1. The 3 main financial statements How they give us different kinds of information about organisational performance

2. Profit and Loss or Income and Expenditure ‣ Show the results over a particular period, normally a year ‣ Compare the income against the expenditure needed to create that income during that period ‣ Grant income is normally released against expenditure associated with the grant ‣ Income and expenditure are based on when items are invoiced, not when they are paid ‣ Includes non-cash items such as depreciation ‣ Adjusts for accruals and prepayments ‣ The surplus or deficit is carried forward to the next year through the balance sheet

3. Format of P&L accounts Sales Cost of Sales Gross Profit Fixed costs/overheads Operating profit Tax and interest charges Earnings/net profit

4. Cashflow statement ‣ Shows how money has flowed through the organisation in a particular period, normally coinciding with the P&L ‣ Records incoming and outgoing cash at the time it is paid/received ‣ Shows debtors (people who owe you money) and creditors (people you owe money to) at a particular date ‣ Cash is not the same as profit ‣ The majority of businesses fail due to poor control of cash

5. Opening trade debtors Sales Cash received Closing trade debtors Jan – March 120 90 150 60 April – June 60 120 100 80 July – September 80 150 130 100 Oct – December 100 120 140 80 Cash received Cash payments Net cashflow 150 (80) 70 100 (160) (60) 130 (180) (50) 120 (160) (20) Opening cash balance Net cashflow Closing net balance Cumulative cashflow 5 70 75 (60) 15 (50) (35) (20) (55) Cashflow Matrix

6. Balance Sheet ‣ A summary of an organisation’s assets, and how those assets have been financed, at a particular date ‣ A summary of an organisation’s assets and liabilities, the basis for deciding if it is solvent or not ‣ The net assets balance with the financing of the organisation ‣ Includes liabilities i.e. cash owed to others, loans ‣ Assets can be tangible – cash, equipment, stock, buildings – or intangible – goodwill, reputation ‣ ‘Liquid’ assets are assets which can be converted into cash within a year

7. Typical balance sheet Fixed assets (e.g. equipment) Current assets (stock, cash, prepayments, debtors) Current liabilities (creditors, bank overdraft) Current assets less current liabilities = net current assets, or working capital Fixed assets + net current assets = reserves, or equity

8. Costs & Pricing

9. Costs ‣ What are your costs? ‣ How do they arise? ‣ How do you analyse them? ‣ What factors affect them? ‣ How do you organise/allocate them? ‣ How do you report them?

10. Cost centres ‣ What are your cost centres? » Projects » Physical locations » Activities » Departments ‣ Do they make sense to your funders? ‣ Do they make sense to your business? ‣ Do they make sense to your accountant?

11. Types of Costs ‣ Variable or direct costs – the costs that change with activity levels ‣ Fixed costs – overheads or costs which do not vary with the activity levels ‣ Semi-variable costs – e.g. temporary staffing brought in for a particular contract ‣ Indirect or core costs – e.g. a manager’s salary, rent, marketing budget, etc

12. Break even Breakeven point = fixed costs Selling price per unit - variable costs per unit ‣ Break even is achieved when the number of “things” sold less the cost of producing these “things” is the same as the fixed costs ‣ key information is what does it cost to produce each unit e.g. each trainee trained, each chair sold, each support session delivered? ‣ Profitability is reached when sales or income cover all costs, both variable and fixed.

13. Full Cost Recovery – what is it? ‣ Knowing the full cost of each activity ‣ Recovering this full cost from funders, or through trading activity (which is normally called pricing) ‣ Involves analysing each activity and understanding its direct costs ‣ Involves apportioning or calculating the proportion of overheads that ‘belong’ to each activity

14. How to do it ‣ Get a set of accounts for the previous year and forecasts for the following year ‣ Analyse your accounts by: » Identifying all the direct costs for a project » Identifying all overheads costs ‣ Decide a threshold below which you won’t analyse ‣ Decide on the way in which you will allocate overheads costs ‣ Review it in light of actual results and regularly

15. ‣ By number of staff involved in each activity ‣ By the floorspace needed for each activity ‣ By the time needed to run each activity ‣ By expenditure ‣ By income ‣ Using different methods for different kinds of overheads costs Apportioning Overheads Ways of apportioning overheads – arriving at a percentage to allocate to each project

16. Allocation of fundraising costs Allocation of premises costs Full Cost of Project Allocation of governance/ strategic costs Allocation of support costs Allocation of CEO costs Direct Project Costs The Full Cost