Financial Management… in a Tough Economic Climate

March 11, 2009 - 2:00 pm to 3:30 pm Oracle Conference Center

Presented by: Ira Holtzman, CFO, The Health Trust

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Meeting Purpose

• This session will discuss two different approaches toward making hard business decisions in tough economic times.

- First, we will look at various strategies that organizations should look at to reduce and contain costs and ideas around increasing revenues.

- Second, we will be discussing the ways to use financial information and indicators to analyze the financial health of your organization.

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Agenda

• Cost Reduction and Containment Strategies

• Revenue Concepts

• Evaluating Financial Health

• Financial Indicators

------------------------------------------------------------------• Definitions and Frequently Asked Questions (not

covered; info only)

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Cost Reduction and Containment Strategies

• Staffing• Benefits• Staffing related and other expenses• Purchasing• Infrastructure• Services

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Staffing

• Layoffs, voluntary (unpaid) leaves• Freeze/delay new or open positions• Reduction in work hours (40 to 36)• Move some staff from F/T to P/T (job sharing and 1.0 FTE to 0.8 FTE)• Reduce salaries or freeze salaries• In lieu of salary increases give bonuses instead, in the event this is

necessary (doesn’t add to cumulative base rate)• Reduce non-income producing positions first• Make an employee an independent contractor versus an employee (can

be cheaper assuming you meet the employee versus IC rules)• Consolidate staff assignments, maximize output, look at pure secretarial

functions• Maximize use of volunteers particularly secretarial work• Hire temporary staff to do short term assignments• Look at management hierarchy and staffing ratios (consolidate positions)

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Benefits• Paid time off (Holiday’s, sick days, vacation)

- Reduce PTO components- Limit accrual limits- Use it or lose it don’t let employees accumulate hours)

• Medical (employer/employee shares)- Plan designs- Co-pays and coverage’s- Employee only and Employee + Family- Is this the year to look at HSA’s- Company pension contribution amounts reduce or eliminate

• Pool employees with other organization to make a larger network for possible lower rates

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Staffing Related and Other Expenses

• Consulting- IT consultant versus full or part time staff person- Outsource Accounting and/or Human Resources functions- Cost of grant writer versus internal staffing person- Banking- Payroll vendors- Compensation for Executives (may be necessary)- Facilitators

• Travel related expenses (options: conference call meetings)• Subscription and professional association related expenses• Newsletters, brochures, business cards• Mail versus email

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Purchasing

• Look for group pricing for discounts from suppliers (combine purchases with others and discuss with others who they use)

• In-kind contributions (Trustees) versus paid contractors• Competitive bids on everything• Analyze unnecessary purchasing• Delay payments (work with suppliers to develop payment

plan)• Direct mail vendors versus doing this in-house

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Infrastructure

• Delay construction projects• Delay maintenance• Delay capital purchases (furniture, IT, fixed assets)• Attempt to renegotiate rent with landlord• Phone systems – toll lines, cell phones• Copier leases renegotiate• IT structure (web hosting, maintenance, etc.)• Utilities (if controllable, alternative work weeks)• Look for donated facility space• Work from home shifts

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Services

• Look at mission related services

• Look at non-core programs

• Tactically slow-down, reduce or shut-down costly services (permanent or temporarily)

• Reduce or eliminate programs that cannot cover their costs

• Reduce or eliminate programs that are fundraising intensive or cause you to fundraise more for each service performed

• Look at unrelated business areas and other areas you may have an opportunity with due to someone else stopping that service

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Revenue Concepts

• Cash flow and cash reserves

• Income producing assets versus capital assets

• Fundraising

• Receivables and timeliness of receivables and source of receivables

• Revenue sources

• Operational efficiency and expansion

• Liabilities (debt, where are commitments going, what don’t I need to pay)

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Cash Flow and Cash Reserves• Cash needs to be defined as readily accessible and un-encumbered

• Make sure that your billing (invoices) statements go out timely

• Talk to funders to accelerate grants particularly if they are multi-year

• Organizations should not loan or borrow dollars from restricted or endowment funds to pay for unrestricted expenses hoping to repay those back

• Collecting excessive amounts of endowed or restricted cash is not always the best way to stay solvent for the short term

• Organizations should not need to borrow cash in the form of loans in order to make payroll obligations

• This is the time to use reserves if you have them

• Organizations should have at least two to six months of liquid cash reserves to cover payroll in the event cash flow is interrupted

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Cash Flow and Cash Reserves (cont.)

