Money and Mission: Ensuring Effectiveness and Sustainability through Successful Financial Leadership

ML252

COPYRIGHT REPRINT PERMISSION Copyright © 2015 Neighborhood Reinvestment Corporation d/b/a NeighborWorks® America. All rights reserved. Requests for permission to reproduce these course materials should be directed in writing to: Copyright Reprint Permission Training Division Neighborhood Reinvestment Corporation/b/a NeighborWorks America 999 North Capitol Street, NE, Suite 900 Washington, DC 20002 (800) 438-5547 E-mail: [email protected] www.neighborworks.org

ML252: Money and Mission: Ensuring Effectiveness and Sustainability through Successful Financial Leadership

ML252: Money and Mission: Ensuring Effectiveness and Sustainability through Successful Financial Leadership

TABLE OF CONTENTS

TAB 1:

Course Overview

TAB 2:

Slides

TAB 3:

Worksheets

TAB 4:

Case Study

TAB 5:

Models

TAB 6:

Resources

TAB 7:

Assessment

ML252: Money and Mission: Ensuring Effectiveness and Sustainability through Successful Financial Leadership

ML252: Money and Mission: Ensuring Effectiveness and Sustainability through Successful Financial Leadership

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ML252: Money and Mission: Ensuring Effectiveness and Sustainability through Successful Financial Leadership

ML252: Money and Mission: Ensuring Effectiveness and Sustainability through Successful Financial Leadership

COURSE OVERVIEW COURSE NUMBER: ML252, part of the Management and Leadership Track COURSE TITLE: Money and Mission: Ensuring Effectiveness and Sustainability through Successful Financial Leadership COURSE LENGTH: 2 Days COURSE DESCRIPTION: This practical hands-on course offers leaders the models, skills, and strategies for successfully leveraging their organization’s financial processes to advance the organization’s mission goals. The seminar covers the topic of financial leadership and strategy, financial planning and architecture, financial reporting and communication, and organizational integrity and sustainability. In this course participants will: 







Learn to tie the financial, programmatic, operational, and leadership efforts of the organization together to develop a richer understanding of the organization’s impact to strengthen how financial information is used to support mission-focused decision making Review strategies that ensure that organizational leaders account for and allocate resources to effectively fulfill mission today while also reinforcing sustainability moving forward Work with their leadership team and other peers to develop strategies for implementing change, to strengthen the financial systems, processes, and communications that support organizational success Develop a Financial Leadership Action Plan throughout the seminar, leaving with clear action items and/or next steps to take within the organization(s) they represent

IDEAL ATTENDEES: The greatest benefit is to organizations that are able to commit a team of leaders to the program. Recommended team members include Treasurer or Board Chair, Chief Executive (Executive Director), and the senior finance staff/volunteer member (CFO, COO, finance director, office manager – depending on organization structure and staffing) COURSE OVERVIEW: Financial leadership unlocks the power of financial management as a strategy, evaluation, and leadership development process that increases an organization’s potential to successfully create community change. Tying the financial, programmatic, operational, and leadership efforts of an organization together develops a richer understanding of the organizations we serve, the benefit of our work in the community, and ensures that we are accounting for and allocating organizational resources so that they contribute to effectively fulfilling the mission today while also reinforcing our sustainability moving forward – the true definition of acting as fiduciaries. This financial leadership curriculum brings together leaders including board members, senior staff, and financial practitioners as learning leadership teams. The program engages participants in active learning focused on exploring the context, strategy, infrastructure, communication, and assessment needed to leverage financial management for greater organizational and community benefit.

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ML252: Money and Mission: Ensuring Effectiveness and Sustainability through Successful Financial Leadership COURSE OBJECTIVE: By the end of this two-day intensive course, students will have a plan to strengthen the practices in the organizations they serve by developing and using financial infrastructure and processes to engage the organization in planning its work, evaluating the effectiveness and efficiency of its execution, and assessing the efficacy of its assumptions and models so that the organization can deliver the greatest community benefit. CORE COMPETENCIES and LEARNING OBJECTIVES: Module 1: Leadership & Strategy Competency 1.1: Identify the connecting between financial systems and processes and an organization’s strategy, mission, and intended community benefit Learning Objectives:  What are the implications of a financial decision? Using sample scenarios participants will discuss and identify the key questions they would want to know the answers to when considering a decision that has significant positive monetary impact on the organization’s revenue – demonstrating that they see a clear connection between financial and organizational outcomes.  What is it that budget approval really approves? Through facilitated discussion, participants will unpack the organizational structures, assumptions, and goals that are tacitly approved when the board signs off on an annual.  What is the role of vision and mission in financial processes? Using frameworks for grounding organizational work on the intended community outcomes of an organization, participants will identify several strategies they can use to create a shared and common understanding about the role of outcomes in organizational decision making. Participants will record the goals they have for their financial systems in the Action Planning Guide.  How do you communicate the financial-outcomes connection? Participants will use a simple template to write a draft narrative business model that clarifies where/how assets are developed, what the assets are used to deliver/accomplish, and the critical investment that sustains the organization’s work. Participants will also log actionable next steps in the Action Planning Guide. Competency 1.2: Develop strategies that focus leadership conversations and actions on organizational outcomes and sustainability, not simply financial viability Learning Objectives:  How do you ensure efficacy in the organization? Participants will identify key organizational outcomes and develop a simple matrix tool(s) to use a strategy screen for evaluating organizational efforts against organizational outcomes. Participants will also discuss with one another strategies they use to screen efforts against organizational outcomes. All participants will record specific strategies they plan to implement with the organizations they serve.  What is a focus on organizational sustainability? Participants will review the organizational sustainability framework and through discussion with one another identify strategies they can use within the organizations they serve to frame and shape balanced leadership conversations that incorporate all aspects of organizational sustainability. Participants will also log actionable next steps in the Action Planning Guide.

ML252: Money and Mission: Ensuring Effectiveness and Sustainability through Successful Financial Leadership Competency 1.3: Develop a working definition of “financial leadership” and what is required to advance it within an organization Learning Objectives:  Participants will identify and log the potential financial leaders within the organization that will become part of representative and balanced “Financial Leadership Team” and record strategies for increasing financial leadership within the organization in the Action Planning Guide. Module 2: Planning & Budgeting Competency 2.1: Utilize an expanded definition of a comprehensive budget process to incorporate the process as the development of organizational financial architecture and thus to select key activities for their action plan Learning Objectives:  What characteristics indicate a sustainable organization? Using a visual depiction of two organizations, the participant will discuss with the entire class which of the two exhibits a more sustainable organization and what elements make it so, learning their mistakes through the facilitated class discussion.  Does the budget process extend throughout the year as a planning-monitoringevaluation process and deliver a multi-year budget? Using their brief assessment of this question, the classroom content, and table discussion of effective strategies to implement this practice, the participant will enter in his/her action plan 1-3 critical budget process practices to modify upon returning to the organization. Competency 2.2: Participants will identify the policies and tools they need in place to move their organization’s budget process to a more comprehensive practice and will include those they consider most important in their action plan Learning Objectives:  Are the financial systems designed to align with the programmatic structure of the organization? Using their brief assessment of this question, slides that demonstrate how to align systems and programs through accounting structure, and table discussion of effective strategies to implement this practice, the participant will enter in his/her action plan any missing alignment practices to modify upon returning to the organization.  Does the organization harness the strategic thinking of BOTH the staff program managers and the board of directors in developing and adopting the budget? Using their brief assessment of this question, sets of appropriate questions for both board and staff, and table discussion of effective strategies to implement this practice, the participant will enter in his/her action plan 1-3 ideas for improved budget involvement practices to modify upon returning to the organization. Competency 2.3: Participants will apply their better understanding of the differences between an operating budget and a capital budget and the important considerations in both by choosing critical missing best practices in both for future action in the plan they take back to their organization Learning Objectives:  What is the true cost of a program? Using a brief “fill in” test and slides addressing core aspects of the operating budget, the participant will list the income and

ML252: Money and Mission: Ensuring Effectiveness and Sustainability through Successful Financial Leadership

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expense included in the true cost of a program and identify the errors or omissions in his/her answers through full class discussion and the subsequent presentation. What does a good budget workbook include? Participants review as the entire class selected worksheets from the budget workbook for the course case study, Root to Canopy, and compare the formats to their own organizational budgets. Does the organization create a budget that clearly identifies incoming resources and their allocation based upon the strategic and annual work plan objectives of the organization, and identifies the true cost of programs including allocation of staff and common costs? Using their brief assessment of this question, PPT content discussing the various elements of the operations budget, and table discussion of effective strategies to implement best practices, the participant will enter in his/her action plan 1-3 budget practices to modify upon returning to the organization.

Competency 2.4: Participants will adopt a practice of budgeting for operating reserves Learning Objectives:  Does the organization effectively budget for capital and operating reserves and have strategies to fund those budgets? Using their brief assessment of this question, PPT content presenting the topic of reserves, and table discussion of effective strategies to budget for and raise reserves, the participant will enter in his/her action plan 1-3 action to increase the reserves of the organization. Module 3: Reporting & Communication Competency 3.1: Participants will expand their definition of “organizational financial statements” in terms of audience, design, and context Learning Objectives: 





Who is interested in your finances & why? Participants prepare a list of what statements, at what level of detail, they believe are needed by various staff, board, and external people. The roles and level of detail are then discussed by the entire class. The organization’s board and staff clearly understand our organization’s overall financial performance by reading our financial reports (statements, dashboards, etc.). Using their brief assessment of this question, the earlier exercise on who needs what statement format, and table discussion of effective strategies to raise the literacy within an organization, the participant will enter in his/her action plan practices encouraging greater financial literacy to introduce upon returning to the organization. The financial systems produce accurate, timely, audience-specific information about mission fulfillment and financial sustainability. Using their brief assessment of this question, PowerPoint content on the various uses of reporting, and table discussion of best practices, the participant will enter in his/her action plan any pressing needs to address upon returning to the organization.

Competency 3.2: Participants will understand which financial statements contain the answers to which financial factors and benchmarks of health. Learning Objectives:

ML252: Money and Mission: Ensuring Effectiveness and Sustainability through Successful Financial Leadership  







Why the Budget v Actual P&L is NOT Enough. Participants analyze a balance sheet and then discuss with the class as a whole whether or not they want to be part of the organization with this balance sheet. Have we provided context for our financial statements and the right level of detail for the audience? After a review of the three primary financial statements used in organizations (balance sheet, profit and loss, cashflow projection), participants will evaluate with their table peers the best practices in preparing financial statements for different audiences and complete an exercise worksheet to identify audience with statement and format requirements. Let’s examine Root to Canopy’s financials. Participants review as the entire class a sample board financial report for the course case study, Root to Canopy, and compare the formats to their own organizational reports in preparation for capturing action items. The board uses financial reports to assess the organization’s strategies for mission fulfillment and financial sustainability. Using their brief assessment of this question, PowerPoint content on the various uses of reporting, and table discussion of best practices, the participant will enter in his/her action plan 1-3 modifications to their board financial reports. Staff use financial data about organizational performance to evaluate and improve programs and operations. Using their brief assessment of this question, PowerPoint content on the various uses of reporting, and table discussion of best practices, the participant will enter in his/her action plan 1-3 action steps to training staff to use financial reports for program improvements.

Competency 3.3: Participants will utilize their 990 and the Guidestar website to tell their mission effectiveness by adding organizational context to both. Learning Objectives: 

Through two PowerPoint slides introducing the 990 and Guidestar website, participants discuss with the class the context that Guidestar provides their 990 reports, NeighborWorks’ encouragement of Guidestar’s levels of excellence, and their current use of Guidestar to provide context to their financials.

Competency 3.4: Participants will understand how ratio, graphic and benchmark analysis can improve financial discussion at a staff and board level. Learning Objectives: 

Participants review ratio analysis and “read” with the instructor and class several slides showing graphic analysis of organizational progress and analysis with the facilitator before demonstrating their ability to analyze five-year time-series graphs of an organization’s balance sheet and business model and identify concerns shown in the analysis on a continuum of importance.

Competency 3.5: Participants will decide to create dashboards for their organizational audiences, if they do not already have them, by utilizing the resources provided. Learning Objectives: 

Participants examine a series of dashboards of increasing complexity, finishing with the infographic for NeighborWorks, and in a guided exercise, discuss best practices with those at the table who use dashboards, adding to their action plan as needed.

ML252: Money and Mission: Ensuring Effectiveness and Sustainability through Successful Financial Leadership Competency 3.6: Participants will practice the development of cost-effectiveness and return on mission statements for NeighborWorks program efforts. Learning Objectives: 



After reviewing the process of computing cost-effectiveness and return on mission, participants at each table select a common NeighborWorks program (such as first-time home ownership) and develop its logic model, write a statement of cost-effectiveness, and develop its return on mission. The organization has the programmatic and financial systems to make clear statements about our cost-effectiveness and return on the investment we make in our programs. Using their brief assessment of this question, the table exercise, and table discussion of best practices, the participant will enter in his/her action plan how to improve their organizational story with statements of costeffectiveness and return on mission.

