Create Your Billing Statement Sample for NPOs Effortlessly

Billing statement sample for NPOs

welcome everyone we are so excited to have you with us today for know your numbers your guide to non-profit financial statements we are thrilled to have todd here with us from non-profits first he's going to teach you all about nonprofit financial statements if you have any questions throughout this session definitely go ahead and drop them in the chat we'll be happy to answer them either throughout the session or at the end as a few quick housekeeping items we get this a lot yes this webinar is being recorded and yes we will send the slides to you so if you're frantically taking notes don't panic after the session we'll send out an email with all of those good tidbits for you so you can always reference back again you know we're here for you today we want to help you so make sure to ask your questions and get some answers from todd so at any time feel free to drop your questions in the chat we'll be sure to address them i also did want to call out that achieve has a lot of free resources available to you on our website that can help you with your fundraising goals or maybe auditing your website you can check all of that out at achievecauses.com backslash resources we have podcasts blogs free downloads all kinds of goodies for you so feel free to check that out and take advantage of the free resources for you so without further ado i'll go ahead and kick you over to todd and he'll take it away you're still muted todd sorry all right my fault um thank you very much erica and thank you erica and sarah for um all the work that you do and to achieve for supporting all of the non-profits in the community for those who don't know they do wonderful work in the area of website development and many other internet topics so please feel free to reach out to them but they are also wonderful about supporting the nonprofit community as a whole including things like this free webinar today so go ahead and jump right in as i mentioned in the chat feel free to ask questions at any time i've asked sarah and uh erica to let me know if the questions are directly relevant to what i'm talking about at the time uh we they may save some for the end or if they know that that topic's coming up later in the conversation all right and our objectives today is to increase your knowledge and understanding of aspects of nonprofit financial reporting so we'll talk about a little bit about board roles i think some people here are board members we'll talk a little bit about staff roles uh we'll talk a lot about reading and interpreting financial statements and what to look for on those financial statements uh some red flags and then we'll do some q a at the end so first off uh i'm todd larue i have been at nonprofits first for four years uh prior to that i was involved with nonprofits first for a number of years in various other ways before becoming on staff i have a graduate certificate nonprofit management from fau i also have a master's in psychology from fau i've been in the field for about 12 years i've been on non-profit board since i was 20 years old and currently serve on i think four boards uh been a business owner so when you hear people talking about oh non-profits should be run like a business i've been there i've done that i know the differences and i know how much harder it is to run a non-profit than it is to run your typical business and i'm also a multi-disciplinary researcher i've published in journals across four different fields and continually doing work in a non-profit area at the present i want to mention just a little bit about nonprofits first so nonprofits first was established in 2005. our mission is to empower nonprofit excellence and our vision is a community where non-profit organizations achieve their highest level of impact and we put the word desired in there because what every non-profit wishes to do is is different so our goal is to empower you to accomplish what you want to accomplish we have a number of different programs that i'm going to just skim over these quickly our accreditation program where i do my primary work uh is responsible for accrediting nonprofits in florida and the broader nonprofit community throughout the u.s um we currently uh accredit about 85 non-profit organizations and then an outgrowth of that is our 501c pro toolkit for organizations that don't need accreditation aren't ready for accreditation or want something simpler but that is full of the same questions that we would assess a accredited organization on as well as many resources and template policies and procedures uh finance manual hr manual things like that for smaller non-profit organizations that don't have the resources to develop their own we provide a wide range of educational professional development many of the programs are free to our members some other are free to the general nonprofit community i am personally responsible for our leadership development programs which include our rising leaders in our advancing leaders programs rising leaders is a soft skills development program for those who are new to leading teams or managing groups advancing leaders is the higher level of the hard skills you need to have at the c level so if you're at the c level cfo ceo ceo chief program officer and you want to develop your skills or you want to move into one of those positions advancing leaders is for you and that program kicks off uh at the end of this month but our applications are open until friday so if you're interested there's still a small window we have a few more slots available we also provide a range of management support services and our signature awards program is held every year and which we celebrate the rest of the nonprofits throughout the community and in 2022 that program will be tuesday october 11th it's a great event everybody wears fun and colorful hats and we have a great time celebrating all the many things that the non-profits in our community do so with that out of the way let's talk about money and i hope you have some so i want to touch first on the major financial responsibilities of the board and those are ensuring adequate financial resources and protecting assets and providing financial oversight and while i say these are