Will recommend and review financial policies for final adoption by the entire board of directors; Will educate the board on current financial status and sustainability and trends that tie to strategic goals; Will provide guidance and direction for preparation of the Center’s budget annually; Will review budgets prepared by the staff, determine consistency between the proposed budget and the organization’s plans, and make recommendations to the board of directors; Will report to the board any financial irregularities, concerns, opportunities and develop risk management policies; Will recommend financial guidelines to the entire board of directors (for example, but not limited to, establishing a reserve fund or obtaining a line of credit for a specified amount); Will define the requirements for, and receive and review timely and accurate financial reports so that the board may perform its fiduciary responsibility; Will oversee short and long-term investments; Will recommend selection of the auditor and meet annually with the auditor; Will advise the executive director and other appropriate staff on financial priorities and as relevant and needed, review issues related to information systems; Will review annually financial services providers, vendor relationships and major grants and contracts, based upon volume and criticality; and Will review financial policies annually.
Job description for a board treasurer:
Attend all board meetings Maintain knowledge of the organization and personal commitment to its goals and objectives Understand financial statements and, if possible, accounting for nonprofit organizations Serve as the chair of the finance committee Manage, with the finance committee, the board's review of and action related to the board's financial responsibilities Work with the chief executive and the chief financial officer to ensure that appropriate financial reports are made available to the board on a timely basis Present the annual budget to the board for approval in concert with a work plan and strategic priorities Review the annual audit and answer board members' questions about the audit and 990, with the preparers if possible
White Paper on Allocating Indirect Costs What Are Indirect Costs? In a multi-program organization, all costs can be divided into two different types: direct and indirect. Direct costs are those which are clearly and easily attributable to a specific program. For example, the cost of new basketballs is clearly related to the after-school athletics program. Similarly, it is easy to justify charging counselors salaries to the counseling program. Indirect costs are those which are not easily identifiable with a specific program, but which are, nonetheless, necessary to the operation of the program. These costs are shared among programs and, in some cases, among functions (program, management and general, and fundraising). The executive director's salary is a common example of an expense which benefits all programs and functions. Other indirect, or shared, costs may include rent, telephone, postage, printing and other expenses which benefit all programs and functions of an organization. Why Allocate Indirect Costs to the Programs? The full cost of a program rightfully includes a share of the overall costs of the organization. Knowing the full cost of a program sets a basis for financial analysis of the program, for pricing fee-based services, and for requesting reimbursement from funders for the full costs of providing services. What Are the Methods for Allocating Indirect Costs? There are several methods for allocating indirect costs. The two most common are case-by-case allocation and developing an indirect cost rate. Case-by-Case Allocation One method of allocating indirect costs is to determine a rate of actual usage for each program. For example, you may decide to keep track of long distance telephone calls and charge them to the appropriate program when you pay the phone bill each month. Similarly, some organizations use a counter or log to track copying expenses for each program and/or function. Time sheets may form the basis for allocation of salaries for the executive director, accountant, and staff whose work benefits more than one program or activity. A different method can be adopted for each line item or case. The advantage of this method is that it seems to "make sense." A major disadvantage, however, is that it often requires a great deal of time consuming record keeping. Even if you keep the records needed to precisely allocate shared expenses among programs, not all expenses will be covered. If, for example, the rent is allocated by square feet, how should you allocate the hallway and rest rooms? What about the local phone calls which can not be tracked using a code? For those shared expenses which cannot easily be divided directly into programs and functions, an indirect cost rate is useful. Common Cost Allocation
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Developing an Indirect Cost Rate The first step in determining an indirect cost rate is to separate all costs into two groups: direct and indirect costs. The indirect costs are aggregated into an indirect cost "pool" and then allocated to the programs based on a set proportion or rate. There are several measures used to determine the proportion of indirect costs to allocate (apply) to each program. The following simple example illustrates an indirect cost rate based on the relationship between total indirect costs and total direct costs: Example 1-- The Tadpole League The Tadpole League has a total budget of $3,300. The budget is distributed as follows: Program A has direct costs of $1,000 Program B has direct costs of $2,000 Indirect costs to run the programs is budgeted at $300 Total costs are $3,300 Since Program A's direct costs are one-third of the total direct costs of the agency ($1,000 out of $3,000), it should bear one-third of the indirect costs. Similarly, since Program B incurs twothirds of the total direct costs of the agency, it should bear two-thirds of the indirect costs, as well. The Tadpole League can create an indirect cost rate which will allow it to easily accomplish this allocation. An indirect cost rate (using direct costs as a base) is established by dividing the total indirect costs by the total direct costs. For the Tadpole League the indirect cost rate is: Total Indirect Costs divided by Total Direct Costs = $300/$3,000 = 10 percent of total costs Each program’s share of indirect costs can be calculated as a proportion of its direct costs: Program A Indirect Expenses: $1,000 x 10% = $100 Program B Indirect Expenses: $2,000 x 10% = $200 Total Indirect Expenses = $300 After the indirect costs have been allocated to the programs, the budget now reads as follows: Program A has direct costs of $1,000, indirect costs of $100 = $1,100 Program B has direct costs of $2,000, indirect costs of $200 = $2,200 Total costs are $3,300 This illustrates that after Program A has picked up its fair share of indirect costs, the true cost of running Program A is $1,100. As you can see from this example, using direct costs as a basis for your indirect cost rate will result in larger programs being charged with more of the indirect costs than smaller programs.