Module 4: Integrity & Risk Competency 4.1: Participants will be able to apply a comprehensive definition of “fiduciary” to the leadership expectations of staff and board and use it as the basis for understanding the concept of organizational integrity Learning Objectives:  What does fiduciary really mean and what are the implications? Participants will review an expanded definition of “fiduciary” to include not just fiscal stewardship, but also broader asset stewardship. Participants will discuss identify strategies to increase fiduciary responsibility within the organization and record them in their Action Planning Guide. Competency 4.2: Participants will be able to apply a broader concept of organizational risk that includes how to understand and mitigate structural and environmental risks Learning Objectives:  Drawing on the broader definition of fiduciary, participants will discuss four key areas of “risk” to organizational integrity and efficacy, identifying the potential causes, results, and mitigation strategies of each risk.  Participants will reflect on the state of their own organization and record in the Action Planning Guide strategies they will but in place within their organizations to expand overall understanding of potential risk. Competency 4.3: Participants develop a plan for increasing financial leadership within the organization they serve Learning Objectives:  Through discussion with peers and reflection on the topics covered throughout the seminar, participants will be asked to identify strategies that will “support more financial leadership throughout the organization” and record appropriate strategies for the organization they serve in the Action Planning Guide.

ML252: Money and Mission: Ensuring Effectiveness and Sustainability through Successful Financial Leadership Course Instructors: Justin Pollock and Claudia Schechter Claudia Schechter’s consulting philosophy: “Over the past 15 years, new tools and strategies have brought a better understanding of the need for financial sustainability and broad development to nonprofit organizations. With dedicated boards and staffs, nonprofits rarely lack good ideas. But implementing growth strategies taxes stretched resources. I work with nonprofits to help them use the tools at hand and those I have developed in my own nonprofit experience to cost-effectively manage the growth they envision.” Since 2001, Claudia has provided strategic financial consulting through referrals by funders and word of mouth. She also helps public lands agencies and their nonprofit partners begin and enhance their partnerships. Claudia served as the CFO and COO of the National Park Foundation and helped build several nationally known nonprofits over 40 years. She also served Secretary of the Interior Bruce Babbitt as Director of Operations for the Department of the Interior. Justin Pollock is founder of Orgforward, a consultancy working with community benefit agents and capacity builders to develop leadership and strategies that create communities where equity, dignity, and a healthy environment exist for everyone. His focus is on strengthening the connection between vision and the leadership, programming, finance, and infrastructure needed to make change happen and on supporting organizational leaders with what they need to effectively govern and operate their organizations. With more than 20 years of experience in the education and community benefit fields, Justin has trained and presented to board, staff, and volunteers from agencies ranging from small startups to large well-established organizations on topics of governance, financial management, planning, supervision, leadership development, and organizational sustainability Course Structure & Time Frame: The course spans two consecutive days (16 hours – including breaks and lunch). The seminar is taught by a team of facilitators, one an organizational development practitioner and one an organizational financial sustainability practitioner. The curriculum is divided into four primary sections and delivered as follows:  Day 1 AM – Purpose: Leadership & Strategy  Day 1 PM – Planning: Assets, Allocation, & Architecture  Day 2 AM – Performance: Reporting & Communication  Day 2 PM – Sustainability: Wellness & Integrity

ML252: Money and Mission: Ensuring Effectiveness and Sustainability through Successful Financial Leadership

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Money & Mission:

Ensuring Effectiveness and Sustainability through Successful Financial Leadership (ML252)

Presented By

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Table Intros

Introduce yourself and discuss:  What led you to decide to come to this session  What are you hoping to walk away with, better understand, be able to do, etc.

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Welcome

Brief Around-the-Room for Networking    

Your Name Organization’s Name Your Role A ‘hope-for’

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Our Expectations Participants will have a plan to strengthen financial practices that:  Engage the organization's leadership in planning for community benefit/impact;  Articulate the assumptions and models about what it takes to achieve outcomes;  Assess the effectiveness & efficiency of organizational efforts; and  Evaluate organizational risk and sustainability Provided on behalf of

Workshop Focus Areas Purpose Leadership & Strategy Assets & Allocation Planning & Budgeting Performance Reporting & Communication Sustainability Integrity & Risk Provided on behalf of

Your Materials Slides

Models

Root to Canopy Case Study

Discussion & Planning Tool

Resource Guide (online) All resources are available at NTI.orgforward.net Provided on behalf of

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What is the Potential for Leadership Imagine that your financial processes and systems are awesome, what would be different in how people do their work  What would people be spending more time thinking and talking about?  What would people be able to do more of?  How would the work of the organization be different?

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Fundamental Fiduciary Question

Are we effectively and efficiently investing the resources/assets the organization acquires to advance community benefit and achieve our outcomes in a manner that is sustainable over time? Provided on behalf of

An Organization IS Interdependent Program Capacity Demand, design, effectiveness. mission outcomes

Leadership Capacity Organizational Capacity People, systems, and resources available to pursue program activities

Asset Capacity Business model, financial reserves, donor base, partnerships, etc.

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Example of Our Fiduciary Curiosity Program Advancement Foundation

NOW!

Root to Canopy Two Hundred Thousand and 00/100

200,000.00

Have Fun Launching the Pilot

What questions would you want answered before accepting Provided on behalf of

Fiduciary-Focused Conversations What would conversations that link assets (money+) and outcomes look like?  What would people actually be talking about?  What questions would you want leadership asking of themselves? …of the organization? Which leaders are asking which questions? Financial Leadership is the ability to determine and put in place the conditions that support these types of Worksheet Page 2 conversations Provided on behalf of

Conversations: You Choose the Focus

* Orgforward: Modified From David Rock - Quiet Leadership Provided on behalf of

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Conversation = Engagement

What

Effectively Functioning

Transactions

Engaged How

Disposition

Inspired Why © Orgforward

Desire Provided on behalf of

Financial Leadership – Connecting Dots People Are…  Engaged in Meaningful Dialog and Conversation  Explicitly Linking Finance to Benefit, Outcomes, & Strategy  Connecting Systems - Finance and Programs  More Financially Knowledgeable  Acting with Integrity and Accountability  Focused on Sustainability – beyond just viability Source: http://leadershipgarage.com/

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A Giant Fiduciary Opportunity – The Budget

When we ask leadership to approve a budget, what are they REALLY approving?

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A Budget Tactility Approves… (Non Fiduciary) Vision / Mission

 Vision of Community   Community Benefit/Impact   Strategy   Program Mix   Infrastructure / Systems    Activities

Business Model Asset Strategy

 Generate Assets ($/)   Utilize Assets ($/)  Provided on behalf of

Making Financial Leadership Possible Financial Leadership relies on… • Focus on Ends first AND then the Means that get there • Articulated common goal(s) = community benefit • Clear approach/strategy • Strong models of how assets are acquired and utilized • Accounting infrastructure that aligns with models • Communication tools that provide feedback on the above • Leadership & Time to discuss implications Provided on behalf of

Finances - A MEANS to…  Planning that advances community benefit  Shedding light on our impact in the community  Evaluating the effectiveness and efficiency of execution  Clarifying and assessing the efficacy of assumptions and models  Facilitating the right conversations It’s a Strategy, Planning, and Evaluation Tool Provided on behalf of

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Finance Requires Context Reports Budget Financial Systems

© Orgforward

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Your Model – Foundation for Finance

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Your Model – Foundation for Finance

Missionary

Desired Community Visionary Necessary Community Capacity & Values Areas of Organizational Impact/Benefit Community Served (Beneficiaries & Backers) Outcomes / Direct Benefits Approach (Hypothesis, Beliefs, & Assumptions) Strategy (Program Mix & Infrastructure) Operations & Asset Model Pragmatist Activities © Orgforward

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Foundational Context – Community Outcomes 1. How do you describe the desired community the organization works to create?(Vision) 2. What capacity is required within the community to achieve the above vision? (Community Capacity) 3. What specific benefits or capacity does the organization work to advance and what approach does it use to accomplish that work? (Outcomes)

Worksheet Page 4 Provided on behalf of

Action Planning Time – Our Next Steps  Discuss strategies that you use (or would like to use) to ensure … A1. People serving the organization clearly understand and agree on the community outcomes the organization strives to create and use that knowledge when making decisions and evaluating work In the Worksheet record things you will do to strengthen this in the organization (p.5) Provided on behalf of

Sustainability Screens – The Big Bridge What consistent criteria does your organization apply in deciding whether to invest in, reduce, or eliminate a program/effort?

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Are We Advancing What Matters While Missions are important… Outcomes are what really matter

For each effort we engage in … 1. To what degree do we EXPECT it to advance each outcome 2. To what degree DOES it advance each outcome 3. What investment do we make in this effort Provided on behalf of

Vetting Efforts Against Outcomes

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Fulfillment

Profitability Mission

Effectiveness

The Matrix Map: Mission-Money Alignment

Efficiency Book: The Sustainability Mindset – Zimmerman & Bell Provided on behalf of

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Effectiveness

A Matrix Map

Profitability Provided on behalf of

Action Planning Time – Our Next Steps  Discuss strategies that you use (or would like to use) to ensure …

A2. The organization has consistent ways of vetting efforts against community outcomes and organizational strategy? Worksheet (p.5) Provided on behalf of

Making Financial Leadership Possible Financial Leadership relies on…  Focus on Ends first AND then the Means that get there  Articulated common goal(s) = community benefit  Clear approach/strategy • Strong models that connect efforts to assets • Accounting infrastructure that aligns with models • Communication tools that provide feedback on the above • Leadership & Time to discuss implications Provided on behalf of

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Communicating Models

Connecting         • 

Community Benefit Approach Strategy Programming Assets (Financial Model)

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Asset Model - Understanding Basic Resource Flow Who in the organization knows, where the financial assets… come from go  % earned income – from what  % foundation support – avg size grant  % donated – avg size gift  % in-kind  % investment / endowment

     

% on staff – doing what % on materials % on services % on facilities % on general operations % on reserves / debt

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Linking Financial Knowledge to Outcomes & Strategy The Organizational Profile: Links Assets, Allocations, & Aspiration Business Profile: Root to Canopy is a $1.2 million agency with 2/3 of our income from earned income strategies, primarily through fees for service and county contracts, and 1/3 from philanthropic support (50% grants, 25% Ind. Giving, 25% Corp Sponsorships). Our primary expenditures are the staffing (61%) and consulting (25%) required to fulfill our mission through our four major program areas – Thrive, Prosper, Fanfare, and Flourish – of which Flourish is the largest program at roughly 50% of expenditures. Our success and sustainability are highly dependent on the skills of both our paid staff and volunteer arborists as well as the public interest in establishing and maintaining a “green” overhead canopy. Provided on behalf of

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Linking Financial Knowledge to Outcomes & Strategy The Organizational Profile Assets, Allocations, & Aspiration Building a Profile Statement 1. XYZ’s is an organization with a revenue stream that

comes from x% …. (if in-kind or volunteers are significant, include them) 2. Those resources are used to deliver x, y and z … (include specific program and admin) 3. To be effective, we must invest in the following resources/strategies… Worksheet (p.6)

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Understanding Assets – What it takes to do it Do we know what it takes?  What assets do we rely on  How are assets dependent on each other  Where do the assets come from and what do we need to get them  What are the assumptions how assets are used Provided on behalf of

Action Planning Time – Our Next Steps  Discuss strategies that you use (or would like to use) to ensure …

A3. Staff and Board understand the organization’s financial and business model (how assets are acquired and where they are allocated) Worksheet (p.7) Provided on behalf of

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Mid-Day Reflection

• • • •

Your Biggest Take Away What jumps out What Aha did you have Any big questions

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Workshop Focus Areas Purpose Leadership & Strategy Assets & Allocation Planning & Budgeting Performance Reporting & Communication Sustainability Integrity & Risk Provided on behalf of

What is the Potential for Leadership Imagine that your financial processes and systems are awesome, what would be different in how people do their work  What would people be spending more time thinking and talking about?  What would people be able to do more of?  How would the work of the organization be different? Provided on behalf of

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Benefits of a Solid Financial Structure

Mission Relevance

Resource Allocation

Business Model

Assumptions

Logic Model

Results

Clear Expectations

Controls

Accountability

Clearly Identified Resource Needs For Growth or Contraction

Stuff, Infrastructure, Staff Provided on behalf of

The Nonprofit Conundrum – Which Do You Want

Revenue Allocations

Reserves

Development

B

Administra tion

Program

Development Administra tion Reserves

AA

Program

Expense Allocations

Know what you want to look like!

RESTRICTED

RESTRICTED UNRESTRICTED

UNRESTRICTED Provided on behalf of

© Claudia P. Schechter

Revenue Allocations

Restricted $

© Claudia P. Schechter

Reserves

Development

B

Administration

Program

Development Administration Reserves

AA

Program

Expense Allocations

What Do We Want to Be

Restricted $ Unrestricted $

Unrestricted $ FLEX

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Re-Align Thinking About Organization Model

Each of our programs is built around, supported by, and shares responsibility for Core Mission Support functions Source: A Graphic Re-visioning of Nonprofit Overhead, Nonprofit Quarterly, By Curtis Klotz of Nonprofits Assistance Fund, August 16, 2016 Provided on behalf of

Highlighting Underfunded Program Challenges Some programs are only partially funded by contributions or by earned revenue. The expenses not covered include a proportionate share of the Core Mission Support. This creates a Gap in funding for the finance, human resources, governance, and fundraising infrastructure that support the entire organization.