responsibilities of the board they're also responsibilities of every member of the organization from top to bottom so what does that look like so it's always the board's responsibility to ensure that an organization has the funds it needs make sure that it doesn't spend beyond its means and that the board is participating in various ways to accomplish that so they should contribute financially typically help develop and approve a fundraising plan they may have more or less involvement in executing that plan and then support and participate in the organization's solicitation and fundraising efforts so their job in part is to connect the staff of the organization and the volunteers of the organization with their network to help increase the knowledge the reach and of course the fundraising of the organization so the other key roles is the protection of assets and providing financial oversight so oversight looks like reviewing and approving budgets a clear understanding of the organization's financial health ensuring an annual audit is completed if relevant uh and making sure that the 990 occurs which has to happen for every non-profit organization although the exact version of the 990 may differ their job is to review and approve that as well and then risk management ensure that proper financial controls are in place and ensure that the organization is not subject to any unnecessary risk all right if there are not any questions about some of those roles we'll jump right into what are financial statements and i'm not seeing or hearing any questions so we'll go ahead and move on so your financial statements are your formal written records of the organization's financial activities at a specific point in time they tell a story about the financial health of the organization again at that specific point and that point is illustrated both in terms of the organization's current financial position and in terms of the activities leading up to that point in time so we'll talk about what those key financial statements are in terms of both of those so what is required in the way of financial statements the minimum requirement every board should be getting these every organization should be pro producing these the statement of financial position sometimes known as your balance sheet there are some other terms that are usually used but those are the most common ones and the statement of activities also called the income statement or the profit and loss statement so the statement of financial position is your opportunity to evaluate assets what the organization owns against liabilities what they owe to find the net assets and we'll dig into that a little bit deeper as we go the statement of activities is all of the activities of the organization in a certain cycle of time typically it's um from the start of the previous fiscal year up to the present and you take a look at the revenues of the organization versus the expenses of the organization and that gives you the change in net assets or if it were strictly a private business it would be considered profit or loss in nonprofits we normally consider that change of net assets but they may change up or down so profit or loss there's some other financial statements that you may also see from time to time one of those is the financial statement of finance um jumbling my words here statement of functional expenses so statement of functional expenses you'll typically see in an audited financial statement some organizations also produce this internally as well but that reports by function so the individual programs of the organization sometimes they're all lumped together as program activities sometimes there's individual breakdowns by program administration and sometimes known under some other terms and fundraising and administration and fundraising sometimes get lumped together in something that's called overhead so if you've heard that term overhead sometimes that's what they're referring to another way to look at functional expenses is by the natural expense category so things like salaries and rent and those are more commonly seen in your profit and loss statement and depending on the statements that are generated they may be broken down into greater detail or less detail they should be telling you where the organization is spending most of its resources and typically you want to see that most of the resources are going to program expenses another type of supplemental financial statement is the statement of cash flows and this is a retrospective look at the cash activity of the organization so it's looking at the cash received by the organization the source and where it went to but it's all looking in the past where did that money go so we'll talk a little bit more about that as we go through but i'm not going to spend a lot of time on statement of cash flows um because as i said it's retrospective most organizations don't find that particularly helpful some other recommended supplemental financial statements uh a cash projection so as a pair as opposed to the statement of cash flows the cash projection looks at the incoming cash in the future and the outgoing expenses in the future and should help you find times when cash may be tight or those times when the organization may have a lot of cash and an organization may have a perfectly well balanced budget that's the projection of what is expected to happen but that cash flow projection tells you when it is expected to happen so you may wind up with a balanced budget at the end of the year but depending on when the money comes in and when the money goes out there may be times when the total cash available uh is is less than what you would desire at a particular time and then you have to figure out ways to manage that one of those ways could be delaying payments you could have a bank loan for a short term something like that that would allow you to have cash available when needed other recommended financial statements is aging accounts receivable or the aar so this shows the unpaid bills that the organization is responsible for and it shows the amount of time that has gone by since those bills came in and how much time has elapsed since they arrived and typically you want to see that the organization is paying their their bills on time so if you are a board member