Understanding & Assessing
Financial Health
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@SpectrumSteve
April 21, 2015
1
for every woman
YWCA USA Financial Leadership
& Management Program
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Housekeeping Slide
 Point one
 Point two
 Point three
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WELCOME
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Today’s Conversation
• Assessing Financial Health:
Some Definitions
• Reading Financial Statements
• Immediate & Long-term
Financial Health
• Calculating Financial Ratios
4
Financial Leadership Model
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Financial Leadership Model
a) Staffing
b) Internal Controls
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Financial Leadership Model
a) What am I looking at?
b) How do I assess?
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Definitions
• Accrual vs. Cash-based Accounting
• Contributed Support vs. Earned Revenue
• Nonprofit Revenues: Unrestricted, Restricted
and Temporarily Restricted Income
• Natural vs. Functional Expenses
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Two Types of Accounting
Cash Basis Accounting
Accrual Accounting
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Cash vs. Accrual:
An Example
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
Month Recorded
Cash Basis
Accrual Basis
Revenue
October
July
Expense
When Paid. July or
August
July
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Definitions
• Accrual vs. Cash-based Accounting
• Contributed Support vs. Earned Revenue
• Nonprofit Revenues: Unrestricted, Restricted
and Temporarily Restricted Income
• Natural vs. Functional Expenses
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Contributed Support vs.
Earned Revenue
Contributed Support
Earned Revenue
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Definitions
• Accrual vs. Cash-based Accounting
• Contributed Support vs. Earned Revenue
• Nonprofit Revenues: Unrestricted, Restricted
and Temporarily Restricted
• Natural vs. Functional Expenses
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Nonprofit Revenues
Unrestricted
Restricted
14
Nonprofit Revenues
Unrestricted
Temporarily
Restricted
Permanently
Restricted
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Nonprofit Revenues
Unrestricted
• Individuals
• Special Events
• Earned Revenue
• Fee for Service
• Foundations
Temporarily Restricted
• Foundations
• Government Grants /
Contracts
• Project specific funds
• Endowments
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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
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Definitions
• Accrual vs. Cash-based Accounting
• Contributed Support vs. Earned Revenue
• Nonprofit Revenues: Unrestricted, Restricted
and Temporarily Restricted Income
• Natural vs. Functional Expenses
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Expenses
Natural Classification
Functional Classification
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Definitions
• Accrual vs. Cash-based Accounting
• Contributed Support vs. Earned Revenue
• Nonprofit Revenues: Unrestricted, Restricted
and Temporarily Restricted Income
• Natural vs. Functional Expenses
Questions?
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Financial Leadership Model
a) What am I looking at?
b) How do I assess?
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Financial Leadership Model
a) What am I looking at?
b) How do I assess?
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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?
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Immediate Financial Health
Do we have enough cash to pay our bills?
Current Ratio
Quick Ratio
Total Current Assets
Total Current Liabilities
Cash & Equivalents
Total Current Liabilities
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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?
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Immediate Financial Health
How are we performing on budget?
– For particular contracts
– For the organization
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Budget to Actual Comparison
For the nine months ending September 30, 2014
SUPPORT AND REVENUES
Contributions
Foundation grants
Fundraising events, net
Total Support
Government contracts
Fee for Service
Investment Income
Total Revenue
Net Assets Released from Restriction
Total Support and Revenues
EXPENSES
Program Services
Employment/Economic Empowerment
Domestic Violence Prevention & Int.
Childcare/Youth Development
Total Program Services
Supporting Services
Administration
Fundraising
Total Support Services
Total Expenses
Increase in Net Assets
NET ASSETS
Beginning of the year
End of the year
YTD
Actual
YTD
Budget
Difference
B/(W)
Annual
Budget
$
%
Remaining Remaining
90,000
25,000
76,300
191,300
60,000
75,000
70,000
205,000
30,000
(50,000)
6,300
(13,700)
145,000
100,000
70,000
315,000
55,000
75,000
(6,300)
123,700
38%
75%
-9%
39%
340,000
4,700
3,965
348,665
337,500
15,000
3,750
356,250
2,500
(10,300)
215
(7,585)
450,000
20,000
5,000
475,000
110,000
15,300
1,035
126,335
24%
77%
21%
27%
204,580
744,545
200,000
761,250
4,580
(16,705)
275,000
1,065,000
70,420
320,455
26%
30%
150,979
424,860
29,944
605,783
150,000
431,250
37,500
618,750
(979)
6,391
7,556
12,968
200,000
575,000
50,000
825,000
49,021
150,141
20,056
219,218
25%
26%
40%
27%
67,031
59,862
126,893
67,500
67,500
135,000
469
7,639
8,108
90,000
90,000
180,000
22,969
30,139
53,108
26%
33%
30%
732,675
753,750
21,075
1,005,000
272,325
27%
11,870
7,500
4,370
60,000
48,130
80%
184,795
196,665
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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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What is a reserve?