Common Cost Allocation
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Is There More Than One Way to Calculate an Indirect Cost Rate? The Office of Management and Budget Circular A-122, Cost Principles for Nonprofit Organizations, describes the method of developing a federal indirect cost rate, using these same principles. However, even within these guidelines, indirect cost rates for the same organization may vary from federal agency to federal agency. Organizations may allocate indirect costs based on how many people are served in each of their programs, how large each of their sites is, what staff effort – as measured in dollars or hours – is applied to each program or other logical methods. What Is the Standard for Allowable Indirect Costs? There is little agreement in the nonprofit or funding community about how to calculate the rate, what to include, and how much is fair. There are no across-the-board standards or maximum levels for indirect costs. Some foundations have informal, unwritten guidelines for a maximum level. Under federal guidelines, allowable indirect costs range from 3 percent to 70 percent, varying from agency to agency. Contrary to popular belief, indirect costs are not an easy measure of an organization’s efficiency or stewardship. For example, imagine a multi-service agency where each program has its own bookkeeper, purchases its own supplies, and has all its own equipment. Such an organization would have no indirect costs at all, but would be clearly less efficient than if the programs’ shared bookkeeping costs, supplies and equipment. Final Comments Because the presentation of financial information influences the way we assess an agency's finances, the selection of indirect costing methods and accounting procedures has an important impact on decision-making. Several urgent and perhaps conflicting demands are made of the indirect costing process: to attribute indirect costs in the fairest way possible, to attribute the most indirect costs to the programs that can best afford them, to eliminate as many indirect costs as possible by having each program buy its own supplies, etc. Finding a balance among these demands that clears confusion and informs decision-makers is a responsibility of all participants in the nonprofit sector.
Common Cost Allocation
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Common Cost Allocation
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Effective Nonprofit Leaders.... ... keep mission, capacity and finance in balance. These three elements are interdependent and exist in dynamic tension. If one changes, the others change, too. This happens in all organizations, whether seen or unseen, planned or unplanned. ... never ignore the dynamics of the “enterprise platform.” The combination of capacity and capital comprises the “enterprise platform,” by which mission is delivered. It exists in every organization. It is related to, yet separate from, program and mission. Money does not flow directly to program; it is turned into program execution via the enterprise platform. If the platform is weak, program execution will be undermined. Nonprofits with similar missions and programs can have very different enterprise platforms. ... are proud of nonprofit tax status. It exists for a reason, and it’s a commercial reason. We enter the market when the for-profit and governmental sectors can’t, won’t or shouldn’t, generally due to a gap or failure in the market economy. This commercial flaw is why nonprofits (501(c) 3s) are provided two powerful tools to reliably subsidize operations: tax exemption and access to tax-advantaged charitable contributions. ... insist on having clear, reliable, routine, management-friendly financial information. Effective leaders share it with their board, funders, internal and external stakeholders and use it as a tool to effectively communicate their organization’s financial story. ... can tell their program story in financial terms, and their financial story in program terms. They, and others in senior roles and board positions, can fluidly connect money and mission based on the needs and perspectives of who they’re talking to, and what they’re talking about. ... predict how their organization will end the year financially, on January 1. They also know what the levers are that will make their prediction more or less likely. They will continue to update predictions with “actuals” and new projections to year-end and beyond as the year proceeds. They share these routine numbers with the board, and make course corrections accordingly. ... understand that they manage in a looking-glass world, commercially speaking. Many of the standard rules and conventions that for-profit managers rely on are reversed, or at best unreliable, in the nonprofit environment: growth almost always increases the need for fundraising and decreases “self sufficiency”; cash is not always fungible, “surpluses” are often prohibited; expenditures on overhead are seen as wasteful…and more. Leaders from the forprofit world must understand these (and other) management realities to make better decisions. ... understand that they run at least two businesses. There’s the core business, related to delivering on mission (healing, teaching, sheltering, etc.), and then there’s the “mission support business” (usually fundraising) that makes up for the market flaw. ... understand that growth is especially demanding in the nonprofit world, for commercial reasons. Growth is more capital intensive, takes longer, and is riskier from a quality control and mission perspective than for-profit sector growth (which is difficult as well). Increased revenue frequently means decreased net revenue. ... distinguish regular, routine operating revenue from capital and extraordinary revenue, and manage accordingly. They match their fixed costs to reliable revenue and understand (and fill) the capital demands of rapid growth, incremental growth, and routine capacity refreshment and maintenance.
