1 April 21, 2015 YWCA USA Financial Leadership & Management Program Understanding & Assessing Financial Health for every woman 1 Join us on

2 Housekeeping Slide  Point one  Point two  Point three

3 WELCOME

4 Today’s Conversation Assessing Financial Health: Some Definitions Reading Financial Statements Immediate & Long-term Financial Health Calculating Financial Ratios

5 Financial Leadership Model

6 a)Staffing b)Internal Controls

7 Financial Leadership Model a)What am I looking at? b)How do I assess?

8 Definitions Accrual vs. Cash-based Accounting Contributed Support vs. Earned Revenue Nonprofit Revenues: Unrestricted, Restricted and Temporarily Restricted Income Natural vs. Functional Expenses

9 Two Types of Accounting Cash Basis AccountingAccrual Accounting

10 Cash vs. Accrual: An Example Month RecordedCash BasisAccrual Basis RevenueOctoberJuly ExpenseWhen Paid. July or August July We have a reimbursable government contract, the usual process looks something like this: Work performed: July Bill sent to government: August Check received from government: October

11 Definitions Accrual vs. Cash-based Accounting Contributed Support vs. Earned Revenue Nonprofit Revenues: Unrestricted, Restricted and Temporarily Restricted Income Natural vs. Functional Expenses

12 Contributed Support vs. Earned Revenue Contributed SupportEarned Revenue

13 Definitions Accrual vs. Cash-based Accounting Contributed Support vs. Earned Revenue Nonprofit Revenues: Unrestricted, Restricted and Temporarily Restricted Natural vs. Functional Expenses

14 Nonprofit Revenues Unrestricted Restricted

15 Nonprofit Revenues Unrestricted Temporarily Restricted Permanently Restricted

16 Nonprofit Revenues Unrestricted Individuals Special Events Earned Revenue Fee for Service Foundations Temporarily Restricted Foundations Government Grants / Contracts Project specific funds Endowments

17 In-Kind Accounting for In-Kind Revenue –Service that requires a special skill –Enhancement of an asset –Donated Good Important Financial Transaction –The Overhead Effect

18 Definitions Accrual vs. Cash-based Accounting Contributed Support vs. Earned Revenue Nonprofit Revenues: Unrestricted, Restricted and Temporarily Restricted Income Natural vs. Functional Expenses

19 Expenses Natural ClassificationFunctional Classification

20 Definitions Accrual vs. Cash-based Accounting Contributed Support vs. Earned Revenue Nonprofit Revenues: Unrestricted, Restricted and Temporarily Restricted Income Natural vs. Functional Expenses Questions?

21 Financial Leadership Model a)What am I looking at? b)How do I assess?

22 Financial Leadership Model a)What am I looking at? b)How do I assess?

23 Assessing Immediate Health Do we have enough cash to pay our bills? How does our cash flow projection look? How are we performing currently on our budget?

24 Immediate Financial Health Do we have enough cash to pay our bills? Current Ratio Total Current Assets Total Current Liabilities Quick Ratio Cash & Equivalents Total Current Liabilities

25 Immediate Financial Health How does our cash flow projection look? –Do we have a lot of receivables? –When do we expect to collect them? –How are Accounts Payable?

26 Immediate Financial Health How are we performing on budget? –For particular contracts –For the organization

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28 Assessing Long-term Health Do we have an adequate reserve? How are our programs performing financially? Is our income stream sufficiently diverse?

29 What is a reserve?

30 What is a reserve?

31 What do we use a reserve for?

32 Calculating The Reserve: Months of Cash On Hand Cash + Savings + Receivables – Accounts Payable Typical Monthly Expenses - Depreciation

33 Calculating the Reserve Unrestricted Net Assets Typical Monthly Expenses Unrestricted N.A. – Fixed Assets Typical Monthly Expenses

34 What is a good reserve?

35 How many have reserves? A study of Washington, DC nonprofits discovered: 48% of nonprofits had reserves less than 3 months 17% had negative reserves.

36 Assessing Long-term Health Do we have an adequate reserve? How are our programs performing financially? Is our income stream sufficiently diverse?

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38 Efficiency and Effectiveness of Programs Full Costs Direct Costs Shared Costs Admin Costs Ratios Cost per client served ―Classes ―Shelters Cost per unit of service ―Month of housing or childcare Cost per successful outcome

39 Assessing Long-term Health Do we have an adequate reserve? How are our programs performing financially? Is our income stream sufficiently diverse?

40 Source: Urban Institute: Natl. Center for Charitable Statistics Nonprofit Sources of Revenue

41 Source: Estimates based on data from Urban Institute: Natl. Center For Charitable Statistics and Business & Nonprofit Strategies Nonprofit Sources of Revenue (without College Tuition, Hospital Revenue)

42 Diversification Government Dependency Total Gov. Funding Total Revenue Self-Sufficiency Non-Gov. Income Total Expense

43 Recap Immediate Cash to pay bills Cash flow projection Budget Long-Term Reserves Profitability Income diversity

44 Homework: Reflection Immediate Financial Health Long-term Financial Health Overall Reflection Ratios and Financial Assessment Questions

45 Resources Sample Financial Statements Ratios

46 Recap See the whole picture Assess Your HealthSpot the Trend! Know what you’re looking at Accrual or Cash? Unrestricted or temporarily restricted?

47 Your Questions

48 YWCA FLM: Discussion Site

49 Next Webinar: May 26 Demystifying Expenses Part 1: Categorizing Expenses and Cost Allocation Differentiating between direct and common expenses. Allocating administrative costs Finding true program costs

50 Steve Zimmerman Spectrum Nonprofit Services