Financial Clarity for Nonprofit Boards

Financial Clarityfor Nonprofit Boards

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Goals for Today’s Webinar

1. Discuss the financial responsibilities of the board of directors

2. Learn what financial information is important for the board

3. Understand the nonprofit Income Statement and Balance Sheet

4. Learn to analyze and ask questions about financial information

Financial Accountability of the Board

Accountable to the public as a tax-exempt organization

Evaluate and monitor effective use of financial resources

– Use financial resources to fulfill mission– Use financial resources as directed by donors– Use financial resources in a way that is

consistent with values

Ensure future financial health and viability

Financial Responsibilities of the Board

• Adopt strategic plans and goals

• Create and maintain an appropriate governance structure

• Adopt policies for financial practices and activities

• Ensure adequate staffing

• Approve the annual budget, understanding assumptions, priorities, and risks

Financial Responsibilities of the Staff

• Prepare and plan

• Comply with board direction and decisions

• Follow adopted policies

• Develop and use procedures and practices

• Monitor progress and make decisions within framework

• Provide accurate and adequate information

• Adopt strategic plans and goals

• Create and maintain an appropriate governance structure

• Adopt policies for financial practices and activities

• Ensure adequate staffing

• Approve the annual budget, understanding assumptions, priorities, and risks

How Boards Use Financial Information

Compliance Evaluation

ActionPlanning

Poll: In which way does your board best engage in financial management?

Financial Reports Should Be…

• Accurate and consistent

• Available soon enough to be of use in monitoring and planning

• Understood in context of the organization’s history and external environment

• Understood in relationship to program activities

The quality of financial decisions

is directly related to thequality of financial

information.

Basic “Must Have” Financial Information

• Organizational budget– Approved by the board before the fiscal year

begins

• Monthly or quarterly financial reports– Income Statement– Comparison of actual income and expenses to

budget– Balance Sheet

• Audit report– Required in Minnesota if revenues exceed

$750,000– Auditor is hired by the board

• Verification of required reports– IRS Form 990, other required forms and

registrations

Compliance

How much?

Reviewhistorical financial

information.

Income Statement and Balance Sheet

INCOME ActualSupport

1 Individual Contributions $21,1302 Corporate/Foundation Grants 40,000 3 Government Grants 10,000 4 United Way 21,000 5 Total Support 92,130

Revenue6 Client Fees 7,850 7 Contract Income 5,500 8 Interest Income 165 9 Total Revenue 13,515 10 Total Support & Revenues $105,645

EXPENSE11 Personnel / Salaries $59,00012 Benefits, Taxes & Insurance 13,750 13 Contract and Professional Fees 5,500 14 Program Related Materials 3,300 15 Office Exp (phone, supplies) 4,977 16 Postage and Shipping 970 17 Internet and Website 2,700 18 Occupancy 4,500 19 Insurance 1,850 20 Printing and Publications 2,543 21 Staff Development 2,785 22 Interest Expense 183 23 Depreciation 1,000 24 Other Misc Expenses 1,215 25 Total Expenses $104,27326 Surplus/ (Deficit) $1,372

Family Advocacy NetworkIncome Statement

For the Twelve Months Ending December 31, 2009Assets

Current Assets1 Cash & Investments $ 9,558 2 Accounts Receivable 675 3 Gov't Grants & Contracts Receivable 850 4 Grants Receivable 5,000 5 Pledges Receivable 1,200 6 Total Current Assets 17,283

Long-Term Assets7 Prepaid Expenses 300 8 Long-Term Pledges Receivable 1,000 9 Building Improvements (5 year lease) 8,000 10 Equipment and Furniture 14,000 11 Accumulated Depreciation (12,500) 12 Total Long-Term Assets 10,800 13 Total Assets $ 28,083

Liabilities and Net AssetsCurrent Liabilities

14 Accounts Payable $ 3,375 15 Payroll, Vacation & Taxes Payable 1,108 16 Deferred Revenue 1,100 17 Notes (Loans) Payable 3,750 18 Current Portion Long-Term Debt 1,800 19 Total Current Liabilities 11,133

Long-Term Liabilities20 Equipment loan 4,800 21 Total Long-Term Liabilities 4,800 22 Total Liabilities 15,933

Net Assets23 Beginning of Year 10,778 24 Change in Net Assets 1,372 25 Total Net Assets 12,150 26 Total Liabilities and Net Assets $ 28,083

Family Advocacy NetworkBalance Sheet

December 31, 2009

Income Statement

Amounts of income and expenses for a certain period of time

Resulting Change in Net Assets

• Surplus (profit) or deficit (loss)