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Nonprofit Financial Ratios
Nonprofit leaders seeking to understand the organization’s financial situation usually start by reviewing the financial reports. Understanding the financial information is the building block of any financial discussion. Beyond understanding the reports, much can be learned from analysis of the information and interpretation of what it is telling you. The basic analysis includes comparing financial reports to a benchmark such as the budget or the financial report from the previous year. One essential question is: does this information match our expectations?
Financial ratios are useful if they are: • Calculated using reliable, accurate financial reports (such as an annual audit or final report) • Calculated consistently from period to period • Used in comparison to benchmarks or goals • Viewed both at a single point in time and as a trend over time • Interpreted in the context of both internal and external factors
For a more technical financial analysis, ratios can be used to deepen the understanding and interpretation. Financial ratios are an established tool for businesses and nonprofits. While there are dozens of ratios that can be calculated, most nonprofits can use a handful of them to learn more about their financial condition. This tool provides the description and calculation of 14 ratios including a mix of balance sheet and income statement ratios. Individual nonprofits must decide for themselves which calculations are valuable. To make the most of ratio calculations, start with some fundamental guidelines.
Nonprofit Financial Ratios
Fourteen of the most frequently used financial ratios for nonprofit organizations are defined on these pages. A spreadsheet with the ratio calculations is also available on the website at www.nonprofitsassistancefund.org.
Calculating and using financial ratios - Income Ratio
What It Tells Us
Reliance on Sources of Income
Largest type of income Total income
Awareness of the risk of a major reduction in income if this source of contributed income is reduced or stopped. May be helpful for more than one source of income, including special events.
= Reliance ratio
Reliance on Govt. Funding
Total govt grants & contracts Total income
= Reliance on govt funding
Earned Income Percentage
Total earned income Total income
= Earned income ratio
Self-Sufficiency Ratio
Total earned income Total expense
= Self-sufficiency ratio
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Awareness of risk in both reliance & autonomy. Govt. funding is often closely tied to specific contracts & budgets with limited cost allocations & flexibility.
Organizations with earned income have more autonomy and flexibility
The proportion of operating expenses that are covered by earned income.
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Calculating and using financial ratios - Expense & Management Ratio
what it tells us
Percentage of Budget for Personnel
Total wages, taxes, and benefit expenses Total expenses
Since staff cost is usually the largest part of the budget, any changes in the percentage of budget used for staff is notable.
= Personnel costs ratio
Benefit Expense Rate
Total taxes, insurance, and fringe benefits Total salary and wages
Benefit costs are driven by many external factors and can increase at a different pace than other costs. = Benefit cost ratio
Since this is a ratio that is frequently calculated by others, including donors & nonprofit watchdogs, nonprofits should be aware of their ratio & any changes over time
Functional Cost Allocation
Total fundraising, general and admin expense = Admin cost ratio Total expenses Fundraising Efficiency
Contributed income Fundraising expense
The average dollar amount of contributions raised from each dollar spent on fundraising.
= Fundraising efficiency
Cost Per Unit of Service
Program expense Units of Service
If the nonprofit uses program-based recordkeeping and has an identifiable “unit” of service, this ratio is very helpful in evaluating financial efficiency & identifying any changes of costs over time.
= Cost per “unit” of service
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When calculating ratios from the balance sheet, be aware of Temporarily or Permanently Restricted funds and how they might affect the ratios. Calculating the ratios using only Unrestricted Assets yields the most useful results.
Calculating and using financial ratios - Balance sheet ratio
what it tells us
Current Ratio
Current assets
Current liabilities
An indication of the organization’s ability to pay obligations in a timely way (within 12 months).
= Current ratio
A useful indicator of cash flow in the near future.
Days Cash on Hand Step 1: Annual expense budget (-) depreciation (-) in-kind expense (-) pass-through funds (-) unusual, one-time expenses
Annual cash requirement
A quick test of the operating cash or adequacy of the operating reserve. Include all unrestricted cash accounts such as savings and money market accounts. Setting a target for cash accounts should take several factors in to account, including reliability of income. ÷ 365 = One day cash requirement
Step 2:
Cash and current investments One day cash requirement
= Days cash on hand
Debt Ratio
Total liabilities Total unrestricted net assets
How much the organization is relying on funding from others, such as loans, payables, and obligated funds. Indication of how much of a cushion there is.
= Debt ratio
Accounts Receivable Aging
Accounts payable > 90 days overdue Total accounts receivable
= Aged AR ratio
Accounts Payable Aging
Accounts payable > 90 days overdue Total accounts payable
= Aged AP ratio
As receivables get older and more delinquent, it indicates potential collection or billing problems and cash flow issues.
An indication that the organization has cash flow problems and potentially severe financial problems.