• Immediate cash needs:- Payroll- Payroll taxes - Employee paid time off banks- Employee health benefits- Rent

• Secondary cash needs:- Vendors- Independent contractors

Company XYZ – FY08 Cash Flow ProjectionCash – Operating Example 1

Company XYZ – FY08 Cash Flow ProjectionCash – Operating Example 2

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Income Producing Assets versus Capital Assets

• Are any assets available for sale (land, building – Rent vs. Own)

• If there is a capital asset that could be converted to an income producing asset, and that asset can generate recurring income, then the disposition of that asset should be considered. (An under utilized building or vacant land that could be used for another purpose or by another organization)

• When evaluating the asset mix of organization, look at the “liquidity” of the assets of the organization versus just its “fixed” assets

• Organizations heavy in fixed assets as a percentage of its assets may not have liquidity to cover its obligations and overstate its true value

- Ex. Organizations that hold land or buildings as assets will not have the flexibility to timely exchange those assets for cash if that situation arose

• Liquid assets are cash, investments, and receivables. Even inventories can be converted to cash, but not as quickly

Company BBC: Statement of Financial Position as of 5/31/08

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Fundraising• Evaluate if during tough economic times; Is it the time to cut back on

fundraising staff or hire more staff• Is now the time to incur prospecting costs for new donors• Special events (affordability and events should be what donors would like

to attend…games of chance with plenty of wine)• Expand use of staff beyond normal duties versus using contractors • Expand use of internet to search for funders• Ask funder to relax restrictions on use of funds (more unrestricted use)• Ask for some infrastructure support (extra percent) within grant proposals• Employee donation of paid time off• Planned giving (takes time so has to start eventually)• Contributed services such as legal cuts costs• Change endowment designations from donor to spin off more income or

use some principle to pay operating costs• And of course…Board giving and their contacts

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Receivables• Accelerate billings, making it a priority

• Too high a percentage of receivables is dangerous to short and long-term health due to cash flow issues and receivable write-offs

• Receivables are too often left stale until they are difficult to collect – Follow up with payers and put in a process to do this monthly

• Organizations that are heavily dependent on government funding risk cash flow interruptions and need to develop other sources of reliable recurring funding

• Some federal contracts and billing sources take months to filter through the system before they get to the nonprofit. Cash flow lags of 180 days are normal

• Organizations that rely on fundraising receivables create risky funding and timely cash situations

Hypothetical CompanyAged Accounts Receivable Report

As of 2/29/08

Aging Balance: Last Paid current 31-60 61-90 over 90 BalanceSCC Gov't grant AAA 2/2/2007 $4,583.33 $0.00 $0.00 $4,583.33 $9,166.66

San Jose Grant 1/28/2008 $3,302.15 $2,897.74 $2,259.72 $6,739.66 $15,199.27

CALWORKS 2/7/2007 $5,466.00 $0.00 $0.00 $79.47 $5,545.47

CDBG 1/31/2008 $12,225.52 $0.00 $0.00 $0.00 $12,225.52

SCC Office of XXXX 1/28/2008 $1,962.28 $1,815.79 $0.00 $4,883.65 $8,661.72

SCC HUD 2/2/2007 $6,209.49 $0.00 $0.00 $2,937.70 $9,147.19

SCC Gov't grant XXX 12/31/2007 $6,099.00 $5,739.00 $24,659.06 $76,807.04 $113,304.10

HNVF 2/28/2007 $6,779.23 $5,323.46 $0.00 $18,246.44 $30,349.13

Private Funder 9/30/2007 $2,527.00 $2,225.00 $17,919.53 $0.00 $22,671.53

Totals 49,154.00$ 18,000.99$ 44,838.31$ 114,277.29$ 226,270.59$

Percents 22% 8% 20% 51% 100%

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Revenue Sources• Diversification of revenue sources is an optimum revenue strategy to even out

cash flow and the expectation of income

• Government grants, fee for services (FFS), fundraising contributions both corporate and foundation, investment income, and special events

• Renegotiate rates with governmental agencies particularly if you have leverage

• Increase fees on services you offer to what the market can bare

• CAUTION - Revenue that does not cover costs and has to be augmented with fundraising (which is also not guaranteed) is not an optimum revenue strategy. This needs to be evaluated carefully from a long-term perspective. Expanded service vs. increasing loss on activity

- Ex. Offering to accept a FFS (cost per meal) grant to cover additional meals for clients below cost.