for example this may be something that the organization may not routinely provide to you but it's something you may want to ask for to see that the bills are getting paid on time especially if you see that there's points in the cash rejection that show that there's uh low cash at particular points in time the aging accounts receivable payable is another example this is uh those things that the organization has billed for but has not received payment for and so typically this is not often uh goods and so much as it is services but for example many organizations offer uh sorry operate off of reimbursable grants so your aging accounts receivable will tell you that from when the end of the month closed out how long does it typically take the organization to actually get that reimbursement request sent out to the granting agency and how long it takes for that granting agency to pay that back and typically that period could run anywhere from one and a half to three months so when you close out the month you usually need uh two weeks three weeks to complete that month close out and calculate when um what was done during the previous month and then create the invoice and send it to the organization with whatever documentation is needed uh and then you have a turnaround time waiting for the granting organization to have determined yes you did indeed do that work and we're going to issue a check and then some period of time while that check is arriving uh that can take a long time and one of the impacts in the organization's cash flow can be that we have to do this work up front and then we have to get reimbursed for it later so it's important to understand that when you're understanding the role of cash in the organization all right i've been talking a lot i'll take a breath and see if there's any questions before we move into some more details of some of those particular financial statements all right i am going to move on then so the next item that we're going to talk about is a statement of financial position or the balance sheet so the balance sheet breaks down uh into three general areas so the first is the assets that's everything owned by the organization then liabilities those things that the organization owes and net assets which is the difference between what the organization owes and the liabilities and i see we've got a couple of questions coming in uh so i'm gonna answer a couple of these questions uh just quickly yes we will send out the powerpoint and this session is being recorded and when speaking of cash do you also include in kind in that and the answer to that question is typically no we're talking strictly about cash that is needed for things like paying salaries and paying to keep the lights on and stuff like that in some organizations where they rely heavily on in-kind such as let's say a food bank where the operations of the organization means that you have to have that food in hand in order to distribute it out you may want to have a separate document separate from the cash flow or could be included on there but with separate line items that help track that as well so you understand times of year when for example you get certain types of donations and when you need to get those out by for um to make sure that they don't go bad or you have spoilage for example all right back to the statement of financial position the balance sheet so i want to talk a little bit in terms of what goes into that and i'm going to relate that in terms of what we do in everyday life so our assets as individuals might be things like our bank accounts um checking account savings account maybe we have a some form of stock account that's not tied directly to our retirement we may have some fixed assets we have may have for real estate we may have a car uh some equipment uh all those kinds of things and then any other assets so our other assets might be the furniture in our house retirement accounts if we held a yard sale and we sold everything that we owned today uh got rid of the car all those things how much money would we actually have in hand after all of that that would be uh the sum of all of our assets then we take a look at what do we still owe on the car what do we still owe on the house do we have other bills that have to get paid that would be all of our liabilities some of them are short-term liabilities those are those bills we have sitting on our desk um might be this year's car payments and mortgage payments would be considered a current liability whereas future years might be seen as a long-term liability so that everything other than what we owe this year would be a long-term liability for what we owe on the car on the house etc and there sometimes are special classes of liabilities one of those special classes we see a lot in nonprofit financial statements is deferred revenue and i'll talk about that as we go along uh after we have sold off everything in our yard sale and sold the house and sold the car and we've paid the outstanding uh bills and whatever and we're ready to buy our sailboat and sail around the world we need to know how much money we want to have we have in hand in order to be able to do that and that would be our net assets now of course in a real non-profit organization we're not going to sell all that stuff off and any net assets if we were to do that if the organization were to close down would have to go to another similar nonprofits with a similar mission but that tells us where we are are we positive do we have more assets than we have liabilities so what is real property and personal property for a non-profit that's a great question real property is just what it's uh sounds like many non-profits own real estate uh they may own their office they may own facilities that they use for providing services in depending on the type of services they provide that may have multiple properties and in addition they may have properties that have been donated to them through fundraising campaigns or something like that over the course of time in terms of personal property you might the organization might have vehicles computers office furniture other physical equipment that is necessary for doing their operations so a food pantry may have a forklift a medical organization may have some very expensive medical equipment