• Also known as net income



Revenue6 Client Fees 7,850 7 Contract Income 5,500 8 Interest Income 165 9 Total Revenue 13,515

10 Total Support & Revenues $105,645EXPENSE

11 Personnel / Salaries $59,00012 Benefits, Taxes & Insurance 13,750 13 Contract and Professional Fees 5,500 14 Program Related Materials 3,300 15 Office Exp (phone, supplies) 4,977 16 Postage and Shipping 970 17 Internet and Website 2,700 18 Occupancy 4,500 19 Insurance 1,850 20 Printing and Publications 2,543 21 Staff Development 2,785 22 Interest Expense 183 23 Depreciation 1,000 24 Other Misc Expenses 1,215 25 Total Expenses $104,27326 Surplus/ (Deficit) $1,372


For the Twelve Months Ending December 31, 2009

ND Center for Nursing Quarterly Update

Income Statement

Support

• Contributed income

Revenue

• Income earned from delivery of goods and services








Contribution Categories

Not all contributed income is the same. Contributions may have restrictions based on donor intent and direction.

Classifications are required by GAAP accounting rules to ensure accountability to donors.





11 Personnel / Salaries $59,00012 Benefits, Taxes & Insurance 13,750 13 Contract and Professional Fees 5,500 14 Program Related Materials 3,300 15 Office Exp (phone, supplies) 4,977 16 Postage and Shipping 970 17 Internet and Website 2,700 18 Occupancy 4,500 19 Insurance 1,850 20 Printing and Publications 2,543 21 Staff Development 2,785 22 Interest Expense 183 23 Depreciation 1,000 24 Other Misc Expenses 1,215 25 Total Expenses $104,273



Unrestricted• Available for general use

Temporarily Restricted• Restrictions expire over a defined period of time

or by performing defined activities• Often in the form of a program grant• Common to most nonprofits

Permanently Restricted• Principal remains intact, but investment income

can be used• Often in the form of an endowment or scholarship

fund


• Temporarily Restricted funds are recorded as income when committed

• When restrictions are met, Temporarily Restricted funds are transferred into the Unrestricted category with the accounting entry “Net Assets Released from Restrictions”

TemporarilyINCOME Unrestricted Restricted Total

Support1 Individual Contributions $21,130 $21,1302 Corporate/Foundation Grants 25,000 40,000 $65,0003 Government Grants 10,000 $10,0004 United Way 21,000 $21,0005 Net Assets Released from Restrictions 15,000 (15,000) - 6 Total Support 92,130 25,000 117,130

Revenue7 Client Fees 7,850 $7,8508 Contract Income 5,500 $5,5009 Interest Income 165 $16510 Total Revenue 13,515 - 13,515 11 Total Support & Revenue $105,645 $25,000 $130,645

EXPENSE12 Personnel / Salaries $59,000 $59,00013 Benefits, Taxes & Insurance 13,750 $13,75014 Contract and Professional Fees 5,500 $5,50015 Program Related Materials 3,300 $3,30016 Office Exp (phone, supplies) 4,977 $4,97717 Postage and Shipping 970 $97018 Internet and Website 2,700 $2,70019 Occupancy 4,500 $4,50020 Insurance 1,850 $1,85021 Printing and Publications 2,543 $2,54322 Staff Development 2,785 $2,78523 Interest Expense 183 $18324 Depreciation 1,000 $1,00025 Other Misc Expenses 1,215 $1,21526 Total Expenses $104,273 $0 $104,273



Revenue7 Client Fees 7,850 $7,8508 Contract Income 5,500 $5,5009 Interest Income 165 $165

10 Total Revenue 13,515 - 13,515 11 Total Support & Revenue $105,645 $25,000 $130,645

EXPENSE12 Personnel / Salaries $59,000 $59,00013 Benefits, Taxes & Insurance 13,750 $13,75014 Contract and Professional Fees 5,500 $5,50015 Program Related Materials 3,300 $3,30016 Office Exp (phone, supplies) 4,977 $4,97717 Postage and Shipping 970 $97018 Internet and Website 2,700 $2,70019 Occupancy 4,500 $4,50020 Insurance 1,850 $1,85021 Printing and Publications 2,543 $2,54322 Staff Development 2,785 $2,78523 Interest Expense 183 $18324 Depreciation 1,000 $1,00025 Other Misc Expenses 1,215 $1,21526 Total Expenses $104,273 $0 $104,27327 Surplus/ (Deficit) $1,372 $25,000 $26,372