- Focus on getting revenues on existing operations before expansion of services

12 Months Y-T-D 12 Months Y-T-D 12 Months Y-T-DActual Budget Variance Percent

CHANGES IN UNRESTRICTED NET ASSETS: Public support: Direct mail 47,115$ 82,033$ (34,918)$ 2% Individuals & Board of Directors 28,834 171,125$ (142,291) 1% Government grants 1,845,005 1,915,265 (70,260) 80% Corporate & Foundation grants 116,470 120,000 (3,530) 5% Workplace Giving 19,983 34,100 (14,117) 1% Special events 57,993 99,500 (41,507) 3%

Total public support 2,115,400 2,422,023 (306,623) 92%

Other Revenue: Program income 111,514 119,667 (8,153) 5% Miscellaneous income 11,252 6,600 4,652 0% Interest & dividend income 6,066 4,400 1,666 0% In-kind revenue 15,454 14,704 750 1% Total revenue 144,285 145,370 (1,086) 6%

Net assets released from restrictions 39,641 10,000 29,641 2%

Total public support and other revenue 2,299,326$ 2,577,393$ (278,067)$ 100%

Hypothetical CompanyStatement of Activities - Combined Report

As of June 30, 2007

12 Months Y-T-D 12 Months Y-T-D 12 Months Y-T-DActual Budget Variance Percent

CHANGES IN UNRESTRICTED NET ASSETS: Public support: Direct mail 47,115$ 82,033$ (34,918)$ 8% Individuals & Board of Directors 28,834 171,125$ (142,291) 5% Government grants 5,005 5,265 (260) 1% Corporate & Foundation grants 266,470 120,000 146,470 44% Workplace Giving 19,983 34,100 (14,117) 3% Special events 57,993 99,500 (41,507) 10%

Total public support 425,400 512,023 (86,623) 70%

Other Revenue: Program income 111,514 119,667 (8,153) 18% Miscellaneous income 11,252 6,600 4,652 2% Interest & dividend income 6,066 4,400 1,666 1% In-kind revenue 15,454 14,704 750 3% Total revenue 144,285 145,370 (1,086) 24%

Net assets released from restrictions 39,641 10,000 29,641 7%

Total public support and other revenue 609,326$ 667,393$ (58,067)$ 100%

Hypothetical CompanyStatement of Activities - Combined Report

As of June 30, 2007

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Operational Efficiency and Expansion

• Multi-tasking staff beyond specialist borders (Keep staff busy entire shift and don’t just let them look busy)

• Expand services that are funded but make sure costs are going to be covered

• Technology improvements resulting in “real” cost reductions and/or increased revenues (Quantitative vs. Qualitative)

• Sell expertise to other organizations (outsourced services, niche skill services)

• Look for new markets and maybe untraditional markets (e.g. HT wellness programs to corporations)

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Liabilities• If you can write liabilities off (old debt, outstanding checks not cashed), it is

like income because you won’t have that expense

• Deferred revenue collections become revenue when you incur the activity and are typically categorized that way when the collection and activity cross fiscal years (So not good practice to use cash before service)

• Current (short term and current year) and long-term debt obligations

• Organizations need to continually examine all their sources of debt - Payroll liabilities (staff accrued payouts)- Vendor and service contracts- Rents and copiers

• Organizations should understand and re-evaluate their fixed (recurring) versus variable obligations. Do I need that expense vs. I must have it.

• If commitments become too large, it can inhibit the organization from engaging in new interests and/or future activities. If one gets sucked into borrowing on a line of credit it makes recovery more challenging.

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Key Financial Reports

• Statement of Financial Position

• Statement of Activities (with variances to budget)

• Statement of Monthly Cash Flows

• Dashboard Reports

• Financial Indicators (Financial and Non-Financial)

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Evaluating Financial Reports• Many audiences: Internal reporting, Finance Committee reporting,

Trustee reporting, public reporting, governmental and funder reporting

• Provide reports that target your audience

• Understand the difference between understanding actual vs. budget and revenue vs. expense when interpreting reports

• Reports at some level should show month and year-to-date, actual versus budget and variances

• There should also be discussions regarding “material” variances

• Dashboard reports are effective for quickly highlighting key indicators that Trustees would want to know without getting buried in detail. Caution should be observed to make sure they also receive the detailed information as well