and all of that would fall under the equivalent of personal property for the non-profit organization all right so when we talk about those assets we also have to talk about them in terms of restricted and unrestricted assets so unrestricted assets are any assets that do not have donor imposed restrictions they are available for general use of the organization they're sometimes called general operating funds or general support for example if you hold a fundraising gala and you bring in uh let's say keep it simple a hundred thousand dollars and you had to pay 35 000 in order to put on the gala then all of that money that came in the sixty five thousand dollars that is left would be typically be considered uh funds that are received without restrictions there's no restrictions on those that can be used for any purpose of the organization however if you hold a special fundraising event for say a capital campaign and we're going to have a capital campaign and we're going to raise funds to build our new building when you hold that fund and you announce that it's for the capital campaign that implies to the donors that the funds that they donate at that time or at that event are specifically restricted towards building that new building and they can't be used for other purposes you might also say you know the funds you see for this go towards our children's programs and that means those funds could not be used for example for your adult programs if you have those so those would be examples of when you could have an event that would lead to restrictions typically there are different types of restrictions that apply some are time restricted so you may say okay these these donations or these grant funds must be used only in 2002 and 2003. we're going to give you a hundred thousand dollars but 50 000 of it is available for you in 2002 and 50 000 of it is available for you in 2003 so that would be a time restricted donation and you would record that even if you hadn't received the funds you would record that because you know those funds are coming in you could have purpose restricted which i already touched on donor restrictions that are related to specific programs or activities that your organization does and those may apply for general donations given by the public but they also could apply for donations uh that are actually not donations but are grants or other funding coming from foundations or government sources or other sources like that where you are receiving the funds with the understanding that you are going to do particular work in order to earn those funds and sometimes those funds are received in advance of doing those work uh and other times that funding is received on a reimbursement basis in which case the funds once you receive them in hand you've already done the work so that is no longer restricted the last type of restriction common restriction there are other types is the endowment and here when i'm talking about an endowment i'm talking particularly about a donor-imposed endowment so when i say donor imposed that means that the wishes of a particular donor was that this money go towards an investment that will be for the life of the organization and an endowment typically means that only the interest and investment returns can be used um and there may be some additional restrictions as well but you can't dig into the principle of the endowment in order to operate the organization for most circumstances there are other forms of endowments so the donor may not impose that specific restriction they may give limitations on when the principle can be used but not ban use of it outright for example and sometimes there's what we call a quasi endowment where the board has designated funds that are going to be used as an endowment but because the board designated them the board can also undesignate them so those restrictions function as a quasi endowment they're not a permanent restriction because the board can lift them whereas the board could not vote to say hey we're not going to accept these donors restrictions on the endowment except for if they chose to give that money back to the donor it would be possible however to go back to the donor and ask that a particular restriction get lifted and i have seen that happen in the case on occasion all right so those are some of the things at the bottom of the sheet where you talk about the uh restricted and unrestricted um assets but there's some other questions you can also look at on the balance sheet one of those questions is does the organization have sufficient liquid resources in order to maintain operations uh so this organization i showed the balance sheet before we'll get back to in a little bit later um but they have total current assets which are pretty good but it is important to look to see how liquid those assets are as well you may want to see is the organization building or maintaining a reserve and of course best practices in the field is to have three to six months of cash available as a reserve we are in a area that's prone to hurricane related disasters as well as others so having those reserve funds on hand are very important and yet it's very challenging sometimes for organizations to do that we also ask sometimes what is the current ratio so the ratio of current assets to total current liabilities and so i've put those at the bottom of the sheet for this organization we're talking a 10 to one they have a lot of current assets compared to their current liabilities higher ratios typically indicate more available resources to cover those liabilities now remember i talked about the liquid assets so here we see there's a couple of red arrows um so we're seeing this organization has a very high um accounts receivable and very low cash available so they're checking and savings accounts between them only have a little over two thousand dollars in them at this point in time that would be a little scary to see you see that you should be a little concerned how is this organization going to pay their bills and we go down to the bottom and we look at that and they say oh they've got 63 000 dollars in bills that they have two thousand dollars to pay so then you start wondering about those accounts receivables uh and that's where that aging accounts receivables report comes into