Source: A Graphic Re-visioning of Nonprofit Overhead, Nonprofit Quarterly, By Curtis Klotz of Nonprofits Assistance Fund, August 16, 2016 Provided on behalf of

Deepen Thinking – A 3-Dimensional Budget

OPERATING BUDGET

Program

Program

Program

The flat plane budget Operating Budget

Reserves

Operating Budget

Reserves

Reserves

IN-KIND, PASS THRU FACTORS

CAPITAL BUDGET

The 3-dimensional budget Provided on behalf of

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Two-Part Organizational Budget Operating Budget

 Associated with Statement of Activities (Income Statement / P&L)  Planning income and expenses for a single fiscal year to perform immediate mission agenda

Capital Budget

 Associated with Statement of Financial Position (Balance Sheet)  Sets annual capital targets with explicit funding sources/strategies  Done on multi-year basis  Looks at overall assets (reserves) Provided on behalf of

Holding Strategic Budget Discussions “For many nonprofits, the annual ‘approval of the budget’ is frequently an empty ritual...”

(Blue Avocado, The Best of the Board Cafe, Second Edition, by Jan Masaoka, former ED of Compass Point)

Think of the power if we  Harness the strategic thinking of your program leaders  Restructure the board’s budget discussions

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Getting Started - Clarify What to Invest In Strategic Questions for Our Resource Allocation

    

What strategies and programs are we committed to that advance our outcomes? (Strategy Screen) Are we clear about our assumptions about what it takes to do our work? (Operational Models) What do we want to invest in from our business/strategic plan? (Strategic Plan) Have we reflected our values and vision as translated into our policies? What changes/risks/opportunities can we predict?

Follow-up Question: Which are Capital & which are Operating Investments Provided on behalf of

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Revisit Context and Foundational Thinking Reports Budget Financial Systems

© Orgforward

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Getting Started - Clarify What to Invest In Use sustainability screens to decide whether to invest in, reduce, or eliminate a program/effort? • Who is Involved?

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Engaging Program Leadership Program leaders are your best budget resource take advantage of their commitment, self-interest, and accountability:  Are there specific program objectives that we want for the next 1-2-3 years?  Are we staffed for success?  Are our systems/infrastructure up to it?  Can we share resources and create synergies internally?  Is our dollar allocation generally in line with our priorities? Provided on behalf of

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Engaging Board Leadership Take advantage of the board's diverse knowledge and community base with strategic questions:  Are there specific program outcomes or financial objectives that we want for the next 1-2-3 years?  Are there desirable new projects, program expansions, or changes in compensation?  Are there large expenses for which we should be saving?  Is our dollar allocation generally in line with our priorities?  How are we using unrestricted income to support mission priorities? Provided on behalf of

Action Planning Time – Our Next Steps  Discuss strategies that you use (or would like to use) to ensure … A4. We harness the strategic thinking of BOTH our programs managers and the board of directors in developing and adopting the plan for what to budget for

Worksheet (p.7) Provided on behalf of

Building Budgets – General Approaches Income-Based  Identify reliable income first, determine actual expenses, reconcile expenses against income  Determine what-if scenarios  if +income, then +expense

Estimation Strategy (Amounts)  Incremental  % increases/decreases to prior year totals  Zero-based  Starts from scratch every year; forces reevaluation of assumptions.

Accrual not Cash  Accrual  Matches income and related expenses in the appropriate fiscal period, regardless of cash flow. Provided on behalf of

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10/15/2017

Building the Budget: Phase 1 - Revenue A sustainable business model begins with accurate income projections, not with program expense outlays

Provided on behalf of

Asset Engagement Model Sources  Financial  In-Kind  Partners

Scale Timing (Cash Flow) Trends (historical and projected)  Internal – changes in sources and scale  External – changes in environment (regulation, economy, …) Provided on behalf of

Revenue Integrity - Determining Commitment & Capacity

Strategy: build a reliable portfolio of revenue sources…  Do we have revenue planning tools that articulate and validate our program income assumptions?  Do we set expectations for revenue generation by program?  Do we know what it will take to achieve goal?

 Can we estimate demand and/or discount contribution expectations?  Do we understand the timing of revenue?

(reimbursable contract, funder cycles, event schedule)

Pitfall: plugged income numbers… Provided on behalf of

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10/15/2017

Revenue Tools – Your Behind the Scenes Work

© Fiscal Management Associates, LLC, 2012

Fee for Service Projection Tool

Provided on behalf of

Action Planning Time – Our Next Steps  Discuss strategies that you use (or would like to use) to ensure …

A5. We have revenue planning tools that articulate and validate our program and organizational income assumptions? Worksheet (p.7) Provided on behalf of

Building the Budget: Phase 2 – Expenses/Investments A Budget should represent the investments of assets required to support the successful execution of a program This includes an appropriate share of core operational support expenses Source: A Graphic Re-visioning of Nonprofit Overhead, Nonprofit Quarterly, By Curtis Klotz of Nonprofits Assistance Fund, August 16, 2016 Provided on behalf of

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10/15/2017

What Goes Into the Full/True Cost of Programs Direct Expense: Unique to Program Direct Expenses: Shared by Programs (aka Common Costs)

Share of Core Support Functions (aka Overhead)

• Direct staffing • Program specific admin staffing • Program specific materials, fees, licensing, facilities, etc • Rent, utilities, phone • Office supplies, business machines (copier/printer…) • Insurance, licensing, fixed assets (furniture, vehicles…) • Business administration staffing (finance, HR, IT, Marketing) • External relations (partnerships, PR, community outreach) • Board support • Fundraising Provided on behalf of

Direct Expenses – What it takes to determine Determining What We Pay For Do we know:  Which assets are financial vs nonfinancial  Asset dependencies  Assumptions behind asset development  Assumptions behind asset utilization Provided on behalf of

People - Our Single Most Important Asset People = 65% to 85% of nonprofit resources Strategy: build a committed, balanced staffing plan  Identify where people are deployed and what they are doing  Can we accurately account for staff time by-activity? Does this inform the budget process?  Are skills, tasks, pay levels aligned appropriately?

 Develop staffing strategies & policies Pitfalls: (1) Allocating salary versus actual time; (2) not adjusting staff deployment in alignment with revenue and program changes Provided on behalf of

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10/15/2017

In-Kind: Key “non-monetary” Assets Strategy: budget Volunteer and other In-Kind value (in $$$!) Goods Financial Asset & Liability “Professional Services”*  Financial Asset & Liability  Included in GAAP statements, audit, and noted in 990 “Non-Professional Services”  Non-financial – but valuable  Significant of volunteers to your ability to implement mission activities? Pitfall: not understanding the impact of a loss of volunteer resources and not investing in volunteer infrastructure *IRS defines this

Provided on behalf of

Budgeting Non-Cash Items Depreciation

 Provides more accurate bottom line in budget  Capitalization Threshold Policy  Fixed Assets/Depreciation Schedule  Capital Budgeting Tool  Helps build Net Assets

In-kind Contributions

 Net-Zero (income = expense)  Reflects more realistically the magnitude of resources needed to accomplish your organization’s mission  Keep “below the line” so real cash is not confused with in-kind values Provided on behalf of

Budgeting Shared Costs Across Activities Strategy: develop and apply a rational allocation policy First Define Clearly: Common Costs – costs of resources that directly support more than one activity across the organization Overhead Core Operations Costs – costs of goods, services, and staffing that support the organization entity (often called General & Administrative and Fundraising)

Pitfall: all common costs included in G&A Provided on behalf of

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10/15/2017

Competing Viewpoints Management Viewpoint

Funder Viewpoint What they are able/willing to pay for is their goal!

Coverage is your goal! Common Costs  Support more than one program Overhead / Infrastructure  Fundraising Expense  General & Administrative Expense

Indirect Cost Rate  A protocol that most public funders accept May not allow some common costs and considers some direct costs May use indirect costs and overhead as the same term Provided on behalf of

Budgeting Shared Costs Across Activities Strategy: develop and apply a rational allocation policy  What costs should we identify as indirect costs?  How is a program’s share of common costs allocated?  What’s the impact if we lose a program?  How do we address programs that do not cover their allocated share of costs? Pitfall: people do not understand the rationale behind the allocation – they complain Provided on behalf of

The Power of Tracking Time Tracking

Allocation of Effort (Hours) Program 1 Program 2

Staff Member

G&A

Total

100

3400

1000

2300

Other Staff Member

1000

1500

580

3080

TOTAL HRS

2000

3800

680

6480

.96

1.8

.3

3.1

Total FTE

Common Cost Allocation Program 1

Program 2

G&A

990 Allocation %

31%

59%

10%

Fully Costed Prog

34%

66% Provided on behalf of

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10/15/2017

Grant & Contract Budgeting Strategy: apply the concept of Net Grant Receipts (grant amount > direct costs) Preparing grant budgets  Start with internal management budget that identifies full/true cost of program (build if grant is for a new program)  Identify what expenses are allowable by the grant and can be used to cover actual expenses (promises of grant)  Incorporate these promises in our projected year end and determine any shortfalls in coverage of core operating or common costs resulting from grant/contract

Pitfall: thinking we have funds for our core budget when we don’t Provided on behalf of

Action Planning Time – Our Next Steps  Discuss strategies that you use (or would like to use) to ensure … A6. Budgets clearly identify incoming resources and their allocation based upon the strategic and annual work plan objectives of the organization, and identify the true cost of programs including allocation of staff and common costs Worksheet (p.8) Provided on behalf of

Phase 3: System Structure – Aligning to Efforts VISION  Our vision is for a healthy urban living environment which integrates the natural and manufactured ecosystems, within which all people can experience, contribute to, and benefit from their physical community.

MISSION  Root to Canopy advances this vision by working in communities with historic canopy deficiency disorder (HCDD) in developing the skills and support needed to build independent and sustainable canopy rich communities.

PROGRAMS  Our Fanfare, Prosper, Thrive, and Flourish programs …

Program Services Fanfare

Prosper

Thrive Flourish Sources of Funds Uses of Funds

Support Services FundGov./ Raising Admin.

Provided on behalf of

24

10/15/2017

System Structure – Keeping Track of Asset Flow PROGRAM

RESTRICTED/ UNRESTRICTED

FUNDER

ACCOUNT

But don’t forget IN-KIND – What will allow you to understand and keep aware of the major non-financial assets that the organization relies on. Provided on behalf of

A Word on Presentation Presentation  Well formatted budgets are easy to read and understand.  What are characteristics of good formatting?

Image source http://buffalo7.co.uk

The Spreadsheet  The spreadsheet is your budgeting tool. Learn some basic skills to use it effectively. Provided on behalf of

Budget Example – Case Study (Page 3) • What works in this format? • What might you add? • Does it help us understand our business model? • Important control points? • Financial state? Provided on behalf of

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10/15/2017

Key Questions for Our Operations Budget  Are our accounting structure and our budget tool aligned with our program structure?  Have we assessed program contribution and program interdependence?  Can we afford this operating budget?  Do we know where we could make principled cuts, if necessary? Fund a program investment?  Have we moved to a rolling 2-3 year budget process? Provided on behalf of

Budgeting Sustainability Analyze revenue concentration risks:  Single source dependency?

Analyze expense allocations:  Support mission/program priorities?  Do they include infrastructure costs?