Income Statement

Personnel expenses

• Usually the largest component of total expenses

Operating expenses

Program expenses








Income Statement

Depreciation• A “non-cash” expense

to recognize the value of using a fixed asset (equipment, vehicle) for the period

• Nonprofits do not always include depreciation as an expense

• Including depreciation expense and achieving a surplus is called “funding depreciation”








Income Statement and Balance Sheet



Revenue6 Client Fees 7,850 7 Contract Income 5,500 8 Interest Income 165 9 Total Revenue 13,515 10 Total Support & Revenues $105,645

EXPENSE11 Personnel / Salaries $59,00012 Benefits, Taxes & Insurance 13,750 13 Contract and Professional Fees 5,500 14 Program Related Materials 3,300 15 Office Exp (phone, supplies) 4,977 16 Postage and Shipping 970 17 Internet and Website 2,700 18 Occupancy 4,500 19 Insurance 1,850 20 Printing and Publications 2,543 21 Staff Development 2,785 22 Interest Expense 183 23 Depreciation 1,000 24 Other Misc Expenses 1,215 25 Total Expenses $104,27326 Surplus/ (Deficit) $1,372


For the Twelve Months Ending December 31, 2009Assets

Current Assets1 Cash & Investments $ 9,558 2 Accounts Receivable 675 3 Gov't Grants & Contracts Receivable 850 4 Grants Receivable 5,000 5 Pledges Receivable 1,200 6 Total Current Assets 17,283







December 31, 2009

Balance Sheet

Financial assets and obligations as of a specific date

AssetsCurrent Assets

1 Cash & Investments $ 9,558 2 Accounts Receivable 675 3 Gov't Grants & Contracts Receivable 850 4 Grants Receivable 5,000 5 Pledges Receivable 1,200 6 Total Current Assets 17,283







December 31, 2009

Balance Sheet

Assets• What is owned

Liabilities• What is owed

Net Assets• Net Worth, Equity, or

Retained Earnings

Assets = Liabilities + Net Assets









December 31, 2009

Balance Sheet

Current Assets• Cash, or will be

converted to cash within 12 months

• Includes cash and investments

• Receivables which have been earned and are legally due to the organization









December 31, 2009

Balance Sheet

Long-Term Assets• Capital assets (usually

depreciated over time), the value of which is the cost at acquisition

• May include land, buildings, leasehold improvements, equipment, furniture

• Long-term investments or other assets that are not liquid (within 12 months)









December 31, 2009

Balance Sheet

Current Liabilities• Obligations due within

12 months

• Payables

• Deferred revenue that is income received before it is earned (advance payments)









December 31, 2009

Balance Sheet

Long-Term Liabilities• Notes or loans payable

in more than one year

• Mortgage loans and bonds payable









December 31, 2009

Balance Sheet

Net Assets• Beginning balance from

previous year end

• Change in Net Assets: surplus or loss amount from the Income Statement for the same period

• Ending Net Assets









December 31, 2009

Balance Sheet

Assets andNet Assets are segregated by type

• Unrestricted

• Temporarily Restricted

• Permanently Restricted

TemporarilyAssets Unrestricted Restricted Total

Current Assets1 Cash & Investments $ 9,558 40,000 49,558 2 Accounts Receivable 675 675 3 Gov't Grants & Contracts Receivable 850 850 4 Grants Receivable 5,000 5,000 10,000 5 Pledges Receivable 1,200 1,200 6 Total Current Assets 17,283 45,000 62,283

Long-Term Assets7 Prepaid Expenses 300 300 8 Long-Term Pledges Receivable 1,000 1,000 9 Building Improvements (5 year lease) 8,000 8,000

10 Equipment and Furniture 14,000 14,000 11 Accumulated Depreciation (12,500) (12,500) 12 Total Long-Term Assets 10,800 — 10,800 13 Total Assets $ 28,083 45,000 73,083


14 Accounts Payable $ 3,375 3,375 15 Payroll, Vacation & Taxes Payable 1,108 1,108 16 Deferred Revenue 1,100 1,100 17 Notes (Loans) Payable 3,750 3,750 18 Current Portion Long-Term Debt 1,800 1,800 19 Total Current Liabilities 11,133 — 11,133

Long-Term Liabilities20 Equipment Loan 4,800 4,800 21 Total Long-Term Liabilities 4,800 — 4,800 22 Total Liabilities 15,933 — 15,933

Net Assets23 Beginning of Year 10,778 20,000 30,778 24 Change in Net Assets 1,372 25,000 26,372 25 Total Net Assets 12,150 45,000 57,150 26 Total Liabilities and Net Assets $ 28,083 45,000 73,083


December 31, 2009

Evaluate

How well?