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How to Analyze Financial Data

Monthly Monthly Monthly YTD YTD YTDActual Budget Variance Actual Budget Variance

CHANGES IN UNRESTRICTED NET ASSETS: Public support: Contributions 729$ 19,510$ (18,781)$ 44,718$ 94,382$ (49,664)$ Government grants - - - - - - In-kind revenue 3,693 - 3,693 53,316 9,970 43,346 Special events 19,722 28,550 (8,828) 26,341 43,031 (16,690) Total public support 24,144 48,060 (23,916) 124,375 147,383 (23,008)

Revenue: Fee for service 89,484 108,179 (18,695) 988,000 1,051,456 (63,456) Other usage fees 58,908 36,240 22,668 64,984 36,240 28,744 Investment income 43,114 15,430 27,684 98,438 74,816 23,622 Miscellaneous income 200 200 - 2,495 3,000 (505) Total revenue 191,706 160,049 31,657 1,153,917 1,165,512 (11,595)

Net assets released from restrictions 17,960 6,320 11,640 99,045 37,074 61,971

Total public support and other revenue 233,810 214,429 19,381 1,377,337 1,349,969 27,368

Expenses: Program services 207,998 189,261 (18,737) 1,226,648 1,162,975 (63,673)

Support services: Management & general 28,370 36,658 8,288 148,104 150,676 2,572 Development 35,452 42,771 7,319 104,102 135,754 31,652 Capital Improvements (unbudgeted) 16,913 - (16,913) 37,865 - (37,865) Total support services 80,735 79,429 (1,306) 290,072 286,430 (3,642)

Total expenses 288,733 268,690 (20,043) 1,516,720 1,449,405 (67,315)

Increase / (decrease) in unrestricted net assets (54,923) (54,261) (662) (139,383) (99,436) (39,947)

CHANGES IN TEMPORARILY RESTRICTED NET ASSETS: Contributions 16,486 18,284 (1,798) 112,468 142,257 (29,789) Investment income 1,954 - 1,954 161,447 - 161,447 Net assets released from restrictions (17,960) (6,320) (11,640) (99,045) (37,074) (61,971)

Increase / (decrease) in temporarily restricted net assets 480 11,964 (11,484) 174,870 105,183 69,687

CHANGES IN PERMANENTLY RESTRICTED NET ASSETS:Increase / (decrease) in permanently restricted net assets - - - - - -

CHANGE IN NET ASSETS Y-T-D (54,443)$ (42,297)$ (12,146)$ 35,487$ 5,747$ 29,740$

NET ASSETS AT BEGINNING OF YEAR 5,803,943

NET ASSETS AT END OF YEAR 5,839,430$

The Nonprofit Company 1Statement of Activities

October 31, 2007 - Actual vs Budget

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Financial Indicators

• Program services as a percent of total expense

• Management & general expense as a percent of total expense

• Fundraising expense as a percent of total expense

• Fundraising efficiency (cost to raise money)

• Net working capital

• Quick ratio

• Current ratio

• Cash ratio

• Years of available assets

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Program Services as a Percent of Total Expense

• Compares what percentage of the organization’s total expense is spent on program services

Program service expense* $100,000Total annual expense $125,000

Percentage spent on programs = 80.0%

• The AIP and BBB believe this ratio should be 60% and 65% respectively. United Way believes this ratio should be greater than 75%

* Some watchdog groups exclude donated and contributed services from these measurements since they are difficult to value. They feel they can distort the ratios.

AIP (American Institute of Philanthropy): BBB (Better Business Bureau)

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Management & General as a Percent of Total Expense

• Compares what percentage of the organization’s total expense is spent on management

M&G expense $ 20,000Total annual expense $125,000

Percentage spent on M&G = 16.0%

• The AIP and BBB believe the combined ratio of M&G and Fundraising should be 40% and 35% respectively. United Way and Charity Navigator believe the collective ratio of M&G and Fundraising combined should be less than 25%

• This ratio needs to be carefully considered before conclusions are drawn because any organization can affect these costs to influence these ratios, and accounting practices can vary across nonprofits

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Fundraising as a Percent of Total Expense

• Compares what percentage of the organization’s total expense is spent on fundraising