Provided on behalf of

77

Final Piece of Operating Budget Develop a month by month cash flow projection for your budget  Include it in your budget documents for the board  Make sure it serves as an early warning for tight months Budget by Activity

Budget by Cash Flow

Pre-Audit TOTAL Projected BUDGET FY13 FY12

Income Expenses

$$ $$

Programs Program 1 Spec Cap Cash Flow >>>> A B Prog 2 Admin FR Evt Camp Jan Feb Mar Apr… $$ What income supports… When cash arrives… $$ What expenses are spent for… When cash is disbursed… Income line items --> Sources of funds/income… Provided on behalf of

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10/15/2017

Phase 4: A Strategic Budgeting Process - Policies Vision / Mission

 Vision of Community  Community Benefit/Impact  Strategy  Program Mix  Infrastructure / Systems  Activities

Business Model Asset Strategy

 Generate Assets  Utilize Assets Provided on behalf of

Provided on behalf of

Policy Tools: Year-Round Budget Process Begin FY: Analyze past year End FY: Prepare budget and amend future budgets and cashflow Engage Board and Staff in strategic work planning

Examine Program Results and Sustainability

Re-examine current budget and program progress

Provided on behalf of

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10/15/2017

Policy Tools: Budget Process Timeline

Provided on behalf of

Outcomes / Strategic Goals Action Plan Final Draft Budget

Approved Budget

Financial Reporting

Draft Budget Treasurer Senior Staff Program Staff

Finance Committee

Board

Data & Financial Models

Provided on behalf of

Action Planning Time – Our Next Steps  Discuss strategies that you use (or would like to use) to ensure … A7. The budget process extends throughout the year as a planning-monitoringevaluation process and delivers a multiyear budget

Worksheet (p.9) Provided on behalf of

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10/15/2017

Phase 5 - Adding Capital and Time

OPERATING BUDGET IN-KIND, PASS THRU FACTORS CAPITAL BUDGET

Provided on behalf of

Capital Budget: Planning for Sustainability Strategy: ensure net assets and capital needs are resourced by building a Capital budget  Budget for operating reserves  Reduce a deficit, make debt payments, pay down a line of credit?  Purchase equipment, repair facilities, or make leasehold improvements  Funds to support new initiatives (innovation) Provided on behalf of

Operating Reserves “Nonprofit” does not mean “no surplus allowed”

YES! We Do Want/Need Reserves

Promotes Donor/Funder Confidence  Sound Investment in sustainable organization Improves Cash Management - Reduces Stress  Permits acceptance of reimbursable grants Provides Financial Flexibility  Meeting contingencies, handling emergencies  Changing course, unwinding Provided on behalf of

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10/15/2017

Net Assets – In Pictures BOARD

Operating Cash

Special Purpose Funds

Operating Reserves

Source https://marquetteeducator.files.wordpress.com Provided on behalf of

Reserves Terms & Concepts Unrestricted Net Assets

Available

Not Available

Unrestricted Net Assets available for designation by the board

Equity in Fixed Assets, Deposits, Long-term Receivables

Undesignated Operating Funds

Board-Designated Operating Reserves

Board-Designated Reserves

Undesignated portion of available net assets Working Capital

__ % of annual operating expenses

Special Purpose or Building Reserves

Provided on behalf of

Reserves Terms & Concepts Statement of Financial Position Assets < Liabilities > = Net Assets Current Liabilities Accounts Payable Accrued Expenses Payroll Liabilities Deferred Revenue Line of Credit Current Portion of Loan Long Term Bond Mortgage Loan (over 1 year)

Current Assets Cash Receivables (Short term) Inventories Prepaid Expenses Fixed Assets Furniture & Equipment Real Property Accumulated Depreciation

Assets =

Liabilities +

Other Assets Deposits Long-term Investments Long-term Receivables

Unrestricted

Net Assets Debit Balance

Credit Balance

* Operating Net Assets * Operating Reserves * Other Reserves Temporarily Restricted Permanently Restricted

Provided on behalf of

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10/15/2017

Determining the Appropriate Ratio Minimum 25% (about 3 mo) of the annual operating expense budget – Recommended by the Nonprofit Operating Reserves Initiative Workgroup

Common factors that indicate a higher ratio  Revenue volatility factors  Spending flexibility factors  Governance & Management factors  Level of programmatic risk  Organization life cycle stage

Provided on behalf of

Special Purpose Reserves/Funds Programmatic  Program Development  Program Venture Capital

Organizational & Infrastructure  Facility and Equipment Acquisition  Maintenance & Replacement fund(s) for Facility & Equipment  Human Resource Capacity Building Fund Executive transition, benefits and pension, …

 Other Special Purpose Funds Moving to new facilities, weather event or other emergencies Provided on behalf of

Funding the Operating Reserve  Budget for operating surpluses annually  Include a specific budget line item to build the reserve  Fund Depreciation  Include in multi-year Capital Budgets  Include in Capital Campaigns  Designate Board Contributions  Designate Vacancy Savings  Designate Windfalls  Tariff on unrestricted gifts Provided on behalf of

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10/15/2017

Steps to Creating an Operating Reserve 1. Determine your policy 2. Review the factors that argue for higher or lower reserves 3. Set your reserve goal 4. Determine your funding mechanisms 5. Explain it to your funders and donors Use the toolkit  Provided on behalf of

Action Planning Time – Our Next Steps  Discuss strategies that you use (or would like to use) to ensure …

A8. The organization effectively budgets for capital and operating reserves and have strategies to fund those budgets Worksheet (p.9) Provided on behalf of

A Solid Financial Plan – Where We Land  Good forecasting models for income and have we explored cost effective ways to diversify it  Fully budget for each program including an appropriate share of common costs and overhead  Understand how much each program requires from general operating support above direct support  Allocations reflect our assumptions about human capital  Budgeted reserves & capital needs Provided on behalf of

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10/15/2017

Day 1 Reflection • • • • • •

Your Biggest Take Away What jumps out What Aha did you have Any big questions What worked? What can we improve tomorrow?

Provided on behalf of

Welcome Back – Day 2 Any questions came up overnight?  Strategic Context  Financial Leadership  Leadership Roles  Budgeting / Cash Flow

I have one…(again)

Provided on behalf of

What is the Potential for Leadership Imagine that your financial processes and systems are awesome, what would be different in how people do their work  What would people be spending more time thinking and talking about?  What would people be able to do more of?  How would the work of the organization be different?

Provided on behalf of

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10/15/2017

Workshop Focus Areas Purpose Leadership & Strategy Assets & Allocation Planning & Budgeting Performance Reporting & Communication Sustainability Integrity & Risk Provided on behalf of

Discussions and Decision-Making that Matter

• Monitoring Progress

•Evaluating Assumptions

•Making Change

• Outcomes Strategy • Asset Allocation Investments Expenditures

• Asset Engagement • Operating Model • Infrastructure Provided on behalf of

Connecting Operations to Outcomes Community Outcomes

STRATEGY SCREEN

STRATEGY

Resource Engagement & Utilization

REPORTS Provided on behalf of

34

10/15/2017

Getting the Right Info to the Right People  Understand what financial reports relate to what work and what audience  Review key reports and other analytic tools for strategic discussions about sustainability  Linking performance, outcomes, and resources  scoreboard/dashboard  return on mission statement

Provided on behalf of

Desired Reporting Outcomes What do want reports to lead to?...Conversations! What thinking, conversations, and behaviors do we want from the audience … and what reporting makes that possible  Staff  Program management  Executive leadership  Finance committee  Board  Funder Image source http://www.zarca.com  Public and IRS Provided on behalf of

Desired Reporting Outcomes – Exercise (p.11) Audiences

Type of Conversation (What do we want them talking about and focused on?)

Type of Data/Information (detail & format)

Staff Program Management Exec Leadership Finance Committee Board Funder Public & IRS

Image source http://www.perpetuumsoft.com

Provided on behalf of

35

10/15/2017

Reporting – A Sense Making Tool

    

Effective outcomes achievement Investment of resources & the returns Financial and operational integrity Viability AND Sustainability Growth in results & benefit to community (proven & expected) Provided on behalf of

Reporting – A Business Model Assessment Tool Put good systems in place

Know what is going on

Policies and processes ensuring good Internal Controls and accuracy

Accounting

Planning Plan

Budget effectively based on analysis and incorporating strategic plan Think long-range

Record, present, interpret, and respond to financial data, incorporating it in a meaningful way into decision-making and planning.

Analysis

Get and use good reports Ask questions Provide financial leadership through understanding of financial reports

Reporting

Evaluate

Analyze data to determine necessary course corrections and to inform planning

Provided on behalf of

Reporting – A Decision Making Tool More than just a requirement…A Fundamental Feedback Tool Strong infrastructure supports strong programs accounting system’s structure is aligned to operational model of the organization and provides timely, accurate, and relevant data to decision makers (MEANS) Strong accountability and transparency attract strong support – you, staff, and board clearly know the organization’s financial status, how assets are being used, and what you have to work with moving forward (OUTCOMES) Provided on behalf of

36

10/15/2017

Understanding Standard Financial Reports How does a given report contribute to… Sense Making  What can this report help us understand? Business / Operating Model Assessment  What does this tell us about how we function and our current state? Decision Making  What questions should we be asking and how should this be informing our actions moving forward? Provided on behalf of

Two Organizational Budgets Operating Budget

 Associated with Statement of Activities (Income Statement / P&L)  Planning income and expenses for a single fiscal year to perform immediate mission agenda

Capital Budget

 Associated with Statement of Financial Position (Balance Sheet)  Sets annual capital targets with explicit funding sources/strategies  Done on multi-year basis  Looks at overall assets (reserves) Provided on behalf of

Reporting – Know Your Inventory Standard Financial Reports  Statement of Position (Balance Sheet)  Statement of Activity (P&L, Income Statement)  Cash Flow Projections  Accountability (990, Audit, Annual Report) Analytic Reports  Ratios  Graphs Mission Outcomes  Cost per service unit  Return on Mission (ROM/ROI)

 Time Series  Industry Comps

 Cost per outcome  Number of clients

Provided on behalf of

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10/15/2017

Model Statement of Activities Sense Making • How is the organization progressing against the plan (operational budget) • What outcomes are we achieving from this investment so far Business Model Assessment • What assumptions about revenue and expenses models are correct/incorrect Decision Making • Is our current path sustainable Provided on behalf of

@Model created by Elizabeth Foley

Statement of Activity  Programs or functional expense?  Both!  Compared to what?  Budget, projected YE, previous year if applicable, …  Begs the ? – is this variance good, bad, indifferent?

 Roll-ups vs detail depending on audience Board (Org Level Detail, Expense Roll-Ups) Staff (Org Detail + Program Breakout & Expense Detail)

   

Clearly states restricted and unrestricted Tells your in-kind business model Supplemented with narrative! Prepared on an accrual basis Provided on behalf of

Sample Statement of Position (Balance Sheet) CASH ACCT RECV GRANTS RECV

$100,000 $25,000 $200,000

FIXED ASSETS

$900,000

S-T LIABS

$220,000

L-T LIABS

$275,000

NET ASSETS $730,000

Sense Making  What is this helping you understand?  What requires more clarity? Operating Model  What elements of how we are structured or how we operate can you learn from looking at this?  What potential “structural/systemic” issues might there be red flags about? Decision Making  What types of decisions can this info help us make? Provided on behalf of

38

10/15/2017

Statement of Position Concepts Coverage/Risk • Quick ratio • Current ratio

Aging • Receivables • Payables

Fixed Asset Investment Inventory Deferred Income

Equity / Net Assets • Unrestricted •Available •Fixed •Reserves

• Temporarily restricted •Time •Purpose

• Permanently restricted

Provided on behalf of

Statement of Position What does it tell you about your organization?  Cumulative results of all the years of operations (surpluses, deficits, investments)  Key to financial reconciliation & control    

Coverage and cashflow Aging and cashflow Fixed assets and building burdens Whose money we are using…unrestricted and restricted funds

Supplement with Narrative Context

 Annotation, treasurer’s memo  Good opportunity for sustainability ratios and percentages (coming later) Provided on behalf of

Understanding Asset Restriction - Utilization

Source: Nonprofit Finance Fund Provided on behalf of

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10/15/2017

Model Statement of Position (Balance Sheet)  Fits onto one page  Uses columns for context  Creates mini-balance sheets showing what is available for operations, board-designated  Separates restricted balances  Compares to prior year  Notes provide explanations of significant balances Notes A B C D E

Two gov't grants; payments expected within next 3 months. Deposits for rent and utilities Deferred Revenue; Pass through (funds temporarily held for others) Non-liquid fixed assets net of any related debt; purchase authorized by board Grant for next fiscal year

Current Year TOTAL to 3/31/16 ASSETS Current Assets Checking/Savings Accounts Receivable Other Current Assets Total Current Assets Fixed Assets Building & Improvements Furniture & Equipment Accum. Depreciation & Amort. Total Fixed Assets Other Assets

TOTAL ASSETS

60,516 192,834 2,010 255,360

3,500 3,500 -

Unrestricted Key Board Temp to Operations Designated Restricted Notes

25,516 192,834 2,010 220,360

-

258,860

220,360

2,440 10,233 15,189 27,862

2,440 10,233

25,000

10,000

25,000

10,000

3,500 3,500

-

28,500

10,000

-

-

-

-

A B

Prior Year

12/31/15

50,516 192,834 2,010 245,360

3,500 3,500 248,860

LIABILITIES & EQUITY Liabilities Current Liabilities Accounts Payable Payroll Liabilities / Accrued Wages Due to / Due from Operating Reserve Other Current Liabilities Total Current Liabilities Long Term Liabilities/Mortgage Total Liabilities Net Assets Unrestricted UR-Undesignated UR-Board Designated Reserve UR-Property, Plant & Equipment Total Unrestricted Temporarily Restricted Total Net Assets

TOTAL LIABILITIES & NET ASSETS

15,189 27,862

27,862

27,862

192,498 25,000 3,500 220,998 10,000 230,998

192,498

258,860

C

25,000 3,500

27,862

D

192,498

28,500

-

192,498

28,500

10,000 10,000

220,360

28,500

10,000

2,440 10,233 15,189 27,862

E

194,998 15,000 3,500 213,498 7,500 220,998 248,860

118

@Model created by Elizabeth Foley

Provided on behalf of

Accounting Changes Ahead (2018) FASB – Liquidity and Coverage (Quantitative & Qualitative) Quantitative: Availability of financial assets to meet cash needs for general expenditures within one year of balance sheet date Qualitative: How a nonprofit manages its available liquid resources

Provided on behalf of

Accounting Changes Ahead (2018) FASB – Liquidity and Coverage (Quantitative & Qualitative) Quantitative: Availability of financial assets to meet cash needs for general expenditures within one year of balance sheet date Qualitative: How a nonprofit manages its available liquid resources

Provided on behalf of

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10/15/2017

Cash Flow ALIGNED with budget structure TIMELY within 5 days of end of month PAST actuals  accuracy of budget assumptions  What do we need to change…  Annual trends in operating fund availability

FUTURE projections  basis for year-end positions  Any bad news on the horizon…  Plan future expenditures and payments

Projections are People Powered!!! Provided on behalf of

Strategies and Statements • Financial Sustainability

• Use of resources Use of unrestricted funds

Statement of Position

Cash Flow

Statement of Activity

• Revenue generation

• Mission fulfillment

Provided on behalf of

Financial Reports and Audiences With your table… • How do you encourage financial statement literacy for your staff and use that knowledge day-to-day? • What works for your organization in tailoring board financial statements to encourage strategic discussions and appropriate monitoring? (What’s the role of the finance committee?)