Askquestionsand make comparisons.

Evaluate

Do we have an unrestricted surplus or deficit?

Are contributed funds restricted for a specific purpose?





EXPENSE12 Personnel / Salaries $59,000 $59,00013 Benefits, Taxes & Insurance 13,750 $13,75014 Contract and Professional Fees 5,500 $5,50015 Program Related Materials 3,300 $3,30016 Office Exp (phone, supplies) 4,977 $4,97717 Postage and Shipping 970 $97018 Internet and Website 2,700 $2,70019 Occupancy 4,500 $4,50020 Insurance 1,850 $1,85021 Printing and Publications 2,543 $2,54322 Staff Development 2,785 $2,78523 Interest Expense 183 $18324 Depreciation 1,000 $1,00025 Other Misc Expenses 1,215 $1,21526 Total Expenses $104,273 $0 $104,273




EXPENSE12 Personnel / Salaries $59,000 $59,00013 Benefits, Taxes & Insurance 13,750 $13,75014 Contract and Professional Fees 5,500 $5,50015 Program Related Materials 3,300 $3,30016 Office Exp (phone, supplies) 4,977 $4,97717 Postage and Shipping 970 $97018 Internet and Website 2,700 $2,70019 Occupancy 4,500 $4,50020 Insurance 1,850 $1,85021 Printing and Publications 2,543 $2,54322 Staff Development 2,785 $2,78523 Interest Expense 183 $18324 Depreciation 1,000 $1,00025 Other Misc Expenses 1,215 $1,21526 Total Expenses $104,273 $0 $104,27327 Surplus/ (Deficit) $1,372 $25,000 $26,372

Grants46%

Fundraising18%

Government5%

Fees for Service31%

Theater

Evaluate

What is our largest source of income?

Most stable source of income?


1 Individual Contributions $14,2302 Corporate/Foundation Grants 40,000 3 Government Grants 10,000 4 In-kind Contributions 6,900 5 United Way 21,000 6 Total Support 92,130

Revenue7 Client Fees 7,850 8 Contract Income 5,500 9 Interest Income 165

10 Total Revenue 13,515 11 Total Support & Revenues $105,645

EXPENSE12 Personnel / Salaries $59,00013 Benefits, Taxes & Insurance 13,750 14 Contract and Professional Fees 2,500 15 In-kind Professional Fees 3,000 16 Program Related Materials 3,300 17 Office Exp (phone, postage, supplies) 5,947 18 Internet and Website 300 19 In-kind Website Services 2,400 20 Occupancy 4,500 21 Insurance 1,850 22 Printing and Publications 2,543 23 Staff Development 2,785 24 Interest Expense 183 25 Depreciation 1,000 26 Other Misc Expenses 1,215 27 Total Expenses $104,273

Income mix reflects field of service

Grants21%

Fundraising7%

Government48%

United Way13%

Fees for Service12%

Community Center

Evaluate

How do actual income and expenses compare to budget?

Compare to previous years?

Compare to peer organizations?

INCOME Actual Budget VarianceSupport

1 Individual Contributions $21,130 $25,800 ($4,670)2 Corporate/Foundation Grants 40,000 44,000 ($4,000)3 Government Grants 10,000 10,000 $04 United Way 21,000 21,000 $05 Total Support 92,130 100,800 ($8,670)

Revenue - 6 Client Fees 7,850 7,200 $6507 Contract Income 5,500 5,000 $5008 Interest Income 165 220 ($55)9 Total Revenue 13,515 12,420 $1,095

10 Total Support & Revenue $105,645 $113,220 ($7,575)EXPENSE

11 Personnel / Salaries $59,000 $59,000 $012 Benefits, Taxes & Insurance 13,750 13,690 $6013 Contract and Professional Fees 5,500 5,500 $014 Program Related Materials 3,300 2,400 $90015 Office Exp (phone, supplies) 4,977 5,100 ($123)16 Postage and Shipping 970 1,560 ($590)17 Internet and Website 2,700 2,400 $30018 Occupancy 4,500 4,500 $019 Insurance 1,850 2,400 ($550)20 Printing and Publications 2,543 3,900 ($1,357)21 Staff Development 2,785 4,860 ($2,075)22 Interest Expense 183 375 ($192)23 Depreciation 1,000 1,000 $024 Other Misc Expenses 1,215 1,890 ($675)25 Total Expenses $104,273 $108,575 ($4,302)26 Surplus/ (Deficit) $1,372 $4,645 ($3,273)

Family Advocacy NetworkActual Compared to Budget Income StatementFor the Twelve Months Ending December 31, 2009

Evaluate

How much cash is available to meet obligations?