Fundraising expense $ 5,000Total annual expense $125,000

Percentage spent on fundraising = 4.0%

• The AIP and BBB believe the combined ratio of M&G and Fundraising should be 40% and 35% respectively. United Way and Charity Navigator believe the collective ratio of M&G and Fundraising combined should be less than 25%

• This ratio needs to be carefully considered before conclusions are drawn because any organization can affect these costs to influence these ratios, and accounting practices can vary across nonprofits

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Fundraising Cost to Raise $1• Calculates the cost for each dollar raised from fundraising

Fundraising expense $ 25,000Related fundraising revenue $100,000

Cost to raise $1 from fundraising = $0.25

• Watchdogs groups are generally looking for this cost to be less than $0.35 on the dollar raised

Nonprofit Expense Indicators

2007 2006 2007 2006Program Services 2,350,696$ 83% 2,566,590$ 85% 668,733$ 63% 749,832$ 80%

Management & General 281,667 10% 338,860 11% 378,715 36% 169,456 18%

Fundraising 190,370 7% 99,944 3% 17,168 2% 21,005 2%

Total Expense 2,822,733$ 100.0% 3,005,394$ 100.0% 1,064,616$ 100.0% 940,293$ 100.0%

Nonprofit Revenue Indicators

2007 2006 2007 2006Fundraising Expense 190,370 0.07$ 99,944 0.04$ 17,168 0.02$ 21,005 0.04$

Public Support Revenue 2,771,677 2,766,237 875,747 504,832

Contributions 826,904 30% 671,427 24% 303,568 35% 214,889 43% Other or Foundations 51,141 2% 115,435 4% 55,052 6% 51,141 10% United Way 124,201 4% 217,928 8% 7,190 1% 7,050 1% Government grants 1,769,431 64% 1,761,447 64% 509,937 58% 231,752 46%

Company 2 Company 4

Company 2 Company 4

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Net Working Capital

• Working capital represents the amount that is left free and clear if all current debts are paid off

Current assets $100,000

less: current liabilities (50,000)

Working capital $ 50,000

• Each year’s working capital should be higher than last year’s

• You want there to be a comfortable amount of working capital, and most sources use the current ratio to help with this decision

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Quick Ratio (Liquidity Ratio)

• Compares current assets (cash, A/R and N/R) current assets less inventory. Sometime called the acid test. This ratio determines the nonprofits ability to meet short-term obligations without inventory

Current assets (less Inv.) $100,000Current liabilities $50,000

Quick ratio range = 2.0 to 1.0

• So in the above example, it means that for each $1 of current liabilities, there are $2 in current assets (less inventory) to back it up

• Some analysts say that the minimum safety net requires that current assets be as least twice as large as current liabilities, at least in the for-profit world

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Current Ratio (Liquidity Ratio)

• Compares all current assets against current liabilities as a percentage and determines the nonprofits ability to meet short-term obligations

Current assets $100,000Current liabilities $50,000

Current ratio range = 2.0 to 1.0

• So in the above example, it means that for each $1 of current liabilities, there are $2 in current assets to back it up

• Some analysts say that the minimum safety net requires that current assets be as least twice as large as current liabilities at least in the for-profit world

• One drawback of this ratio is that it includes inventory which may slow down the ability to liquidate

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Cash Ratio (Liquidity Ratio)

• This ratio is an indication of the nonprofits ability to pay off its current liabilities if immediate payment was required. This is the most conservative of the liquidity ratios and only includes cash and cash equivalents.

Cash + Marketable Securities $100,000Current liabilities $50,000

So in the above example, it means that for each $1 of current liabilities, there are $2 in cash assets to back it up

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Years of Available Assets• Looks to see if an organization is healthy as opposed to wealthy

Available net assets* $100,000Annual budgeted expense $35,000

Years of available assets = 2.8

• The AIP and BBB believe this ratio should not exceed three times the current year’s budget

• The purpose of this indicator is to avoid accumulating funds that could be used for current programs and activities

* Excludes property and equipment and donor advised endowments. Board designated amounts would be included because they could be spent if necessary

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Definitions and FAQ’s

• Nonprofit versus not-for-profit• Unrestricted versus Temporarily Restricted • Endowment versus Board Designated Endowment• Assets, Liabilities and Net Assets• Statements of Activities and Financial Position (Income

Statement and Balance Sheet)• Assets released from restrictions• Direct versus Indirect costs• Cost allocation to Program, M&G and Fundraising• Cash versus Accrual basis

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Frequently Asked Questions (FAQ’s)

• What is the difference between a not-for-profit and a nonprofit?