A9. Staff and board clearly understand the organization’s overall financial performance by reading its financial statements and reports Worksheet (p.11) Provided on behalf of

41

10/15/2017

Standard External Financial Reports Reports

Nonprofit organizations have a legal obligation to make financial statements public. Taxpayer Bill of Rights 2 requires all 501(c)(3) organizations to send the 3 most recent 990s upon request. 990s are posted on-line at www.GuideStar.org. Senate Finance Committee – SOX has resulted in some additional reporting requirements for accountability.

• Audit (Review, Compilation) • A133 Audit • 990 – IRS Nonprofit Organization Information Return • Annual Report

Recipients

• Government • Federal • State • Local

• General Public • Donors • GuideStar

Funding Sources and other Special Audiences Provided on behalf of

Provided on behalf of

Understanding Analytic Ratios Liquidity Measures  Months cash on hand  Net working capital  Current ratio

Profitability Measures  Surplus Margin / Profit Margin  Return on Assets

Sustainability Measures  Net Assets Comp  Leverage  Reserve Ratio

Efficiency Measures  Program, fundraising  % Program expense covered by program revenue

Provided on behalf of

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10/15/2017

Analytic Reports: Ratios Dec 31, 15

Dec 31, 15

Dec 31, 14

$ Change

% Change

Total Equity

954,922

92%

228,137

726,785

319%

TOTAL LIABILITIES & EQUITY

1,042,152

100%

280,906

761,246

271%

Coverage (Cash:Current Liabilities) $

4.79

$

3.56

$

1.23

35%

Coverage (Current Assets:Current Liabilities) $

10.78

$

5.67

$

5.11

90%

Accts Receivable Aging Current

Accts Payable Aging

Operating Reserves Coverage

1 - 30

31 - 60

61 - 90

> 90

TOTAL

15,855

465,000

0

0

0

480,855

12,485

0

0

0

0

12,485

~ Two Months

0.18

FY 14 Expense= 456,845

= Available Unrestricted Net Assets/ Annual Expense

Provided on behalf of

Analytic Reports: Graphs Individuals

$80,000 $60,000 $40,000 $20,000 $% of Target Board Non-Board Target

1 1 1 1 1 1 1 Aug109 4% 1 $1,000 1 $2,000 $3,500 1 1

Feb 10

Apr 10

13%

34%

49%

0%

$3,000

Oct 09

Dec 09 $9,000

$14,000

$-

$6,000

$15,000 $20,000

$-

$10,500 $21,000 $42,000 $56,000

1 1 1 1 1 1 1 Jun 1 10 10% $1$$70,000 1 1

Provided on behalf of

Analytic Reports: Graphs Net Assets

100%

A conversation about successful debt reduction

50%

Accts Payable Aging FYE 08-11

0% FY8

FY9

Unrestricted Undesignated Property and Plant

FY10

FY11 Operating Reserve Restricted

FY12

250,000 200,000 > 90

150,000

Tackling the net assets composition discussion.

61 - 90 31 - 60

100,000

1 - 30 Current

50,000 2008

2009

2010

2011

Provided on behalf of

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10/15/2017

Analytic Reports: Trends Income Sources 2008 - 2012

Expenses 2008-2012

1000000

600,000

900000

500,000

800000 700000

400,000

600000

300,000

500000 400000

200,000

All other expenses held basically steady

300000 200000

100,000

100000 0 Dec 31, 08

Dec 31, 09

Dec 31, 10

Dec 31, 11

Dec 31, 12

FY 2008

FY 2009

FY 2010

FY 2011

FY 2012

Provided on behalf of

Analytic Reports: Industry Analysis

Provided on behalf of

Action Planning Time – Our Next Steps  Discuss strategies that you use (or would like to use) to ensure … A10. The board uses financial reports to assess the organization’s strategies for mission fulfillment and financial sustainability. A11. Staff use financial data about organizational performance to evaluate and improve programs and operations. Worksheet (p.11) Provided on behalf of

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Why a Dashboard? “Not everything that can be counted, counts. And not everything that counts can be counted. What gets measured gets done!” Jeanne Bell ~ LISC webinar

A Dashboard is a picture of what matters and should be getting fiduciary attention Provided on behalf of

Key Questions a Dashboard Helps Answer

What are we doing? (execution)

How well are we doing it? (effectiveness& efficiency)

What difference is it making in our community and for whom? (benefit)

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Dashboard Elements/Attributes What?  Agreed upon success indicators  Agreed upon measurable targets  Trend analysis

Why?    

Goes beyond financial measurement Ties to strategic plan/ budget Attends to what matters most to the organization now Broad staff / board audience Provided on behalf of

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Dashboard “Dials” – Things to Watch Program Metrics Human Resources/Volunteers Financial Metrics Fundraising & Revenue Targets  Service Level & Quality Targets  Compliance/Risk Management  Governance    

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Dashboard Strategy – It’s about the Thinking Start with…your goal not your data What types of decisions and actions do you want your leaderhip engaged in? What do they need to feel, be able to do, have, and/or understand in order to do those things

What knowledge-base, information, and opportunities will support them in this Provided on behalf of

Dashboard Design Design to a single screen/page

• Make it a single page if possible • If it’s too big to fit, change the level of detail or create sub-Dashboards.

Ensure adequate context

• Choose your comparison carefully – Projections? Standards? Time? Quality?

Use an appropriate level of detail

• Get to the heart – skip the detail. • Don’t clutter with unnecessary information • Limit to key indicators relevant for that level of dashboard.

Keep design simple

• Use design & color judiciously. • Mix visuals and data tables. • Usability is key! Provided on behalf of

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Example of a Simple Dashboard For Example: Finance Metrics After: Visualized Data

Before: Standard Statements Indicator Days of cash on hand

Target

6 months ago

3 months ago

Today

57

120

90

25

Net surplus or YTD compared with YTD budget.

$0

$10,000 Better

<$5,000 $2,500 > Worse Better

Total expenses

On Budget

$ 5,000 Worse

$1,000 Better

On Budget

Days from end of month to financial statement completion

45 days

65

52

40

Provided on behalf of

Dashboard Example: Budget Comparison

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Dashboard Example: Transactions and Outputs

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Dashboard Example: Linking to Outcomes

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Neighborworks America Infographic

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Dashboard Example: Mixed Format

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Dashboard – For Your Organization? What gets measured gets attention… At your tables,  Do you currently provide a dashboard summary of key measures? How were the measures agreed upon?  How might you restructure the board’s financial statement discussions using a analytic tools?  How might a dashboard measure both mission and financial sustainability for your organization? Worksheet (p.12) Provided on behalf of

Measuring Efficiency & Effectiveness Cost-Effectiveness of Efforts A measure of the cost per unit change of a specific outcome in comparison to alternative options (value for one impact at a time) Benefit of Knowing  Compelling statement linking programs and financials  Assesses the comparative costs of achieving the same benefit in other ways  Contributes to good internal decision-making about how the organization invests its assets Provided on behalf of

Measuring & Comparing Cost Effectiveness Determine the cost/unit change in a specific outcome 1. Choose a key outcome (i.e. high school graduation, # of low income housing units built, family purchases first home, etc.) 2. Determine investment of assets ($ value) required to achieve that outcome 3. Identify an alternative/ comparative model and its cost 4. Compare using matrix Provided on behalf of

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Determining Cost Effectiveness In comparison to other options (A) is …   costly and = or  effective (B1)   effective and  costly, but the additional benefit is considered worth the extra cost (B2)   effective and  costly, when the added benefit is not considered worth the extra cost (B3) B2 A B1 B3 Provided on behalf of

Cost-Effectiveness Storytelling THE IMPACT

If 50% of elderly adults who receive in-home care from Jewish Social Services Agency (JSSA) in Maryland were instead placed in nursing homes, the total annual cost would be 15 times higher – or $96 million a year – than the $6 million it costs for JSSA to provide services and keep those 1,000 elders in their homes.

THE IMPACT

When the transitional housing program at Friends of Guest House helps a woman released from prison re-enter society successfully, it costs the community 65% less than if she went back to prison for one year.

*Source: Nonprofit Montgomery Beyond Charity Report

Provided on behalf of

Measuring Community Benefit - Outcomes Return on Mission A measure of the net benefit to society, inclusive of all outcomes, often described as a mission rate of return or return on investment

Benefit of Knowing  The process “monetizes” outcomes  Creates clear linkages between your work and community health (social, economic, environmental) Provided on behalf of

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Determining Return on Mission

Start with Logic Model

Research Costs, Benchmarks

Institute Measurements

Tell the Impact Story

Provided on behalf of

Mission Outcomes: ROM – A Richer Story THE IMPACT In 2006, the Coalition for the Homeless in DC helped 333 formerly homeless people get jobs, resulting in annual taxable incomes of more than $4.8 million. THE STORY BEHIND THE IMPACT The Coalition moves several hundred homeless people into permanent housing each year and it knows that stable, living wage employment is key to solving homelessness. When Abt Associates in Bethesda studied a similar program for homeless job seekers in 2003, it found that the benefits to government, through reduced transfer payment program costs and increased tax revenues, exceeded the costs of the services over a five-year period.

*Source: Nonprofit Montgomery Beyond Charity Report

Provided on behalf of

Action Planning Time – Our Next Steps  Discuss strategies that you use (or would like to use) to ensure … A12. The organization has the programmatic and financial systems to make clear statements about our costeffectiveness and return on the investment we make in our programs.

Worksheet (p.13) Provided on behalf of

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Workshop Focus Areas Purpose Leadership & Strategy Assets & Allocation Planning & Budgeting Performance Reporting & Communication Sustainability Integrity & Risk Provided on behalf of

Making Financial Leadership Possible Financial Leadership relies on…  Focus on Ends first AND then the Means that get there  Articulated common goal(s) = community benefit  Clear approach/strategy  Strong models of how assets are acquired and utilized  Accounting infrastructure that aligns with models  Communication tools that provide feedback on the above  Leadership & Time to discuss implications Provided on behalf of

Provided on behalf of

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Anatomy of Risk – Know the Commitment Every Decision Is a Commitment A commitment to something we will do in the future  Do we understand the commitment?  Do we understand what it will take to honor it?  What may compromise our ability to honor it? Provided on behalf of

Anatomy of Risk: Understand Source Structural Risk

Environmental Risk

Program expansion Staff growth Benefits obligations Capital liabilities Org Culture Systems

Economy Regulation Funders Shifts in demand Reputation Acts of God Provided on behalf of

Low Risk High Cost

On Org

Approaching Risk Management

High Risk High Cost

Low Risk Low Cost

Impact

Likeliness of Risk High Risk Low Cost

Provided on behalf of

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Understanding and Mitigating Risks to Integrity In teams, explore a risk scenario  How might we end up in this predicament?  What is at risk when the following happens?  What would need to be in place and/or need to happen within the organization to ensure integrity in this area (i.e. it doesn’t come to this)? community outcomes are not clearly understood and are not used to shape financial actions and decisions

leadership doesn’t understand how assets are acquired and allocated to achieve goals

infrastructure investments / expenditures are not tracking with organizational growth

the financial systems and data are not robust, accessible, or meaningful

(outcomes)

(business model)

(infrastructure)

(systems)

Worksheet (p.13)

Provided on behalf of

Action Planning Time – Our Next Steps  Discuss strategies that you use (or would like to use) to ensure … A13. The organization has a strong understanding of potential risks to advancing and sustaining financial and mission goals A14. Leadership effectively manages existing / potential risk Worksheet (p.14) Provided on behalf of

An Organization’s Biggest Asset

Provided on behalf of

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Primary Fiduciary Responsibility/Commitment

Are we effectively and efficiently using the resources/assets the organization acquires to advance community benefit and achieve our outcomes in a manner that is sustainable over time Provided on behalf of

Integrity Understanding the goals – values & outcomes (vision) Knowing how the organization achieves them (program & business models) Ensuring the efficacy of what happens (execution)

Provided on behalf of

Provided on behalf of

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Organizational Wellness & Sustainability Leadership

Vision Advancement

Infrastructure

Programs

Assets

© Orgforward

Provided on behalf of

Organization-Wide Sustainability Leadership Sustainability

The ability to identify, recruit, and cultivate the leadership necessary to plan, develop strategy, carry out our approach, and make decisions that advance our vision of community benefit**

Programmatic Sustainability

The ability to develop, mature, and eliminate programs to ensure efficacy, alignment with approach (mission), and advancement of vision*

Asset Sustainability

The ability of the organization’s business model to attract and allocate resources to meet current mission execution needs while establishing a foundation for the future*

Infrastructure Sustainability

The ability to establish infrastructure and enact policies and procedures that support effective decision making, mitigate risk, ensure efficient operations, and support succession**

*Modified from Bell, et.al. – Nonprofit Sustainability ** Orgforward Sustainability Model

Provided on behalf of

Action Planning Time – Our Next Steps  Discuss strategies that you use (or would like to use) to ensure … A15. Financial conversations regularly include discussion of organizational sustainability & wellness (ability to advance vision and mission), not just financial viability (how to keep the books balanced and doors open) Worksheet (p.14) Provided on behalf of

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Provided on behalf of

Financial Leadership – Connecting Dots • Encourage Dialog / Conversation • Set Context – Explicitly Link Finance to Vision & Strategy (Means vs Ends) • Connect Systems - Finance and Programs • Broaden Financial Knowledge • Build Accountability • Focus on Sustainability

Don’t need to be financial scholars, just financially literate Provided on behalf of

Sustaining Financial Leadership -> Integrity To engage in financial leadership an organization requires: Focus on Ends first AND then the Means that get there Articulated common goal(s) = community benefit Clear approach/strategy Strong models of how assets are acquired and utilized Accounting infrastructure that aligns with models Communication tools that provide feedback on the above • Leadership & Time to discuss implications • • • • • •

Provided on behalf of

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Necessary Partnerships

Provided on behalf of

The Financial Leaders Who are the financial leaders within your organization?    