WHO WE ARE Nonprofits Assistance Fund’s mission is to build financially healthy nonprofits that foster community vitality. Our financial experts help nonprofits strengthen their capacity to address unexpected events, finance new opportunities, and realize strategic goals. We fulfill our mission by helping you thrive. Find out more about Nonprofits Assistance Fund’s loans, training, resources, and financial advice tailored for nonprofits at www.nonprofitsassistancefund.org.
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An Integrated Balanced Scorecard Strategic Planning Model for Nonprofit Organizations Jan L. Ronchetti City of Naperville, IL Over a decade after Robert Kaplan and David Norton introduced the Balanced Scorecard as a strategic planning model in 1992, documented successes from the private sector can be found in much of today’s business literature. However, little information is available on how to implement the Balanced Scorecard in a nonprofit organization so that exceptional ongoing results can be achieved. Unique from the private sector, nonprofits are often required to minimize administrative and operating costs under the watchful eyes of congregants or donors. Tight operating budgets, heavy workloads, and confusion about how to effectively perform strategic planning are all contributing factors which can cause leaders of nonprofits to shy away from strategic planning initiatives. However, without a mission and values-driven strategy in place to guide long and short-term decision-making, a nonprofit’s ability to increase operational capacity, operate within budget allocation, enhance employees’ skill base, and meet stakeholders’ needs is compromised. This article discusses what the Balanced Scorecard is, describes implementation guidelines, and proposes practical scenarios of how to implement the Balanced Scorecard for a new outreach ministry within a nonprofit religious organization. Also, due to the widespread popularity of Rick Warren’s (1995) Purpose-Driven Church model, a scenario is presented combining the Balanced Scorecard with the Purpose-Driven Church model to demonstrate the power and flexibility of the Balanced Scorecard as a strategic planning and performance measurement tool.
Strategic planning presents a unique challenge to most organizations today, whether they are private, public, or nonprofit entities. Not only do strategic planning efforts frequently monopolize precious staff resources, but staff assigned to the strategic planning effort can be uncertain how to approach and execute this formidable task. Is planning a science or is it an art? Should an organization attempt to do strategic planning internally or should a seasoned consultant be brought in to guide the organization through the turbulence of an in-house planning initiative? These are difficult questions to answer and, while any strategic planning effort is a journey into the unknown, much of the uncertainty associated with planning can be addressed by following the guidance and structure offered by the Balanced Scorecard model. This article discusses what the Balanced Scorecard is, describes implementation guidelines, and proposes practical scenarios of how to implement the Balanced Scorecard for a new outreach ministry within a nonprofit religious organization. Also, due to the widespread popularity of Rick Warren’s (1995) Purpose-Driven Church model, a scenario is presented Journal of Practical Consulting, Vol. 1 Iss. 1, 2006, pp. 25-35 © 2006 School of Global Leadership & Entrepreneurship, Regent University ISSN 1930-806X
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combining the Balanced Scorecard with the Purpose-Driven Church model to demonstrate the power and flexibility of the Balanced Scorecard as a strategic planning and performance measurement tool. Balanced Scorecard as a Strategic Planning Model In the early 1990s, researchers Robert Kaplan and David Norton of the Harvard Business School determined that 90% of their private sector clients were unable to implement their own strategic objectives into daily operations (Niven, 2003). According to Kaplan and Norton (1992), the reasons why those organizations failed to realize ongoing, sustainable results are the same reasons why, over 20 years later, strategic planning efforts in many of today’s public and nonprofit organizations continue to fail: conflicting and competing work priorities, declining revenues or sources of funding, more work done with less staff, increased costs, and lack of an effective approach to plan and execute strategy. While the success of private sector firms is measured by return on investment and profit margins, success in public and nonprofit organizations is primarily realized through constituent satisfaction and cost containment. Even though organizational structures, methods of operations, and values may differ among private, public, and nonprofit organizations, the challenge of performing and implementing strategic planning is common to all of them. Whether an organization is profit or people-driven, Kaplan and Norton’s Balanced Scorecard provides a practical model for managers to define strategic themes and objectives, to implement strategy through all levels of the organization, and to measure performance. Simply stated, the Balanced Scorecard is a tool managers can employ to measure an organization’s operational success through direct cause-and-effect linkages back into daily operations (Huselid, Becker, & Beatty, 2005). Is it just another Management Fad? So, is the Balanced Scorecard a strategic planning model any organization can use to achieve breakthrough results or is its use confined only to certain organizations of excellence? Is it just another management fad du jour or does the Balanced Scorecard have long-term staying power as a strategic planning model? Labeled by the Harvard Business Review as “one of the 75 most influential business ideas of the 20th century” (Niven, 2005, p. 16), the Balanced Scorecard evolved from a 1990s planning model into an integrated strategic management system that links long-term strategy to short-term operations. This conceptual expansion is due in part to the evolution the Balanced Scorecard underwent as practitioners integrated it into new applications. While the generic appeal of the Balanced Scorecard has been the subject of numerous case studies, the real question is, “Is it here to stay?” Today there is no shortage of business management ideas. However, in an era of virtual organizations, instant communication, and quick fixes, according to Davenport, Prusak, and Wilson, the life span of a management idea in 2006 is approximately 3 years as compared to the 15-year average life span of a new management theory idea back in the 1950s and 60s (as cited in Niven, 2005). The fact that the Balanced Scorecard was introduced to the business world nearly 15 years ago, is still in use today in varied forms, and has evolved into a second-generation strategic management system due to its widespread use, does indeed suggest that the Balanced Scorecard is not a fad and is here to stay.