play how long have those receivables been sitting there what does it take to collect them how long is it going to be until you know one or more of those gets paid we also see that there's a line item for deferred revenue so some of those accounts receivables is probably a grant the organization knows they will receive as long as they do the work so they've recorded it as accounts receivable they haven't actually received the money yet but they've also recorded a deferred revenue against that which says you know until we've actually done the work we're not going to get those funds so it's important to know that's what that line item means that is money or receivables that are to be received against work that the organization is to do and so the accounts receivable will go down but also the deferred revenue will go down by about the same amount each month and then down at the very bottom of this we see that there is a net income amount so this organization is saying that over the last um whatever the period is uh to get to june 30th so whenever their last fiscal year end was until the current end of the the period june 30th they've netted six thousand seven hundred and fifty seven dollars and change so that is increased their net assets sometimes called total equity uh down here at the bottom of the sheet all right so we're going to move on to the other form of uh critical financial statement the one every organization should be producing and that's the profit and loss statement see that we've got a question in chat so uh how often do i see accounts receivable between what is an active billing and what hasn't been earned that is a great question is very variable across different organizations and the type of work that they do typically the accounts receivable should show active billings so if you see an ar report and then they may be showing an additional um something like um for example we know we're going to get a hundred thousand dollars this year provided we also do the work that is necessary to do that grant they may show that but they're not actively billing portions of that grant um until the month comes that they've actually done the work in or you know the month after the month they've done the work in so it can be challenging the a the aging accounts receivable report should only show active billing and not items that haven't been earned yet all right so profit and loss statements so this is in general what profit and loss statement should look like and i've shrunk it down a little bit further in order to be able to show you the kind of categories that we're looking at so typically what you're going to see is a category for revenues a category for expenses and then down at the bottom the change in net assets or the profit and loss so revenues might be things like service revenue contributions grants fundraising any program income if you charge for a particular programs uh perhaps you have a sliding fee scale or something like that and then expenses and you'll see the expenses are broken down into a number of different categories um usually the biggest expense for most nonprofit organizations is going to be their staff and then there will be a number of other categories so again in the pink box of expenses you'll see that those are functional categories but they are not necessarily the natural categories that the expenses come in the natural categories are shown under the expense line over here on the right so you see personnel travel rent etc going down at the very bottom of the sheet we see our change in assets or our profit and loss and we see a amount of 7757 and change anyone have any questions at this point all right so let's talk about that change in net assets so we saw that that net income on the profit and loss statement but if we go back and look at the balance sheet we see that we are off by a thousand dollars on that line item so those should always reconcile those should always be the same amount the amount that you brought in over the course of the period on the profit and loss statement should be the same amount that's showing as your net income on your balance sheet or should be the amount that your net assets have gone up and your total net assets from whatever the prior period was um what do you do about it so the very first thing that you would do is ask why and if you are a ceo or a cfo or someone within the organization you're going to be doing the research just find out what's going on here and the most common thing that we see at nonprofits first and i look at probably three to four hundred sets of non-profit financial statements a year on the average um so the most common thing that we see when we see that is that the organization has an audit every year and the auditor has provided the organization with some adjustments that they need to make in order to bring their financial statements in line with what the auditor believes after having done the full audit uh is the actual statement of the organization's financial position and somewhere along line one of those adjustments or one or more of those adjustments either were not made or were not made in a way that they feed back into the both the balance sheet and the profit and loss statement appropriately and so they've gotten out of alignment because of that or because of the timing of that but it doesn't mean that anything is wrong here it just means that those weren't done in a timely fashion now once they've been noticed and they if they continue to not be fixed then perhaps something is wrong and often what is wrong and this is common across all non-profits the organization is understaffed particularly in its main functions so the last big piece that i want to talk about is getting back to the cash projection so here we see the same organization and in this organization we are seeing that the organization did indeed project that they had low cash at this point in time and they're projecting in the future they're going to actually have negative cash which means that they have expenses that are greater than their actual available cash is going to be for a few months by the end of the year they're going to get back to their balance they had a budget the budget pays off they have a bunch of money coming in later in the year but unfortunately that money is