Board Treasurer ED / CEO Finance Committee Members Senior Management / Directors

How do they contribute to financial leadership Provided on behalf of

Leadership Roles

Treasurer Finance Committee Audit Committee CEO

COO/CFO Finance Director Senior Management External Auditors

What do you need them to do?

Provided on behalf of

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Key Questions - Culture of Financial Leadership As a leader, are you …  Encouraging & Ensuring Literacy  Empowering through responsibility and accountability  Creating space

Provided on behalf of

Action Planning Time – Our Next Steps

 Discuss strategies that you use (or would like to use) to ensure finance and non-finance people engage one another in effective and productive communication to collectively work towards achieving mission outcomes

Provided on behalf of

Action Planning Time – Our Next Steps  Discuss strategies that you use (or would like to use) to ensure … A16. Leadership (board and staff) clearly understand their fiduciary responsibilities to the organization A17. There is a high level of financial leadership throughout the organization (i.e. financial leadership is shared across multiple staff and board members) Worksheet (p.15) Provided on behalf of

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Reflection

• • • •

Your Biggest Take Away What jumps out What Aha did you have What question(s) are coming up for you

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At the End – Let’s Revisit The Ends Imagine if you had stronger financial processes and systems (that they were all at 100%) … • What would be different in the organization? • What would you see more of going on and by whom? • What would that make possible for you and the organization? Provided on behalf of

60

INSERT TAB 3

Organizational Discussion & Planning Guide

© 2017 Orgforward LLC

Measuring Financial Leadership Success Our Desired Outcomes Imagine if your financial processes where perfect, 100% effective, what would be different in how people do their work … • What would people be spending more time thinking and talking about? • What would people be able to do more of? • How would the work of the organization be different?

2

FIDUCIARY CONVERSATIONS Imagine financial conversations that are about sustainability and vision? Part 1: What would better fiduciary conversations that link assets and outcomes look like? • What would leadership be talking about? • What questions would you want leadership asking of themselves? Of the organization? • Which leaders are asking which questions…

Part 2: • What would support leaders in being able to have those conversations?

3

ARTICULATED PURPOSE & STRATEGY How do you describe the desired community the organization works to create? (Vision) Example: “A place/community where … exists”

What capacity is required within the community to achieve the above vision? (Community Capacity)

What specific benefits or capacity does the organization work to advance and what approach does it use to accomplish that work? (Outcomes)

4

Financial Leadership

Question

Steps to move you to a 5 (or make you a stronger 5)

Responsible Party

Timeline

A1. People serving the organization (staff, board, and key volunteers) clearly understand desired community level outcomes of the organization and actively use that knowledge when making decisions

A2. The organization has consistent ways of vetting efforts against outcomes, strategy, and the overall business model?

5

6

A3. Staff and Board understand the organization’s financial and business model (how assets are acquired and where they are allocated). A4. We harness the strategic thinking of BOTH our programs managers and the board of directors in developing and adopting the plan for what to budget for

A5. have revenue planning tools that articulate and validate our program and organizational income assumptions?

7

A6. Budgets clearly identify incoming resources and their allocation based upon the strategic and annual work plan objectives of the organization, and identify the true cost of programs including allocation of staff and common costs A7. The budget process extends throughout the year as a planningmonitoring-evaluation process and delivers a multi-year budget

A8. The organization effectively budgets for capital and operating reserves and have strategies to fund those budgets 8

Desired Reporting Outcomes Audiences

Type of Conversation (What do we want them talking about and focused on?)

Type of Data/Information (detail & format)

Staff

Program Management

Exec Leadership

Finance Committee

Board

Funder

Public & IRS

9

DISCUSSION NOTES:

YOUR ANALYSIS • what can you say about the following? • what questions arise for you in each area? COVERAGE (LIQUIDITY)

RESTRICTIONS (BORROWING FROM FUNDERS)

FIXED ASSET RESPONSIBILITY (RESERVES)

KEY RELATIONSHIPS THAT YOU SEE IN BALANCE SHEET:

10

Financial Performance

Question

Steps to move you to a 5

Responsible Party

Timeline

A9. Staff and board clearly understand the organization’s overall financial performance by reading its financial statements

A10. The board uses financial reports to assess the organization’s strategies for mission fulfillment and financial sustainability

A11. Staff use financial data about organizational performance to evaluate and improve programs and operations

11

Discussion Notes:

12

A12. The organization has the programmatic and financial systems to make clear statements about costeffectiveness and return on the investment we make in programs.

Scenarios 1: Community benefit goals are not clearly understood and are not used to shape financial actions and decisions (outcomes) 2: Leadership don’t understand how assets are acquired and allocated to achieve goals (business model) 3: Infrastructure investments / expenditures are not tracking with organizational growth (infrastructure)

QUESTIONS 1. How might we end up in this predicament?

2. What is at risk when the following happens?

3. What would need to be in place and/or need to happen within the organization to ensure integrity in this area (i.e. it doesn’t come to this)?

4: The financial systems, data, and processes, are not robust, accessible, or meaningful (systems)

13

A13. The organization has a strong understanding of potential risks to advancing and sustaining financial and mission goals

A14. Leadership effectively manages existing / potential risk

A15. Financial conversations regularly include discussion of organizational sustainability & wellness (ability to advance vision and mission), not just financial viability (how to keep the books balanced and doors open) 14

A16. Leadership (board and staff) clearly understand their fiduciary responsibilities to the organization

A17. There is a high level of financial leadership throughout the organization (i.e. financial leadership is shared across multiple staff and board members)

15

INSERT TAB 4

Approach

Community Vision

Root to Canopy Theory of Change We envision a healthy urban living environment for everyone that integrates the natural and manufactured ecosystems, within which all people can experience, contribute to, and benefit from their physical community

Guiding Frameworks

Root to Canopy advances this vision by working in communities with historic canopy deficiency disorder (hcdd) to develop the skills and support needed by citizens to build independent and sustainable canopy rich communities. We embrace and promote the following principles through our work in the community Environmental Diversity

Community Health

Areas of Focus

We will contribute to our vision of the community by advancing positive outcomes in the following areas

Increased Tree Canopy

Progra ms Business Model

Civic Engagement

People invest in building and sustaining community's green space

Thrive

Municipal policy alignment

Prosper

People are actively enjoying and using canopied community spaces

Fanfare

Flourish

Root to Canopy is a $1.2 million agency with 2/3 of our income from earned income strategies, primarily through fees for service and county contracts, and 1/3 from philanthropic support (50% grants, 25% Ind. Giving, 25% Corp Sponsorships). Our primary expenditures are the staffing (61%) and consulting (25%) required to fulfill our mission through our four major program areas – Thrive, Prosper, Fanfare, and Flourish – of which Flourish is the largest program at roughly 50% of expenditures. Our success and sustainability are highly dependent on the skills of both our paid staff and volunteer arborists as well as the public interest in establishing and maintaining a “green” overhead canopy.

INCOME BY SOURCE Other Income 0%

Education Fees 2%

EXPENSE

Individual Donations 8%

Corporate Donations 7% Foundation Grants 18% Workplace Giving Campaigns %1

Service Fees 55%

County Contracts 11%

Consulting Income 3%

INCOME BY PROGRAM General & Fundraising 8%

Admin 1%

Thrive 11%

Supplies & Eqpt. 2%

Insurance/Fees/Busi ness Costs 2%

Occupancy 6%

Communication 2% Program Investments 2% Compensation 61%

Consultants & Prof. Services 25%

EXPENSE BY PROGRAM Prosper 6%

Fundraising 9% Public Education 2%

Public Education 1%

Travel 0%

General & Admin 6%

Thrive 18% Prosper 6%

Fanfare 12% Fanfare 13% Flourish 61%

Flourish 46%

Additional Net Assets after Reserve Contribution

Total Expense Net Operating Income Addition to Reserves

Functional Expense Compensation Consultants & Prof. Services Program Investments Communication Supplies & Eqpt. Travel Occupancy Insurance/Fees/Business Costs

Fanfare Prosper Thrive Flourish Total Program Expense Fundraising General & Admin Total Expense

Program Expenses

Contributed support Earned revenues Total Income

Income

12,500

529,000 400,350 35,000 35,750 21,775 15,000 97,000 40,200 1,174,075 62,500 50,000

158,770 183,770 103,645 521,435 967,620 115,305 91,150 1,174,075

USE THIS SPACE FOR APPROPRIATE COMPARISONS, 416,200 GIVEN AUDIENCE 820,375 1,236,575

SUMMARY BUDGET - PUBLIC Budget Page 1 of 5 Root to Canopy Summary Budget

Compensation Consultants & Prof. Services Program Investments Communication Supplies & Eqpt. Travel Occupancy Insurance/Fees/Business Costs

Compensation 528999.5 Consultants &400350 Prof. Services Program Investments 35000 Communication35750 Fanfare Prosper Thrive Flourish Fundraising General & Admin Supplies & Eqpt.21775 Travel 15000 Root to Canopy FY 2015 Budgeted Use of Resources for Occupancy 97000 Operations Insurance/Fees/Business 40200 Costs

Corporate Donations Individual Donations 148,500 Corporate Donations 65,000 Foundation Grants Foundation Grants 202,700 County & State Contracts County & State 147,500 Contracts Consulting Income Consulting Income 23,000 Service Fees Service Fees635,675 Other Income 14,200 Other Income Fanfare 158770 Prosper 183769.6 Root to Canopy FY 2015 Programs Thrive 103645.5 Flourish 521435 Fundraising 115304.7 General & Admin 91149.69

Individual Donations

Root to Canopy Income Sources: FY 2015 Budget

Case 2

105,559 7,070 4,300 15,750 1,200 500 17,244 7,147 158,770 (76,270)

(76,270)

529,000 400,350 35,000 35,750 21,775 15,000 97,000 40,200 1,174,075 62,500 50,000

12,500 Use of FY 2014 Fund Balances less projected FY 2015 Fund Balances

Programs to analyze

10,400

1,927

121,153 3,270 14,975 2,300 8,750 3,500 25,328 4,497 183,773 1,927

45,000 23,000 68,000 185,700

50,000 67,700 117,700

Prosper

-

(8,645)

76,134 3,510 1,500 2,520 1,700 750 12,394 5,137 103,645 (8,645)

95,000 95,000 95,000

Thrive

-

121,741

105,781 345,000 12,000 9,700 8,025 9,250 18,861 12,817 521,434 121,741

7,500 635,675 643,175 643,175

Flourish

113,175

71,639 20,500 500 2,755 900 500 12,394 6,137 115,325 113,175

228,500

135,000 15,000 75,000 3,500 228,500

Fundraising

33,879 39,214 22,116 111,266 (110,149) (26,887) (30,762) 10,475 Heart Program… New effort… Keep watch Needs Add income Add income Primary attention source? source? Contributor on pay off

12,500 12,500 82,500

147,500 23,000 12,500 635,675 1,700 820,375 1,236,575

Share of FR & G&A Total contribution to fund balances

10,000 60,000 70,000

Fanfare

145,000 65,000 202,700 3,500 416,200

Summary Page Income Contributed Income Individual Donations Corporate Donations Foundation Grants Workplace Giving Campaigns Total Contributed Income Earned Income Program Income County & State Contracts Consulting Income Education Fees Service Fees Other Income Total Earned Income Total Income Expense Compensation Consultants & Prof. Services Program Investments Communication Supplies & Eqpt. Travel Occupancy Insurance/Fees/Business Costs Total Expense Net Operating Income Contribution to Reserves Net addition to Fund Balance after Reserves