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Four Perspectives of the Balanced Scorecard A Balanced Scorecard initiative begins with identifying strategies derived from the organization’s vision and mission. Strategic themes are then developed by viewing the vision and mission statements from four distinct perspectives: Financial, Internal Processes, Customers, and Learning and Growth (Kaplan & Norton, 2004). Figure 1 provides a graphical representation of how mission and values-focused strategy drives the four perspectives.
VISION
MISSION
Financial
Internal Processes
STRATEGY
Learning & Growth
Customers
Figure 1. Balanced scorecard strategic management model for the private sector.
While private sector companies emphasize measuring success through financial measures, nonprofits also need to monitor budgets and expenses. The first perspective, the Financial perspective, defines financial strategic objectives and financial performance measures that provide evidence of whether or not the company’s financial strategy is yielding increased profitability and decreased costs. This view also captures how the organization must look to customers in order to succeed and achieve the organization’s mission. In the private sector, achieving financial strategic objectives is the primary means to realize the company’s mission. However, financial performance is complemented and impacted by three other perspectives: Internal Processes, Customers, and Learning and Growth. The second perspective, Internal Processes, represents the impact of product and service quality and helps identify which internal business processes must operate with excellence in order to satisfy customers. Internal process metrics are then developed, which communicate the level of product quality through the monitoring of in-process metrics, as well as measuring productivity associated with the number of units produced or services provided (Brown, 1996). Metrics defined for the Internal Process perspective are those that can be associated with
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satisfying customers and delivering value. As a result, delivering value to the customer with excellence yields a stronger financial performance for private sector organizations. However, for nonprofits, realizing excellence in internal operations correlates to increased constituent or congregant satisfaction, not financials (Niven, 2003). The third perspective, Customers, represents another view of internal operations that has a cause-and-effect relationship with the Financial perspective and addresses how the organization must appear to customers in order to fulfill the organization’s mission. For the profit-driven private sector, the Customer perspective supports the critical Financial perspective. However, for nonprofits, it is appropriate that the Customer perspective assumes primacy over the Financial perspective due to the critical need for constituent satisfaction. The fourth perspective, Learning and Growth, enables the other three perspectives and defines what type of staff and automation the organization must have in order to achieve the mission, support the internal processes, and satisfy the customers. In some organizations, this perspective may actually be labeled Enablers. Strategic objectives and metrics of the Learning and Growth perspective help to identify gaps between current employee skill levels, culture, and supporting information systems and discover the optimum level of operation at which these components become high performing internal processes (Niven, 2003). Benefits and Cautions One benefit of viewing an organization through the four Balanced Scorecard perspectives is that this approach reduces information overload by condensing critical data needed for decision-making. The Balanced Scorecard also meets managerial needs by distilling varied unrelated measures from multiple areas within the company into a single report and ensuring that managers are looking at all measures across the operation. This approach also introduces the safeguard that one measure is not improved at the expense of another (Kaplan & Norton, 1992). Developing organizational strategy through the Balanced Scorecard also minimizes participants’ subjectivity as they take part in the strategy-setting process and enhances managers’ ability to assess all programs for strategic impact without bias. Finally, strategic objectives represent concrete actions that support leaders in moving the organization toward achieving its mission and provide a methodology to align and leverage scarce work resources on tasks that will result in increased value to the customer. As comprehensive as the Balanced Scorecard system has proven to be, it also carries some cautions. The amount of time estimated to implement a Balanced Scorecard initiative should be carefully estimated and evaluated. This is particularly true if no Balanced Scorecard subject matter expert is available on the implementation team. Bullard (2004) stated that effective strategy development and planning typically guide 3 to 5 years of an organization’s future operations. Due to the length of this 3- to 5-year operating interval, it is beneficial that an organization allow an adequate amount of time to conduct a thorough Balanced Scorecard implementation. This 3- to 5-year operating interval contrasts sharply with the annual planning exercise conducted by many organizations that typically addresses the organization’s operations only, for a 1- to 2-year period. Due to the amount of information synthesis required in a Balanced Scorecard initiative, an organization should realistically evaluate its ability to create and maintain an ongoing Balanced Scorecard effort.