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What is a reserve?
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What do we use a reserve for?
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Calculating The Reserve:
Months of Cash On Hand
Cash + Savings + Receivables – Accounts Payable
Typical Monthly Expenses - Depreciation
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Calculating the Reserve
Unrestricted Net Assets
Typical Monthly Expenses
Unrestricted N.A. – Fixed Assets
Typical Monthly Expenses
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What is a good reserve?
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How many have reserves?
A study of Washington, DC nonprofits
discovered:
• 48% of nonprofits had reserves less than 3
months
• 17% had negative reserves.
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Assessing Long-term Health
• Do we have an adequate reserve?
• How are our programs performing
financially?
• Is our income stream sufficiently diverse?
36
Summarized Statement of Functional Income & Expenses
For the Nine Months Ending September 30, 2014
Program Activities
Domestic
Employment /
Violence
Childcare /
Economic
Prevention &
Youth
Development Intervention Development
Contributions
Foundation grants
Fundraising events, net
Total Support
-
Government contracts
Fee For Service
Investment Income
Total Revenue
Net Assets Released from Restriction
Total Income
-
Supporting Activities
Fundraising
90,000
25,000
76,300
191,300
Admin
-
-
Shared
Costs
-
TOTAL
90,000
25,000
76,300
191,300
-
340,000
4,700
3,965
348,665
-
204,580
744,545
340,000
4,700
-
340,000
3,965
3,965
4,700
-
144,080
144,080 $
25,000
365,000 $
35,500
40,200
Personnel Expense
Non-Personnel Expenses
Total Specific Costs
96,370
31,300
127,670
224,020
157,400
381,420
21,045
6,780
27,825
34,960
13,000
47,960
37,950
3,900
41,850
51,750
54,200
105,950
466,095
266,580
732,675
Shared Costs Allocation %
Allocation of Shared Costs
Expense without Admin.
22%
23,309
150,979
41%
43,440
424,860
2%
2,119
29,944
18%
19,071
67,031
17%
18,012
59,862
(105,950)
-
100%
732,675
23%
15,204
64%
42,784
4%
3,015
-100%
(67,031)
9%
6,028
$
Admin Allocation %
Admin. Allocation
$
Total expenses after allocations
$
166,183 $
467,643 $
32,959
$
Change in Net assets
$
(22,103) $
(102,643) $
7,241
$
3,965 $
-
191,300
$
$
$
65,890
$
732,675
3,965 $
125,410
$
11,870
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Efficiency and Effectiveness
of Programs
Full Costs
Ratios
• Cost per client served
― Classes
― Shelters
Direct
Costs
Shared Admin
Costs Costs
• Cost per unit of service
― Month of housing or
childcare
• Cost per successful
outcome
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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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Nonprofit Sources of
Revenue
Source: Urban Institute: Natl. Center for Charitable Statistics
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Nonprofit Sources of Revenue
(without College Tuition, Hospital Revenue)
Source: Estimates based on data from Urban Institute: Natl. Center
For Charitable Statistics and Business & Nonprofit Strategies
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Diversification
Government Dependency
Self-Sufficiency
Total Gov. Funding
Total Revenue
Non-Gov. Income
Total Expense
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Recap
Immediate
• Cash to pay bills
• Cash flow projection
• Budget
Long-Term
• Reserves
• Profitability
• Income diversity
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Homework: Reflection
• Immediate Financial Health
• Long-term Financial Health
• Overall Reflection
• Ratios and Financial
Assessment Questions
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Resources
• Sample Financial
Statements
• Ratios
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Recap
Know what you’re
looking at
•
•
See the whole picture
Accrual or Cash?
Unrestricted or temporarily
restricted?
Assess Your Health
Spot the Trend!
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Your Questions
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YWCA FLM: Discussion Site
http://ywcaflm.ning.com/
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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
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Steve Zimmerman
Spectrum Nonprofit Services
www.spectrumnonprofit.com
stevez@spectrumnonprofit.com
414-727-1029
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