Budget Page 2 of 5 Root to Canopy Summary FY 2015 Budget for Board of Directors

-

23,725

(89,451)

48,756 21,000 1,725 2,725 1,200 500 10,778 4,467 91,151 (89,451)

1,700 1,700 1,700

General & Admin

61,355

61,355

463,333 433,333 8,112 16,267 16,000 2,667 68,800 30,133 1,038,645 61,355

85,000 26,000 10,000 494,000 3,300 800,000 1,100,000

60,000 35,000 119,000 3,300 300,000

Previous Year Estimated YE

Case 3

A 1 2

B

C

D

E

F

G

H

I

J

Prosper

Thrive

Flourish

Fundraising

Mgt/ G&A

Root to Canopy Compensation Budget Budget Page 3 of 5

3

4

Position

Init

Fanfare

5 Executive Director

1.00

25.00%

6 Thrive Program Director

1.00

5.00%

7 Prosper Manager

1.00

10.00%

8 Prosper Associate

1.00

9 Fanfare Manager

1.00

10 Flourish Program Director

1.00

11 Fundraisisng Associate

1.00

25.00%

5.00%

10.00%

90.00%

20.00%

15.00%

5.00%

90.00%

0.0%

95.00%

5.00%

95.00% 10.00%

5.00%

5.00%

0.0%

5.00%

0.0%

70.00%

0.0%

100.00% 10.00%

0.0% 0.0%

0.0%

12 Office Manager

1.00

5.00%

5.00%

5.00%

20.00%

5.00%

60.00%

0.0%

13 Accountant

1.00

10.00%

10.00%

10.00%

40.00%

10.00%

20.00%

0.0%

14

0.00

0.0%

15

0.0%

16 Program % of total employee Total 17 hourly effort

9.00

160.0% 18%

26%

13%

19%

13%

11%

100.0%

18

9.00

1.60

2.35

1.15

1.75

1.15

1.00

9.0

19

Program FTEs

235.0%

115.0%

175.0%

115.0%

100.0%

FY 2013

20 Executive Director

22,969

22,969

4,594

9,188

18,375

13,781

-

21 Thrive Program Director

3,369

-

60,638

-

3,369

-

-

22 Prosper Manager

5,513

49,613

-

-

-

-

-

23 Prosper Associate

-

34,913

-

-

-

1,838

-

24 Fanfare Manager

60,050

-

-

-

3,161

-

-

25 Flourish Program Director 26 Fundraisisng Associate

-

-

-

61,250

-

-

-

5,513

5,513

2,756

2,756

38,588

-

-

27 Office Manager

1,684

1,684

1,684

6,738

1,684

20,213

-

28 Accountant

6,463

6,463

6,463

25,850

6,463

12,925

-

29

0

-

-

-

-

-

-

-

30

Total

105,559

121,153

76,134

105,781

71,639

48,756

-

31 FY XX Starting Salary

32 Compensation Table

Pension

33 Benefits % 34

Bonus Pool Taxes % Allocation Applied

0.025 Position

35 Executive Director

FTE

0.02

FY529,023 0XX Total Compensation @ 1

Health Care

0.08

0.1

Init

1.00

75,000

1,875

1,500

6,000

7,500

91,875

91,875

36 Thrive Program Director

1.00

55,000

1,375

1,100

4,400

5,500

67,375

67,375

37 Prosper Manager

1.00

45,000

1,125

900

3,600

4,500

55,125

55,125

38 Prosper Associate

1.00

30,000

750

600

2,400

3,000

36,750

36,750

39 Fanfare Manager

1.00

51,600

1,290

1,032

4,128

5,160

63,210

63,210

40 Flourish Program Director

1.00

50,000

1,250

1,000

4,000

5,000

61,250

61,250

41 Fundraisisng Associate

1.00

45,000

1,125

900

3,600

4,500

55,125

55,125

42 Office Manager

1.00

27,500

688

550

2,200

2,750

33,688

33,688

43 Accountant

1.00

55,000

1,375

1,100

4,400

2,750

64,625

64,625

-

-

-

-

-

-

-

434,100

10,853

8,682

34,728

40,660

529,023

529,023

44 45 46 47

9.00 Ck

-

Case 4

A

B

I

L

M

N

O

P

Q

Fanfare

Prosper

Thrive

Flourish

Fund-raising

Mgt/ G&A

Root to Canopy Budget Contributions Budget Page 4 OF 5

1 2 3 4 5

Individuals

6 7

Year End Appel

90,000

8

Springr Appeal

20,000

9

Board members

10

10,000

25,000

10,000

-

-

-

135,000

-

-

-

-

-

-

-

Membership Fees

11 12

Workplace Giving

13 14

Combined Federal Campaign

15

United Charities Campaign

3,500 -

16 17

-

-

-

-

3,500

-

-

15,000

-

Corporations

18 19

Community 1

12,500

20

Community 2

12,500

21

Community 3

12,500

22

Other TBD

12,500

23

Gen. Op. Support

24

15,000 -

50,000

-

Foundations

25 26

A

27

B

20,000

28

C

15,000

29

D

30

E

31

F

32

G

25,000

10,000 10,000 10,000

33

H

40,000

34

I

12,000

35

J

36

Other TBD

37

Total

15,000 15,700

30,000

60,000

67,700

-

-

75,000

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

70,000

117,700

-

-

228,500

-

Government

38 39

F

40

St

41

LC

42

Events

43 44 45 46 47

48 Community Organizations/ Faithbased 49 50 51

TOTALS

52

Contributions Total

53 54

Earned Income TOTALS

416,200 820,375 1,236,575

Case 5

Root to Canopy Earned & Program Income Budget Page 5 OF 5 Funding Source/ FunderName

Fanfare

Prosper

Thrive

Flourish

Fundraising

Management/G&A

EARNED REVENUES Government - Federal (Root to Canopy has no federal grants)

-

-

-

-

-

-

7,500

-

-

95,000

-

-

-

Government - States State Community Environments Contract

45,000

State County Education Grant

7,500

-

45,000

-

Government - Local County A

20,000

County B

25,000

County C

25,000

County D

25,000 -

-

Consulting Income Corporate Clients

7,000

Individual Clients

9,000

Public Buildings

7,000

TOTAL PROGRAM INCOME

-

23,000

-

-

-

-

-

68,000

95,000

7,500

-

-

Fees for Services Household Eduction Program

12,500

Canopy Service Fees

635,675

Other Earned Income Interest & Dividends

1,000

Rental

700

TOTAL EARNED REVENUE

12,500

TOTAL EARNED REVENUE

820,375

68,000

95,000

643,175

-

1,700

Case 6

Root to Canopy Treasurer’s Memo to the Board of Directors From Yours Friendly, Treasurer, on behalf of the R2C Finance Committee For the November 2015 Board Meeting

Strategic Topics: 

 

At the November board meeting we will discuss the draft FY 2016 budget. In our September FY 2016 budget goals discussion, the board asked the committee to examine our fee for service Flourish program, with particular attention to the use of contractors to fulfill this program. The analysis is part of your budget package. We also include projections for our growing individual and corporate fundraising, another priority established in our FY 2015 budget when we added a development specialist to our staff. We have held several discussions with the State about expanding our Prosper (hcdd-poor communities) program. These are too preliminary to budget for in FY 2016, but we have included a separate pro forma showing how an activity such as under discussion with the State might play out in financial terms.

Finance Committee Calendar:   

Root to Canopy’s fiscal year ends 12/31/2015. We have contacted our auditor and scheduled fieldwork for March 10. Review list of contractors, vendors, and leases: this is an annual task on our committee calendar. We don’t anticipate any action for the board. Review investment policies and performance: this is an annual task on our committee calendar. We will examine the laddering of our CDs and whether any other strategy might meet our reserve goals more appropriately.

Financial Statement Notes:  Statement of Position (Balance Sheet) 1. We have reduced our receivables, but not our income. This accounts for the smaller total asset amount. 2. We are fully current on payables. The $15K represents the special places fund set aside by the board. 3. We have made progress toward our reserve and are on target to deposit $50,000 in December 2015.

 Statement of Activity (Profit & Loss) 1. We project R2C will meet its earned income goals for the year. The good news: thanks to our investment in fundraising, we project a better year end than budgeted. (See line 5 on the Statement of Activity). 2. Our program actual to budget varies, but the variance doesn’t indicate problems. We are meeting targets for activity in each program, and the growth over last year is significant. 3. Line 15 shows the new investment in fundraising staff. 4. Line 22 shows the program investments we agreed upon for FY 2015, including the development of our educational program and better equipment packs for our arborists. 5. We had budgeted additional travel funds that may not be fully used. We did not reduce our projected year end.

 Cashflow Projection 1. We have maintained 2+ months operating cashflow in our operating account (see cashflow projections). 2. We will transfer $50,000 to our reserves in December.

Case 7

76%

Board Meetings Community Projects

Fundraising Events

71%

In Council committee Review with Planning Commission Discussion with Chief of Planning Not active

Board Participation

77%

County A County B County C County D

Progress on water retaining site development regulations:

BALANCE SHEET To-Date Cash/Savings 551 Receivables 85 Fixed Assets 7 Other Assets 25 TOTAL ASSETS 667 Payables 34 Accrued Exp Other Liabilities TOTAL LIABILITIES 34 Undesignated 246 Board-Designated 241 Restricted 90 Year's Profit 57 TOTAL NET ASSETS 633 TOTAL LIAB+Net Assets 667

In Thousands

300 250 200 150 100 50 -

Feb

Mar

April

May

75%

91%

77%

75%

78%

78%

79%

77%

% Bud

Prior Year 216.4 583.7 400 800.1 641.1 200 101.0 742.1 58.0

Jun

Jul

Aug

Projected Cash Flow

In Thousands To-Date Budget 319.9 416.2 645.5 820.4 965.4 1,236.6 752.6 967.6 155.8 206.4 908.4 1,174.0 57.0 62.6

As of: 9/30/2015

FY11

Sep

Oct

Avail Unr. NA

FY10

Nov

-

# Participants to-date

Arborists (Small/Minority)

Fee-Paying Customers

County sites on plan

Education Participants

Completion: hdcc Trees

Completion: hdcc sites

1,000

Program Participation

Goal

2,000

Dec

Op. Reserves

FY12 FY13 to date

Unrestricted Net Assets Trend

75% through fiscal year

Cash includes operating cash accounts, numbers are THOUSANDS. Reserves shown as blue line. Oct - Dec amounts are projected.

Jan

PROFIT & LOSS Contributed Revenue Earned Revenue TOTAL Program Expenses Support Expenses TOTAL Net from Operations

Root to Canopy

3,000

Case 8

Accrual Basis

FIRM: Roots to Canopy

Balance Sheet Prev Year Comparison As of September 30, 2015

Note that this is a full balance sheet with rows hidden to allow the roll up.