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Six Action Steps of the Balanced Scorecard Implementation 1. Formulate the Purpose (Mission Statement) The mission statement should be brief, to the point, and state the reason why the organization exists. It should also include how the organization will operate in order to have maximum impact on its stakeholders. Using the practical example of starting an outreach ministry in a church setting (i.e., a nonprofit religious organization), it will be important to capture that the ministry is being created to respond to the needs of people in the community who are typically outside the reach of the organized church. The mission statement should also reflect that ministry will be accomplished by equipping, affirming, and supporting lay leaders and participants who will be impacted by this ministry. A sample mission statement embracing these purposes might read: This outreach ministry responds to the churched and unchurched community’s needs by: a. Creating and maintaining genuine, transformational relationships. b. Equipping and supporting those called to the vocation as an outreach lay leader. c. Using strategic planning to ensure desired results and realization of the ministry’s mission. 2. State the Vision The vision statement is a word picture of what the project ultimately intends to become 5, 10, or 15 years in the future. While mission statements are often abstract, the vision statement should contain as concrete a picture of the desired end state as possible in order to provide a basis for development strategies. In the start-up outreach ministry example, it’s important to capture the ultimate vision of building relationships in the community as a means to discipleship. The underlying vision of this ministry is to be an impetus for spiritual growth in people with needs by building authentic, caring relationships with them and serving as a role model of Jesus’ love for people. The outreach ministry will be a model of service, discipleship, and fellowship that honors the Great Commandment by unconditionally loving people. Gifted and motivated lay leaders will be known for their authentic spiritual walk and caring relationships with people. We will be a springboard for meeting the practical needs and spiritual development of others. By helping people in the community build close and personal relationships with Jesus Christ, we will be used of God to build a community of resilience and faith. 3. Conduct a SWOT (Strengths, Weaknesses, Opportunities, and Threats) Analysis A SWOT analysis is a tool used to collect stakeholder input and objectively examine the organization’s operating advantages and barriers to effectiveness. What makes this tool so powerful is that it can help an organization identify internal operating strengths and external opportunities that are easy to pursue. Likewise, by understanding its weaknesses an organization identifies what processes could be improved and is made aware of possible external threats, giving that organization an opportunity to manage or eliminate them. Taking an objective look at
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advantages and potential barriers the organization realistically faces is the start of developing a strategy that focuses on strengths, minimizes weaknesses, and takes the greatest possible advantage of opportunities available. For the new outreach ministry scenario, a facilitated SWOT analysis session would optimally be held with a group that represents different levels of ministry stakeholders: church leadership, pastors, support staff, and lay leaders. In conducting the SWOT analysis, the following questions might be posed to generate responses regarding internal operations: a. Internal Strengths:
b. Internal Weaknesses:
“What do we do well?” “What advantages do we have?” “What do others see as our strengths?” “What could we improve?” “What should we avoid?” “What do we do poorly?”
After the SWOT analysis is complete, look for key strategic ideas that appear to fit in one large category of similar ideas (e.g., provide high-quality ministry support, plan to work more effectively, and streamline and automate work tasks) that might span multiple categories. These strategic ideas are valuable input to the next step of creating a strategy map using SWOT analysis input to examine the organization from the four Balanced Scorecard perspectives. Not only does the SWOT analysis provide valuable information about the organization’s operations, but it also gives the strategic planning team valuable information that may leverage resolution of other organizational issues. 4. Build a Strategy Map While a SWOT analysis results in knowledge about internal operations and external influences, the strategy map captures “buckets” of ideas called strategic themes. These themes are crafted into strategies for which objectives and performance indicators can be defined and made actionable. In the Balanced Scorecard model, these strategies are developed within the Financial, Internal Process, Customer, and Learning and Growth perspectives. While private sector firms are profit-driven and place the greatest emphasis on the Financial perspective, nonprofits usually rearrange the strategy map to have the Customer perspective on top renaming it the Constituent or Community perspective. Whether the Financial or Customer perspective is at the top of the strategy map, the topmost perspective is still supported by the other three perspectives. In the new outreach ministry scenario, the planning team would review the SWOT analysis, look for similar comments, and group them together under a common theme. For example, if several points from the SWOT analysis alluded to work inefficiencies due to poor processes or little automation, a category of “Streamline and Automate Work Tasks” could be defined as a strategic theme. Figure 2 depicts a sample strategic map the outreach ministry team might have at this point in the planning process. In determining how the outreach strategic map should be arranged, the planning team might decide to use the labels of Internal Processes and Financial for these perspectives, but choose more descriptive titles for the remaining two perspectives. In this example, Learning and Growth was changed to Enablers and, since the label Customers is not particularly applicable to ministry, the label Community was used instead of Customers.
Community
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Internal Processes
I2 Maintain process quality and consistency
I3 Educate, promote and communicate
E1 Maintain process quality and consistency
E2 Apply enabling technology
E3 Foster biblical study and lifelong learning
Financial
I1 Achieve operational excellence
Enables
C1 Deliver and sustain a transformational ministry
F1 Be responsible stewards
Figure 2. Sample strategic map for the outreach ministry team.