not available now so that's important to know and it's important to know how that's going to be addressed because if you can't pay your staff and so let's talk a little bit about some of these things so we talked about that cash the two thousand dollars in cash is that enough to meet obligations uh the flip side of that is is there excess cash does the organization have a lot of cash that is sitting there in a checking account or savings account you know in that circumstance you may think about the fact that they're actually losing money the amount that a evening a savings account is paying out now is often less than the um the current rate of inflation so that money sitting there in cash is becoming wor worth less each day that goes by then even if it's collecting interest then it would be being used in some other way does it need to be invested should it be used for operations is there other things that the organization could be doing with it uh again when we're looking at a very large accounts receivable compared to the amount of cash on hands we'd want to look at an aging accounts receivable to verify that that's actually turning over properly and you certainly want to be paying close attention to any accounts receivables that are over 90 days old what else might you want to pay attention to sometimes you'll see a balance sheet where there's no accounts payable so liabilities is saying hey we don't owe anything that's very very rare that there isn't a bill that's that's coming in that has um hasn't been paid yet um i mean that has not reached the point of payment yet it's it's very common for that happen so just like in your personal household the bill comes in the mail you put it on your desk you're gonna get to it later you know it's due at the end of the month sooner or later you write that check but in a non-profit organization those bills are supposed to be recorded in the system as soon as you know that they are due so sometimes when you see no accounts payable you see an organization doing what i would call a desk drawer accounting system so although they claim to be using accrual based accounting they are sliding those bills into the desk drawer hiding them away until they are actually due or sometimes even overdue in order to make it look like they are in a better financial circumstance than they are so that would be a big red flag if you see there's no accounts payable you want to verify you know are there actually no accounts payable or is there some other reason why that's not showing up has bills not been reported in the system that should have been um is there something else going on here another red flag as we mentioned is accounts payables over 30 days old so that would be the aar report if you see that starting to grow or you see that doesn't change from month to month you should be beginning to be worried about that what should be included in current liabilities um what is included in current liabilities so i mentioned already uh if it was your personal liabilities it might be the uh your car payments for the rest of the year and your mortgage payments for the rest of the year the same thing is true for a non-profit organization so typically in the current liabilities you would see the sum of any uh mortgage payments or any rent that is due over the course of the the current year that the organization is in and in the um remainder of of that would be under um a long-term liability other things of course are bills that are currently due anything that's overdue etc would all fall under that category is those liabilities high or low compared to total revenue and the current cash those are things you can look at and we already touched on that deferred revenue so i won't talk about that anymore and move on to the next slide so we also want to do a comparison to budget so we want to be thinking about how the organization is performing compared to the budget so these are the things that we would look at in our financial statements typically an organization should be providing a profit and loss statement that shows a comparison to budget and they should do that either with every piano or at least quarterly throughout the year so the the board members and the organization itself the staff etc can look to see how are we doing how are we doing compared to that budget and some of the things that you look for are significantly under budget variances significantly over budget variances so if you're not getting the revenue in that you expect or you have expenses that are higher than you expect um and particularly you want to look at those things that are big budget variants for what is a large expense item so if you have a line item for stamps and it's ten times what you expected it to be but what you expected to be was only fifty dollars and so now you've spent five hundred dollars on stamps that is a huge variance but it's a very very small item and it's probably not worth spending a lot of time researching on the other hand if you have salaries which is likely to be one of your largest line items and there's a big variance on salaries it's important for the organization to know why i say scan the report to look for inconsistencies this is always very important to do i was looking at the financial statements of one organization a couple of weeks ago and they had a typical petty cash line item of two hundred dollars and right below that was a line item of over twelve thousand dollars that was also indicated as being petty cash now i'm not sure what kind of organization would need twelve thousand dollars in petty cash but that's a lot of money to be sitting around and when i went back and asked the organization about it it's they mentioned that it had shown up that way on their uh p l for several months so in this case it was a just a misreported item from a special event they had but they can also be a red flag for other things like fraud so for example one of the common forms of fraud is to move items uh into a line item and sit and wait to see if that is going to be noticed so you set up this petty cash light item you put twelve thousand dollars in there you watch and see if anybody on the board or anybody on staff notices that twelve thousand dollars for several months and they don't notice it then guess what that cash now