The terms "not-for-profit" and "non-profit" are generally used interchangeably. And, just because an organization is nonprofit doesn't mean they don't have profits. It just means that no individuals profit from the profit of the corporation although bonuses may be made.

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Frequently Asked Questions (FAQ’s)

• What is the difference between Unrestricted versus Temporarily Restricted funds?

“Unrestricted” funds are donations that are available for the nonprofit to use toward any purpose. Unrestricted funds usually go toward the operating expenses of the organization.

“Temporarily Restricted” funds are donations to a nonprofit organization where the donor may designate or "restrict" the use of their donations to a particular purpose or project. An example is a gift to a particular scholarship fund at a university.

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Frequently Asked Questions (FAQ’s)

• What is the difference between an Endowment and a Board Designated Endowment?

An “Endowment” is a permanent fund bestowed upon an institution, such as a university, museum, hospital, nonprofit, or foundation, to be used for a specific purpose. Generally, the Endowment’s principal is set aside in perpetuity to spin off annual interest for the institutions use.

A “Board Designated Endowment” are usually dollars set aside by an institution to act like an “Endowment” in order for the institution to avoid spending the principal. The difference is that if the institution later decides to spend out the principal, they can.

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Frequently Asked Questions (FAQ’s)• Explain the definitions of Assets, Liabilities and Net Assets

Assets are property, including real property (for example, land or buildings) and personal property (for example, cash, stocks, accounts receivable, inventory) that belongs to a person, corporation, institution, or other entity and have a current or future economic value to its owner.

Liabilities are defined as a company's legal debts or obligations that arise

during the course of business operations. These are settled over time through the transfer of economic benefits including money, goods or services.

Net Assets are defined as the difference between a company's total assets and liabilities; Owner's equity is also defined as its net worth. It is also stated as the owners economic interest in the assets of a business.

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Frequently Asked Questions (FAQ’s)• What are the differences between the Statements of Activities

and Financial Position versus the Income Statement and the Balance Sheet?

The Statement of Activities is the nonprofit equivalent for the

Income Statement or Profit and Loss Statement (P&L). The Statement of Financial Position is the nonprofit equivalent

for the Balance Sheet Financial Accounting Standard 117 introduced clarification for

these statements for nonprofits back in 1993

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Frequently Asked Questions (FAQ’s)

• What are Net Assets Released from Restrictions?

The term “Net Assets Released from Restrictions" refers to when restricted assets are used for the specific restricted purpose they were intended for and/or are reclassified when one of the following occurs:

- The program and/or purpose of the restrictions are met,- Time based restrictions expire,- Equipment-acquisition restrictions are satisfied

Net Assets are then released from restricted funds to unrestricted funds to cover the cost of the program and/or purpose.

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Frequently Asked Questions (FAQ’s)

• What is the difference between Direct and Indirect costs?

Direct costs are those costs for activities or services that benefit “specific projects”. For example, salaries for project staff and materials required for a particular project. Because these activities are easily traced to projects, their costs are usually charged to projects on an item-by-item basis.

Indirect costs (sometimes referred to as overhead) are those costs for activities or services that benefit more than one project. Their precise benefits to a “specific project” are often difficult or impossible to trace. For example, it may be difficult to determine precisely how the activities of the Human Resource director of an organization benefit a specific project.

Sample Direct and Indirect Cost Definitions

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Frequently Asked Questions (FAQ’s)• How do I allocate costs amongst Programs, Management & General

(M&G) and Fundraising?

Cost allocation should be related to the types of activity being accomplished. In other words, if an employee is raising money then that time and associated costs should be charged against Fundraising.

If an employee is performing work related to the direct exempt purpose for the organization (the reason why the nonprofit operates) then that time should be charged against Program.

And, if an employee is conducting business that benefits the organization as a whole (i.e., human resources, accounting administration work) that time should be charged against Management & General.

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Frequently Asked Questions (FAQ’s)• What is the difference between cash versus accrual

accounting?

The accrual method. The accrual method is the more commonly used method of accounting. Under the accrual method, transactions are counted when the order is made, the item is delivered, or the services occur, regardless of when the money for them (receivables) is actually received or paid.

The cash method. Under the cash method, income is not counted until cash (or a check) is actually received, and expenses are not counted until they are actually paid.