What is our balance in Unrestricted Net Assets?

Do we have Temporarily Restricted assets intended for future use?

TemporarilyAssets Unrestricted Restricted Total

Current Assets1 Cash & Investments $ 9,558 40,000 49,558 2 Accounts Receivable 675 675 3 Gov't Grants & Contracts Receivable 850 850 4 Grants Receivable 5,000 5,000 10,000 5 Pledges Receivable 1,200 1,200 6 Total Current Assets 17,283 45,000 62,283

Long-Term Assets7 Prepaid Expenses 300 300 8 Long-Term Pledges Receivable 1,000 1,000 9 Building Improvements (5 year lease) 8,000 8,000 10 Equipment and Furniture 14,000 14,000 11 Accumulated Depreciation (12,500) (12,500) 12 Total Long-Term Assets 10,800 — 10,800 13 Total Assets $ 28,083 45,000 73,083


14 Accounts Payable $ 3,375 3,375 15 Payroll, Vacation & Taxes Payable 1,108 1,108 16 Deferred Revenue 1,100 1,100 17 Notes (Loans) Payable 3,750 3,750 18 Current Portion Long-Term Debt 1,800 1,800 19 Total Current Liabilities 11,133 — 11,133

Long-Term Liabilities20 Equipment Loan 4,800 4,800 21 Total Long-Term Liabilities 4,800 — 4,800 22 Total Liabilities 15,933 — 15,933

Net Assets23 Beginning of Year 10,778 20,000 30,778 24 Change in Net Assets 1,372 25,000 26,372 25 Total Net Assets 12,150 45,000 57,150 26 Total Liabilities and Net Assets $ 28,083 45,000 73,083


December 31, 2009

Evaluate

Do we have Permanently Restricted Net Assets, such as an endowment or scholarship fund? How is it invested?

Have we invested in significant fixed assets?

Have we designated a cash reserve?Net Assets

23 Unrestricted Net Assets 12,150 Board Designated for Program Seed Fund 5,000 Undesignated 7,150

24 Temporarily Restricted Net Assets 45,000 25 Total Net Assets 57,150 26 Total Liabilities and Net Assets $ 73,083

Evaluate

Think about your income, expenses,assets, and liabilities in relation to

your mission and programs.

Significant changes from the previous yearshould fit with changes in the way your

organization works.

Planning

What next?

Develop strategic plans and budgets.

Planning

Determine and support your organization’s mission and strategic plan.

Set/agree to goals for program and development activities.

Planning

• Understand the assumptions for proposed budgets.

• Make sure budgets relate to program and strategic goals.

• Approve a realistic annual budget before the fiscal year begins.

StaffTaxes, Unemployment, Medical InsWork Comp Insurance $300/ month each

Executive Director $34,000 $3,740 $3,600 $41,340Program Specialist $25,000 $2,750 $3,600 $31,350

$59,000 $6,490 $7,200 $72,690Contract and Professional Fees

Accountant assistance for finance and 990 prep $600Payroll service $400Stipends for law students (30 students for $50 each)Legal services (provided pro bono) for legal advocacy service and credit and bankruptcy Includes supervision of law students and client service

Program Related MaterialsBooks and materials average $5 per client (some are in-kind)Goal for year to serve 480 clients

Office Supplies, Telephone, Equipment, Meetings, PostageSame as last year expense

Website and InternetBoard wants to get a web site, will be donated by a board member's company

Rent and UtilitiesRent 2 offices in another nonprofit's building$350 per month rent plus some utilities

InsuranceDirectors and Officers Liability and Commercial Liability to cover volunteers and clients

Marketing, Printing, TravelBoard committee has a marketing plan to reach more clientsBudget for a brochure and ads in community paper and radio

Memberships and ConferencesMembership in MN Council of NonprofitsExecutive Director and Program Specialist to attend conference in Chicago

InterestBorrowed a bridge loan last year, might need again

Family Advocacy Network BudgetExpense Assumptions for 2010

Salary Total Personnel

Action

Decision time.

Board and Management Must Commit to…

• Maintaining financial health to support mission-related goals

• Good planning as the foundation of stability• Quality financial information• Regular and consistent monitoring of financial

status• Responding to changes, opportunities, and

setbacks with timely action• Clear and reasonable roles and responsibilities for

financial and other management aspects• Transparency and integrity in financial decisions,

practices, and information

Financial Clarity for Nonprofit Boards

Documents

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