just goes from the organization into my pocket and the line item goes off of the profit and loss statement and who's going to go back and say hey what happened to that 12 000 petty cash line item they didn't even notice it when it was there they're certainly not going to notice it when it's gone so again in the particular instance i noticed that was not fraud there was a reasonable explanation for it but it is a circumstance where fraud could be suspected another example would be an unbudgeted items all right so let's talk a little bit about um performance review in further detail so this is an example of what you might see um so here we see that the organization has um their month worth of expenses august of of the year uh they have the uh two dates so from october of the prior year so the current uh month and they have their budgeted amount so here we see that their um their year to date is uh i'm sorry this budgeted amount years for the month the budgeted a year to date budget is over here their year-to-date on their insurance line item is well under what the um year-to-date budgeted amount so why is that and those are the kinds of questions that you might ask if you see a variance like this now this is a positive variance they haven't spent anywhere near as much as they had budgeted for on insurance so you might look at that and say hey things are great because they but maybe that insurance bill hasn't gotten paid you know that's the kind of questions you need to ask another case might be that the insurance bill is just comes due at the end of the year and they haven't actually even received the bill yet um or they haven't received the major bill that they're going to pay in that yet um and they've split up the budget so that it looks like it comes due every month uh because it was convenient to divide the budget up into 12 equal portions and so that's why the year-to-date budget comes out that way but if you look at the cash projection you should see that the month that that line item is due in the cash rejection is some future month and it's due as a lump sum when that insurance bill comes in so again that's one of the ways that you can reconcile between the cash projection which is telling you the timing of things in the overall budget which tells you the total amount of things so let's talk about some other red flag items and then i'll wrap up quickly with these and we'll have some time from q a at the end so if the financial statements are not being sent out in advance of board meetings typically you want to have them with enough time to review them which means uh anywhere from three to four days to a week in advance um certainly you want to see you know that you have time if your meetings on a monday you want to have time to have the board having reviewed them over the weekend those kind of things remember board members are typically volunteers so they want to be able to do this on their time not during their business day so sending it out two days in advance of a meeting uh if the meeting's in the middle of the week and you send them a monday for a wednesday meeting the board members may not have enough time to look at them because they only have two evenings in there in order to get that done in are the change in net assets positive or negative uh and again this ties back to not just um in any particular month but overall trend and projections for the full year and where we are against the budget is the overall net asset balance positive so in other words overall does the organization have more assets than what they owe and generally this should be true although there are cases where an organization could have long-term debt a mortgage for example that may push them into negative asset uh net asset territory and yet are perfectly able to handle on a year-to-year basis all of the um the expenses that they have including the share of the mortgage payments or whatever it is that is the long-term debt as i mentioned you want to check to the statements of activities and the statements of financial position reconcile to each other um are there line items with the same dollar amount that are being carried over multiple years we've seen this from time to time again and in some of the many financial statements that we see here at nonprofits first where you see a particular line item show up two or three years in a row with the exact same dollar amount in there in which case you have to wonder what's going on um you know is if it's a cash account you know is that bank account being updated with the current balance um is it an expense account line item is that that truly uh an expense that exactly the same every year those kind of things are things you want to ask you want to look at do does the organization's grant funded programs require external fundraising to break even in other words if you go out and say hey we'll we want to get a grant from uh foundation so and so and they're going to give us a grant for a hundred thousand dollars to do this program but our expenses for this program are 120 000 so we have to go out and raise an additional 20 000 plus whatever it costs to raise that 20 000 just to break even is that the right program to be doing now i can't answer that question for your organization because that may depend on the nature of the organization and the funds that you can get but you need to think about that are there recurring issues regarding shortage of cash in other words the organization really have the cash reserves that they need in order to be able to do operations on an ongoing basis if the organization operates on a reimbursement basis from grants for example is there always a shortage of cash at the end of the month waiting for that next grant uh check to come in in which case can we either build up cash or can we get the cash coming in quicker are there things you can do to work with the funder to streamline that process are there internal processes you can change to make sure you get that request invoice out to the funder in a more timely basis those kinds of things is depreciation being reported on on an ongoing basis so for small organizations typically depreciation is not being reported on an ongoing basis for a small organization they typically total up to depreciation at the end of the year but on