5. Define the Strategic Themes Once strategic themes are categorized and placed on the strategy map, the planning team should ask more questions about each strategic theme before proceeding in the planning process. Two helpful questions to ask at this point are a. “What is it?” – What is the definition of the strategic theme, taking into account the SWOT analysis input, assumptions made, and discussion points associated with the strategic themes? b. “Why is it important to the organization?” – As further discussion about a strategic theme occurs, it is easy to forget why the planning team thought it was important at the time. By documenting the “Why?” question, the team has an important reference point for future discussions about indicators, measures, and targets. For the outreach ministry project, detailed notes should be taken during the planning team’s meetings to capture key discussion points. These notes will be reviewed later by the planning team and formulated into definitions for the strategic themes. Once definitions are developed, the team should discuss each strategic theme in order to decide why it is or is not important to the organization. During these meetings, strategic themes may be added or removed, wording is frequently adjusted, and opinions should be constructively challenged to ensure that the results
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capture important operating principles that reflect the purpose, vision, and values of the organization. 6. Identify Strategic Objectives and Performance Indicators Strategic themes are operationalized through the definition of strategic objectives that describe very specific things the organization must do well to achieve its mission. However, defining strategic objectives is not enough. Performance indicators are then developed to provide measures of success. Indicators are not to be confused with metrics or targets that provide measurement standards and report performance. Indicators typically track trends, are less precise, and act as a barometer of whether progress of a strategic objective is positive or negative. In the case of a negative trend, further investigation will be required to determine the source of the root cause driving the negative trend. In the outreach example, the strategic planning team may feel that the “Deliver and sustain a transformational ministry” strategic theme in the Community perspective (which is identified in the “C1” box of Figure 2) is the most important objective to be accomplished in order to achieve the ministry’s mission. To track the organization’s progress on this objective, outreach participant data will be accumulated every quarter to assess if the objective is being met. As more data is collected, the team will need to assess whether the indicators they have defined are true representations of the ministry’s success. If no new indicators are chosen, more extensive analysis should be done to formulate precise measures and targets. Integration of the Balanced Scorecard and Purpose-Driven Church Models for Nonprofits In considering an alternative nonprofit strategic planning model, one of the most popular is Rick Warren’s (1995) Purpose-Driven Church model for religious organizations. This model promotes church growth through strategy built around five New Testament purposes of the church: evangelism, worship, fellowship, discipleship, and service. In this model, purpose (i.e., vision and mission) is driven by data collected about the targeted church growth group. In the Balanced Scorecard terminology, these are stakeholders. Key components of the Purpose-Driven Church model that contribute to its appeal are the use of data and emphasis on communication. Supporting this concept is Drucker’s (1990) conclusion that one of the most critical activities a nonprofit organization can do is to “build itself around information and communication instead of around hierarchy” (p. 30). The PurposeDriven Church model’s use of quantitative data assessment, evaluation, and validation sets the stage for positive results, similar to the data-driven Balanced Score model. Another strength of the Purpose-Driven Church model is seen in how this model guides church leaders in the definition of how the five purposes apply within the context of their own organization. The main deficiency of this model is evidenced by the lack of direction in how to operationalize strategic objectives into the daily flow of work. Without a cause-and-effect linkage established between strategy and daily work, organizations applying the Purpose-Driven Church model are more likely to grasp the concept of defining purpose rather than understanding how to implement strategy amid the reality of conflicting daily priorities and programs. The implementation shortcomings of the Purpose-Driven Church model invite users to explore alternative models to integrate into the Purpose-Driven Church model in order to actualize a nonprofit’s mission. The flexibility of the Balanced Scorecard model lends itself to this integration and is graphically
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depicted in Figure 3. The strength of an integrated model is emphasized by the data gathering approaches common to both models and by the contribution of the Balanced Scorecard’s causeand-effect linkage down into low-level operations. This integrated model also fosters a deeper level of critical thinking with regard to stakeholders, internal processes, employee and volunteer development, and financial considerations, all significant in the daily operation of any nonprofit today. VISION
MISSION
Financial 5 PURPOSES Internal Processes
STRATEGY
Learning & Growth
Customers
Figure 3. Integrated Balanced Scorecard and Purpose-Driven Church strategic model.
Implementation Tips Organizations differ in size, culture, and complexity, but key implementation points should be considered when using the Balanced Scorecard to develop strategic objectives. 1. Choose a leader with good overall knowledge of the business as a Balanced Scorecard champion. Do not delegate this responsibility out to a member of the staff. Be realistic in the amount of time this person will need to dedicate to the implementation effort (Olve, Petri, J. Roy, & S. Roy, 2003, p. 192). 2. Hold a kickoff meeting to define the Balanced Scorecard terms and clarify terminology. Niven (2005) reported to having seen the Balanced Scorecard projects take weeks longer than planned simply because participants made assumptions about the meanings of words (p. 57). 3. Keep in mind that it is often difficult for managers to define strategic objectives and metrics for the Learning and Growth perspective since it deals with the intangible areas of training and culture. When strategic objectives are being defined, it is not uncommon that Learning and Growth is the last view that has action plans and metrics defined.
