Financial Board Reports for Non-Profits

Financial Board Reports for Non-Profits

Utah Nonprofit Association September, 2021

John Haglund & Bill Willahan

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Who is Now CFO?

Chapter 1

NOW CFO is a “roll up our sleeves” full-service consulting firm with a singular focus on outsourced CFO, Controller, accounting, and finance service needs.

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Energy

Healthcare Technology

Manufacturing

Food & Beverage

Telecom Agriculture

Industry Expertise

Non Profits

Life Sciences

3

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John Haglund, CFO Consultant – Salt Lake City

• 25 years experience in Corporate Finance, Accounting, Financial Analysis and

Reporting

• 6 years experience consulting in CFO / Controller roles

• Serves on 2 non-profit boards

• Works with multiple non-profit clients

• MBA, Accounting – Westminster College; BA Finance – University of Utah

Bill Willahan, CFO Consultant – Salt Lake City

• 25 years experience in Finance and Accounting

• 15 years experience in CEO / GM roles

• Works with multiple non-profit clients

• BBA, Accounting / Management, Southern Utah University

Presenters

4

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What we’ll talk about:

What is Financial Reporting

Purposes of Financial Reporting

Board Member Responsibilities

Best Practices

Potential Risks and Hurdles

Great Examples

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Importance of Financial Reporting

Chapter 1

Financial Reports include:

Balance Sheet

Statement of Activity• Aka Statement of Operations or Income Statement

Cash Flow Statement

Other custom reports• Payroll details

• Project details

• Variance reports

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Financial Reports: Balance Sheet

Balance Sheet shows:

ASSETS = Things you own or money coming to you:

• Cash

• Pledges / Accounts Receivable

• Office Equipment

LIABILITIES = Money you owe to others:

• Vendor Accounts, Loans, Payroll, or Taxes Payable

• Program Expenses

FUND BALANCE (EQUITY) = Operational surplus (deficit) after liquidating assets and liabilities. Can include Restricted and Unrestricted balances.

A snapshot as of a point in time.

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Example: Balance Sheet

Chapter 1

ASSETS:

Cash: $ 84,513

Accounts Receivable: 149,427

Equipment: 89,015

Total Assets: $322,955

Accounts Payable: 177,834

Payroll Taxes Payable: 9,527

Line of Credit: 7,300

Total Liabilities: 194,661

Fund Balance *: 128,294

Total Liabilities & Equity: $322,955

*aka Net Assets

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Statement of Activity

Statement of Activity (or Operations) shows:

REVENUES / INCOME: What you earned during a period of time. Can include:

• Amounts contributed by patrons / customers / clients

• Grants

EXPENDITURES: What you spend to run your operation. Can include:

• Payroll

• Rent / Utilities

• Program expenses

Also called Statement of Activities / P&L

INCOME less EXPENDITURES equals NET SURPLUS or (DEFICIT)

Surplus (or Deficit) during a period of time, when earned,

not when received.

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Example: Statement of Activity

Chapter 1

Total

Revenue

A) Program Income

Membership Dues 168,520.58

Total A) Program Income $ 168,520.58

B) Other Income

Fund Raiser 5,500.00

Total B) Other Income $ 5,500.00

Indirect Public Support 750.00

TShirts 100.00

Total Revenue $ 174,870.58

Gross Profit $ 174,870.58

Expenditures

A) Program Activities

District Dues 11,522.00

Training and Conferences 2,700.00

Total A) Program Activities $ 14,222.00

B) Program Activities - Other

Community Donations 4,350.00

Meeting Food Expenses 2,052.00

Social Expenses 692.71

Total B) Program Activities - Other $ 7,094.71

C) Administrative Expense

Advertising/Promotional 254.99

Bank & Credit Card Fees 2,770.49

QuickBooks Subscription 840.50

Total C) Administrative Expense $ 3,865.98

Total Expenditures $ 25,182.69

Net Operating Revenue $ 149,687.89

Net Revenue $ 149,687.89

Statement of ActivityJuly 2020 - June 2021

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Statement of Cash Flows

Statement of Cash Flows shows:

Cash at beginning of period

Inflows / Outflows from:

• Operating (program) Activities

• Investing Activities

• Financing Activities

Cash at end of period

Surplus (or Deficit) during a period of time, when earned,

not when received.

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Example: Statement of Cash Flows

Chapter 1

Total

OPERATING ACTIVITIES

Net Revenue -7,897.84

Adjustments to reconcile Net Revenue to Net Cash provided by operations:

Accounts Receivable 455.79

Uncategorized Asset 250.00

Community Donations Pledged 5,000.00

Accounts Payable 3,700.00

Total Adjustments to reconcile Net Revenue to Net Cash provided by operations: $ 9,405.79

Net cash provided by operating activities $ 1,507.95

FINANCING ACTIVITIES

Unrestricted Net Assets -28,726.99

Net cash provided by financing activities -$ 28,726.99

Net cash increase for period -$ 27,219.04

Cash at beginning of period 66,656.12

Cash at end of period $ 39,437.08

Statement of Cash FlowsJuly 2019 - June 2020

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Zoom Poll

Chapter 1

What is an accrual?• A medical procedure involving long needles

• An accounting entry to record an estimated expense

• A metric measure of distance, similar to “furlong”

• The latest model of electric car from Acura

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Accrual vs. Cash Basis

Chapter 1

Accrual:• Revenue recorded when Earned / Pledged• Expenses recorded when Incurred / Committed• Generally provides a more complete and comprehensive

view of financial situation• Supports “Matching Principle” of standard accounting

practices

Cash:• Revenue recorded when Received• Expenses recorded when Paid• Simpler• Lifeblood of business

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Questions or Comments?