other hand it's usually a small amount for a larger organization depreciation could be significant um and could be an important part of whether or not you have positive or negative net assets so knowing what is being reported and when it's being recorded is important although depreciation is really an index at the top level the organization of the amount of use that we're putting on our equipment and supplies so you could think about depreciation for example of a vehicle uh as an index towards the remaining life of that vehicle so on the positive side you have the vehicle that's an asset of the organization below that you have the amount that the organization has been depreciated over the last however many years uh typically three to eight years uh depending on the value of the vehicle or perhaps computer equipment or something like that um and that tells you uh as a board member or when you're taking a high-level look at these non-profit financial statements what is the expected remaining life of this asset so when that um value of the asset reaches zero and the depreciation reaches all of the original value of the assets it's probably about time to replace that assets and it's time to buy new computers or a new vehicle or whatever the asset was that is not true of course of real estate but we record depreciation the same way all right so this is just for fun have you ever been here fred's given the treasurer's report he says we project the deficit of twice that in the previous period we're not sure if we can even keep our doors open and you got somebody saying oh thank you friend for that nice report let's move on covering it up you don't want to be there uh either in the general aspect of of being worried about when whether we can keep our doors open tomorrow but also in the fact this is really a pointer at often uh the approach the financial statements is oh i don't really fully understand these these are kind of dry and boring let's you know brush over those and get into the fun stuff like what happened in our programs tell us a nice story but those financial statements are should be a nice story about how the organization is doing and you should look at it as such and hopefully this presentation has been helpful for you to think about the questions you can ask so what can you do you can read those statements with inquisitive minds you can ask questions uh you can look at some of the red flags i mentioned particularly ask questions when some financial indicators might change dips in cash flow increases in liabilities funding changes and looking at that profit and loss statement by program on a regular basis so to sum up hopefully you're not in this circumstance anymore you have a better understanding of financial statements and your organization still is in good shape and with that i will open the door to questions and i know there is a couple that came in along the way so all right todd so sean asked how often do you see the ar split up between what is an active billing earned versus what hasn't been earned i touched on that one during the presentation but um typically uh active billing should be anything that you're currently billing for or should be billing for and haven't yet um but those bills should already be due when they're sent out whether or not you've actually put them in the system or billed them out yet so the aging accounts receivable should only show the active and not some anticipated revenue even if you know that you're going to get to it in six months or eight months that shouldn't show in aging accounts receivable [Music] um now you might have answered this one as well from anna is depreciation considered a cash expense so depreciation is not considered a cash expense there's no um there's no cash that's going out to pay for depreciation your your assets overall are declining due to depreciation but the current assets that money that you have in in hand those things that you have to immediately pay liabilities does not change so no it's not a cash asset all right and we have one more from david uh when carrying large amounts of cash particularly in the case of restricted grants already received would moving the cash to an investment account require approval from the grantee or just the board of directors typically it does not require approval from the grantee and um just something that require approval from the board of directors or depending on the policies in place maybe something that the ceo can implement um you know directly even without going to the board of directors um but that is a great question um typically the the grantees are happy to know that you're uh shepherding their funds in in a way that's uh helps preserve them uh so it may be useful for them to know that uh and if the grantee i'm sorry if the grant not grantees but grantors um look at the organization's uh financial statements it may be also useful to have informed them ahead of time that this is what we're doing we're putting these funds into a investment vehicle to help make sure that we don't have losses on them until we're ready to use them we've been conservative in our investing so we don't expect any losses from the market say um and we expect them to grow in interest or stock growth or whatever you do have an obligation as an organization to preserve the assets overall so you want to make sure that uh you do what a prudent person would do in investing obviously in any investing you do has the risk of some loss but you want to do it in a way that minimizes the raw the loss and minimizes the risk for major loss any other questions not seeing anything come through but if anyone has any questions you can certainly reach out to todd i'm sure he'd be happy to answer any questions you have we'll be sending out the slides which will have his email contact information on there as well as you can always reach out to achieve at any time as well and thank you so much todd and everyone for joining this was super helpful today thank you so much everybody for attending it's so glad to see so many people here and as sarah and erica said i'm happy to answer any questions and my thanks to achieve for making this possible and for making it possible without a cost to each of you who was able to be here today thank you thank you have a great day everyone