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4. Be prepared to address change. New strategies will introduce some level of organizational change (Schaller, 1993, p. 91); therefore, plan for change prior to the kickoff meeting and remain vigilant to see how changing one component in the organization may impact other operations in the organization. 5. Cascade objectives down to the operational level from the strategies. Develop objectives, metrics, key performance indicators, and performance targets based on the identified strategies (Niven, 2003, pp. 133-139). Summary While many approaches to strategy development exist, the unique characteristics and mission of each organization must dictate the approach used to move the organization toward fulfilling its mission. The use of the Balanced Scorecard model provides an innovative alternative for many nonprofit organizations that do not find private sector strategic planning models applicable to their unique planning needs. The use of the Balanced Scorecard model or an alternative integrated solution where the Balanced Scored model supplements another strategic planning model already in use is an option for those nonprofits seeking to plan with the precision of a private sector firm, and committed to meeting the unique needs of their community-focused organizations.
About the Author Jan Ronchetti, PMP, is employed with the City of Naperville, Illinois and is a professional project manager with expertise in software development, human resources, and organizational effectiveness. With over 20 years of project management experience in the private, public, and nonprofit sectors, she is currently implementing a public sector Balanced Scorecard project and leading several municipal project management initiatives. Email: [email protected].
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References Brown, M. G. (1996). Keeping score: Using the right metrics to drive world-class performance. New York: Productivity Press. Bullard, G. W. (2004). Using consultation in strategy planning. Review and Expositor, 80(4), 561-569. Drucker, P. F. (1990). Managing the non-profit organization. New York: HarperCollins Publishers. Huselid, M. A., Becker, B. E., & Beatty, R. W. (2005). The workforce scorecard: Managing human capital to execute strategy. Boston: Harvard Business School Press. Kaplan, R. S., & Norton, D. P. (1992). The balanced scorecard – Measures that drive performance. In Harvard Business Review on Measuring Corporate Performance (1998, pp. 123-145). Boston: Harvard Business School Press. Kaplan, R. S., & Norton, D. P. (2004). Strategy maps: Converting intangible assets into tangible outcomes. Boston: Harvard Business School Press. Niven, P. R. (2003). Balanced scorecard: Step-by-step for government and nonprofit agencies. Hoboken, NJ: John Wiley & Sons, Inc. Niven, P. R. (2005). Balanced scorecard diagnostics: Maintaining maximum performance. Hoboken, NJ: John Wiley & Sons, Inc. Olve, N., Petri, C., Roy, J., & Roy, S. (2003). Making scorecards actionable: Balancing strategy and control. Hoboken, NJ: John Wiley & Sons, Inc. Schaller, L. E. (1993). Strategies for change. Nashville: Abingdon Press. Warren, R. (1995). The purpose-driven church. Grand Rapids, MI: Zondervan.
BALANCED SCORECARD – Generation 1 Graphic BALANCED SCORECARD: WIKI CITE http://en.wikipedia.org/wiki/Balanced_scorecard
RESOURCES
DASHBOARDS Dashboard Reporting – LISC Webinar – Jeanne Bell, presenter http://www.lisc.org/docs/experts/2006/eo_12_06_2006.pdf A Nonprofit Dashboard & Signal Light for Boards http://www.blueavocado.org/content/nonprofit-dashboard-and-signal-light-boards A Consumers Guide to Low-Cost Data Visualization Tools (idealware – free but need to register) http://www.idealware.org/reports/consumers-guide-low-cost-data-visualization-tools Dashboard Generator Data Entry Tables http://www.boardsource.org/UserFiles/File/Bookstore/DashboardDataGraphic.pdf Chandoo.org – templates and how-tos for charts, graphs in Excel (free) http://chandoo.org/wp/2009/12/18/charts-to-compare-targets/
OTHER RESOURCES Defining the Challenge: Year UP Private Placement Memorandum and Prospectus May 5, 2007 http://nonprofitfinancefund.org/files/docs/Year_Up.pdf Year Up Quarterly Performance Assessment 2006 http://www.powershow.com/view/2de77-ZGZlN/Quarterly_Dashboard_Assessment_flash_ppt_presentation Key Steps in Outcome Management http://www.urban.org/UploadedPDF/310776_KeySteps.pdf The Nonprofit Taxonomy of Outcomes: Creating a Common Language for the Sector http://www.urban.org/center/met/projects/upload/taxonomy_of_outcomes.pdf Innovation Network Logic Model Workbook http://www.innonet.org/client_docs/File/logic_model_workbook.pdf Time to Draw: Developing a Logic Model http://www.nccccurricula.info/documents/LogicModel.ppt
Bess Hamilton Foley
[email protected] 703-527-9105
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