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Key Performance Indicators (KPI’s)

Chapter 1

In addition to the primary financial reports, businesses can track other data that is important to their success. This can include:• Marketing spend vs. fund-raising revenue

• Grant income vs. grant expense

• Actual expenses vs. Budget / Forecast

• Salesperson success

• Year to year changes in accounting ratios

Each business will have different KPI’s based on what is important to their Board

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Uses of Financial Reporting

Chapter 1

Business Decision-Making• Annual Budget

• Staffing

• Raising capital

Strategic Planning• Program support

• Community donations

IRS Requirement• Form 990 requires breakout of Program / Non-program expenses

Public Image• Fund-raising• Ensure accounting / reporting provides transparency and sufficient detail

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Board Responsibilities

Chapter 1

Treasurer Role is usually responsible for financial reporting

Audit / Finance Committee should include someone besides accounting staff and executive director

Ensure accounting / reporting is reviewed in sufficient detail

• Backup / detail reports

• Account reconciliation reports

• Bank / credit card statements

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Zoom Poll

Chapter 1

Name a key financial issue facing your board

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Key Issues

Accuracy

Timeliness

Financial Controls

Cash Flow

Board Awareness

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Risks / Hurdles

Engaging unqualified volunteers

Inaccurate financial statements

Fraud

Running out of cash

IRS fines and/or penalties

Loss of tax exempt status

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Zoom Poll

Chapter 1

Do you have a Finance subcommittee on your Board?• Yes

• No

• Not sure

• What’s that?

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Best Practices

Staffing – sufficient time and qualifications to provide accurate reports• Volunteer management / accounting may not be sufficient

Specific Board resource with complete familiarity with reports and systems

Separation of duties

Set time intervals and routine financial practices:• Annual budget• Monthly / quarterly closing routine• Balance sheet reconciliations

• Bank account

• Credit cards

• Other key accounts

• Cash flow forecast• Key Performance Indicators (KPI’s)• Variance reporting and analysis• Periodic audits

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Best practices: Are you doing this?

Chapter 1

Keep all accounting current

Monthly checkup of your balance sheet: Is it accurate?

Monthly Profit or Loss• Keep it current and accurate• Look at your Accrual Basis Profit, Costs, Expenses• Also look at your Cash Flows

Is accounting software appropriate for your business?

Policies & Procedures manual in place / being followed

Cash flow projection

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Sample Cash Flow Forecast

Chapter 1

1 2 3 4 5 6

For the Week Beginning 09/20/21 09/27/21 10/04/21 10/11/21 10/18/21 10/25/21

Beginning Balance per Bank 100,000$ 94,425$ 101,425$ 93,550$ 100,550$ 90,175$

Sources of Cash Acct Rec

New Patron Revenue 5,000 5,000 5,000 5,000 5,000 5,000

Prior Pledges 2,500 2,500 2,500

-

Total Sources of Cash 5,000 7,500 5,000 7,500 5,000 7,500

Total Cash Available 105,000 101,925 106,425 101,050 105,550 97,675

Uses of Cash Acct Pay

Payroll 10,000 10,000 10,000

Payroll Taxes 4,800

Phone bill 250

Rocky Mountain Power 125

Rent 2,000

QuickBooks 75 75

Misc Other 500 500 500 500 500 500

Total Uses of Cash 10,575 500 12,875 500 15,375 500

Projected Ending Bank Balance 94,425$ 101,425$ 93,550$ 100,550$ 90,175$ 97,175$

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Cash Flow Forecasting Tips

Chapter 1

Begin with the BANK balance, not the BOOK balance

Make sure to account for any outstanding payments and deposits

Update each week / month with actual expenses

Ensure payroll is in the right weeks and on day cash will actually clear bank (usually 1-2 days before payday)

Ensure payroll taxes are included

Watch for convergence of large expenses

Take advantage of vendor discounts (if applicable)

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Contact Info

Chris [email protected](801) 598-9390

John [email protected](801) 712-2761

Bill [email protected](801) 864-6008

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Other Needs?

• Banking

• Insurance

• Marketing

• IT Services

• Investors

• CPA Firms

• Attorneys

• Payroll Providers

• Merchant Services

• Accounting Systems

We Have Trusted Relationships

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Financial Board Reports for Non-Profits

Documents

Transcript of Financial Board Reports for Non-Profits