Roots to Canopy Balance Sheet

Sept 30, 2015 Sept 30, 2014

$ Change

% Change

Notes

ASSETS Current Assets Checking/Savings Total 1001 · Operatng & MM Accounts Total 1002 · Certificates of Deposit Total 1009.X Retired CD's Total Checking/Savings Total Accounts Receivable

220,396 305,128 525,524 45,638

206,567 13,829 220,369 (4,442) 89,200 N/A N/A 516,137 9,387 37,168 8,469

7% -1%

(9,365) 83,650 74,285 17,946 92,231 663,392 6,573 7,357 677,322

(8,365) 83,650 75,285 16,946 92,231 645,536 3,673 3,706 652,914

(1,000) (1,000) 1,000 17,857 2,900 3,651 24,408

-12% 0% -1% 6% 0% 3% 79% 99% 4%

15,000 9,900 24,900 24,900

15,000 14,052 29,052 29,052

(4,151) (4,151) (4,151)

0% -30% -14% -14%

69,445 510,000 16,040 56,937 652,422 677,322

27,185 500,000 25,400 71,277 623,862 652,914

42,259 10,000 (9,360) (14,340) 28,559 24,408

155% 2% -37% -20% 5% 4%

1 1

2% 23%

Other Current Assets 1210 · Pledged Receivables & Grants 1215 · Allowance for Doubtful Accts 1210 · Pledged Receivables & Grants - Balance Due Total 1210 · Pledged Receivables & Grants Total 1300 · Other Current Assets Total Other Current Assets Total Current Assets Total Fixed Assets Total Other Assets TOTAL ASSETS

2 2

LIABILITIES & EQUITY Liabilities Current Liabilities Total Accounts Payable Total Other Current Liabilities Total Current Liabilities Total Liabilities Equity 3000 · Unrestricted Net Assets 3100 · Board Desig. Operating Reserve 3500 · Restricted Net Assets Net Income Total Equity TOTAL LIABILITIES & EQUITY

3

Coverage Ratio: Operating Account Dollars per Dollar of Liabilities

$

8.85

Reserves Operating Reserves as Ratio of Annual Budget

43.4%

Target =

50%

NOTES to Balance Sheet 1 2 3

Case 9

Roots to Canopy

Accrual Basis

Balance Sheet Prev Year Comparison As of September 30, 2013

BALANCE SHEET PULLED RIGHT OFF QUICKBOOKS AS COMPARISON Section 3 Page 4 Sep 30, 13 Sep 30, 12 $ Change % Change

Notes

ASSETS Current Assets Checking/Savings 1000 · Cash Accounts 1001 · Operatng & MM Accounts 1045 · Operating Account 1049 · Credit Card Deposits Acct 1050 · Payroll Account 1052 · Money Market Total 1001 · Operatng & MM Accounts

4,529 17,604 3,082 195,182 220,396

2,852 10,136 1,360 192,219 206,567

1,677 7,468 1,721 2,962 13,829

59% 74% 127% 2% 7%

55,725 53,545 30,000 71,778 55,450 38,630 305,128 525,524 525,524

55,447 71,250 55,174 38,499 220,369 426,937 10,410 10,410 10,410 10,410 10,410 16,328 10,410 10,410 89,200 516,137

278 53,545 30,000 527 277 131 (4,442) 98,587 (10,410) (10,410) (10,410) (10,410) (10,410) (16,328) (10,410) (10,410) (89,200) 9,387

1% 100% 100% 1% 1% 0% -1% 23% -100% -100% -100% -100% -100% -100% -100% -100% -100% 2%

45,638 45,638

37,168 37,168

8,469 8,469

23% 23%

(9,365) 74,285

(8,365) 83,650 75,285

5,646 6,725 5,575 17,946 92,231

5,646 6,725 4,575 16,946 92,231

(1,000) (1,000) 1,000 1,000 -

-12% 0% -1% 0% 0% 0% 22% 6% 0%

1002 · Certificates of Deposit 1042 · CD 001 1046 · CD 002 1047 · CD 003 1048 · CD 004 1054 · CD 005 1059 · CD 006 Total 1002 · Certificates of Deposit Total 1000 · Cash Accounts Retired CD's 1059.2 · Retired CD's 1059.3 · Retired CD's 1059.4 · Retired CD's 1059.5 · Retired CD's 1059.6 ·Retired CD's 1059.7 · Retired CD's 1059.8 · Retired CD's Total 1009.X Retired CD's Total Checking/Savings

1

Accounts Receivable 1200 · Accounts Receivable Total Accounts Receivable Other Current Assets 1210 · Pledged Receivables & Grants 1215 · Allowance for Doubtful Accts

1210 · Pledged Receivables & Grants - Balance Due83,650 Total 1210 · Pledged Receivables & Grants 1300 · Other Current Assets 1055 · Investment in Mutual Funds 1060 · Prepaid Insurance 1070 · Insurance Escrow Deposit Total 1300 · Other Current Assets Total Other Current Assets

Page 1 of 2

Case 10

Roots to Canopy

Accrual Basis

Balance Sheet Prev Year Comparison As of September 30, 2013

BALANCE SHEET PULLED RIGHT OFF QUICKBOOKS AS COMPARISON Section 3 Page 4 Sep 30, 13 Sep 30, 12 $ Change % Change Total Current Assets

663,392

645,536

17,857

3%

36,826 20,099 (72,693) 22,342 6,573 6,573

36,826 20,099 (82,693) 19,442 (6,327) 3,673

10,000 2,900 12,900 2,900

0% 0% 12% 15% 204% 79%

7,357 7,357 677,322

3,706 3,706 652,914

3,651 3,651 24,408

99% 99% 4%

15,000 15,000

15,000 15,000

-

0% 0%

7,152 2,749 2,749 9,900 24,900 24,900

6,152 5,122 2,778 7,900 14,052 29,052 29,052

1,000

16%

(29) (5,151) (4,151) (4,151) (4,151)

-1% -65% -30% -14% -14%

69,445 510,000 16,040 56,937 652,422 677,322

27,185 500,000 25,400 71,277 623,862 652,914

42,260 10,000 (9,360) (14,340) 28,560 24,409

155% 2% -37% -20% 5% 4%

Notes

Fixed Assets 1800 · Fixed Assets 1080 · Office Equipment 1081 · Office Furniture 1085 · Accumulated Depreciation 1090 · Leasehold Improvement Total 1800 · Fixed Assets Total Fixed Assets Other Assets 1400 · Security Deposit Total Other Assets TOTAL ASSETS LIABILITIES & EQUITY Liabilities Current Liabilities Accounts Payable 2000 · Accounts Payable Total Accounts Payable Other Current Liabilities 2010 · Client fee credit 2100 · Payroll Liabilities 2110 · FSA Health Withholding Total 2100 · Payroll Liabilities Total Other Current Liabilities Total Current Liabilities Total Liabilities Equity 3000 · Unrestricted Net Assets 3100 · Board Desig. Operating Reserve 3500 · Restricted Net Assets Net Income Total Equity TOTAL LIABILITIES & EQUITY

Page 2 of 2

Case 11

As of September 30, 2015

Functional Expense Compensation Consultants & Prof. Services Program Investments Communication Supplies & Eqpt. Travel Occupancy Insurance/Fees/Business Costs

43 44 45 46 47 48 49 50 51

Program growth over previous year Fundraising per dollar of contributed support $ Net Income as % of Income

30 Total Expense 31 Net Operating Income 41 Addition to Reserves 42 Net Income

20 21 22 23 24 25 26 27 28 29

Fanfare Prosper Thrive Flourish Total Program Expense Fundraising General & Admin Total Expense

6%

56,937 124% 0.21 6%

100% 6% -

36% 44% 3% 3% 2% 1% 8% 3%

9% 13% 8% 57% 88% 7% 5% 100%

908,503 56,937 -

330,540 400,514 26,253 28,773 18,384 7,495 72,666 23,878

82,482 118,782 76,746 519,557 797,567 66,053 44,883 908,503

1 2 3 4 5

40,774

(290,334) (9,226) (50,000)

(110,180) (103,505) (8,751) (9,591) (6,128) (12,498) (24,222) (15,459)

(30,000) (38,218) (6,454) (190,443) (265,115) (15,947) (14,367) (295,429)

Significant change in income Program growth/change/net Push on contributions Planned program investments Change in travel policies

16,163

1,198,837 66,163 50,000

440,720 504,019 35,004 38,364 24,512 19,993 96,888 39,337

112,482 157,000 83,200 710,000 1,062,682 82,000 59,250 1,203,932

Program Expenses

12 13 14 15 16 17 18 19

10 11

352%

76% 86% 0%

75% 79% 75% 75% 75% 37% 75% 61%

73% 76% 92% 73% 75% 81% 76% 75% -

79% 76%

815,000 1,265,000

(169,447) (299,560)

71%

(130,113)

450,000

33%

On these two lines you can break out what's unrestricted and what's not yet released from restrictions Earned revenues 645,553 67% Total Income 965,440 100%

319,887

Contributed support

Actual as % of Projected Year End

5 6 7 8 9

$ Over/ Under Projected 75%

% of Effort

Year End projections

Ordinary Income/Expense Income

Actual Jan Sep 2015

3 4

2

Root to Canopy Statement of Position (P&L)

12,500

1,174,075 62,500 50,000

429,000 500,350 35,000 35,750 21,775 15,000 97,000 40,200

105,419 127,560 88,667 715,163 1,036,809 76,408 60,858 1,174,075

820,375 1,236,575

416,200

Budget

P

R

7,848

742,245 57,848 50,000

309,962 325,725 6,084 12,231 12,127 1,873 51,672 22,571

62,525 88,460 56,240 433,915 641,140 42,650 58,455 742,245

583,704 800,093

216,388

Prior Year Jan - Sept 14

S

T

726%

122% 98% 0%

107% 123% 432% 235% 152% 400% 141% 106%

132% 134% 136% 120% 124% 155% 77% 122%

111% 121%

148%

Prior Year % Change

U

INCOME STATEMENT FOR THE BOARD > Compares effort > Compares to expected outcome > Compares to budget & previous year > Includes program & function > Includes narrative

455%

77% 91% 0%

77% 80% 75% 80% 84% 50% 75% 59%

78% 93% 87% 73% 77% 86% 74% 77%

79% 78%

77%

75%

Actual as % of Budget

Q

FIRM: Root to Canopy Board Statement of Activity with Projected YE, Budget and Previous Year Comparison

A B C D E F G H I J K L M N O 1 Note that two QBks reports are placed into the second and third tabs in this Excel workbook and the data from those linked to this format.

Accrual Basis

V

Case 12

5

4

3

2 2 2 2

1

Notes

W

Roots to Canopy

Accrual Basis

Profit & Loss Prev Year Comparison January through September 2015

STATEMENT OF ACTIVITY (P&L) PULLED RIGHT OFF QUICKBOOKS AS COMPARISON

SECTION 3 PAGE 5

Jan - Sep 15 Jan - Sep 15

$ Change

% Change

Ordinary Income/Expense Income 4000 · Contributed Income 4010 · Individual & Corporate Donations 4020 · Foundation Grants

102,981 105,930

34,342 65,285

68,639 40,645

200% 62%

4,030 1,946 5,976 214,887

1,466 2,245 3,711 103,338

2,564 (298) 2,266 111,550

175% -13% 61% 108%

2,000 8,000 5,467 9,735 25,201

1,000 4,300 2,734 2,155 10,188

1,000 3,700 2,733 7,580 15,013

100% 86% 100% 352% 147%

92,933 14,500 107,433 132,634

43,478 18,940 62,418 72,607

49,455 (4,440) 45,015 60,028

114% -23% 72% 83%

490,700 490,700

435,314 53,066 488,379

55,386 (53,066) 2,321

13% -100% 0%

17,697 17,697

17,092 17,092

3,550 640 331 4,521 645,552 860,440

3,880 1,610 188 5,678 583,756 687,093

264,939 26,494 39,107 330,540

257,682 25,768 25,311 1,200 309,962

(1,200) 20,578

-100% 7%

(0)

0

373,521 25,690 1,303 400,514

303,093 22,632 325,725

70,428 3,058 1,303 74,789

23% 14% 100% 23%

(0)

(0)

205 7,130 30 9,338 400 9,150 26,253

205 90 4,689 1,100 6,084

7,040 30 4,649 (700) 9,150 20,169

0% 7816% 100% 99% -64% 100% 332%

0

(0)

380 2,717 11,968

150 3,189 2,116

230 (472) 9,852

153% -15% 466%

4030 · Workplace Giving Campaigns 4031 · Combined Federal Campaign 4032 · United Charities Campaign Total 4030 · Workplace Giving Campaigns Total 4000 · Contributed Income

105,000

113,000

4500 · Earned Income 4510 · Program Income 4506 · Consulting Income County A County B County C County D Total 4006 · Consulting Income 4015 · THRIVE Contracts State Contracts County Contracts Total 4015 · THRIVE Contracts Total 4510 · Program Income 4520 · Service Fees 4521 · Service Fees - Arborial Services 4526 · County Reimb. Contracts Total 4520 · Service Fees 4530 · Education Fees 4531 · Continuing Education Total 4530 · Education Fees

605 605

4% 4%

Other Revenue 4050 · Interest Income 4075 · Rental Income 4080 · Miscellaneous Income Total Other Income Total 4500 · Earned Income Total Income

(330) (970) 143 (1,157) 61,797 173,346

-9% -60% 76% -20% 66% 25%

52

Expense 5000 · Compensation 5010 · Salaries 5014 · Employer Taxes 5020 · Employer Benefits 5025 · FSA Reimbursement Total 5000 · Compensation

7,257 726

3% 3%

5100 · Consultants & Prof. Services 5120 · Consultants 5130 · Audit and Legal 5140 · Temporary Services Total 5100 · Consultants & Prof. Services 5200 · Program Investments 5234 · Professional Development 5236 · Educational Materials 5244 · Books and Publications 5246 · Continuing Education Expenses 5252 · Membership / Registration Fees 5280 · Reduced Education fees Total 5200 · Program Investments 5300 · Communication 5340 · Advertising 5362 · Postage 5364 · Printing

Page 1 of 2

Case 13

Roots to Canopy

Accrual Basis

Profit & Loss Prev Year Comparison January through September 2015

STATEMENT OF ACTIVITY (P&L) PULLED RIGHT OFF QUICKBOOKS AS COMPARISON

SECTION 3 PAGE 5 5374 · Telephone & Communications Total 5300 · Communication

Jan - Sep 15 Jan - Sep 15 13,709 6,777 28,773 12,231

$ Change % Change 6,932 102% 16,542 135%

0

(0)

(0)

(0)

(0)

-

(0)

(0)

5400 · Supplies & Eqpt. 5447 · Depreciation 5454 · Office Furniture Expense 5456 · Office Machines and Service 5458 · Office Supplies Total 5400 · Supplies & Eqpt.

2,320 4,297 1,114 10,653 18,384

2,372 1,170 8,585 12,127

(52) 4,297 (56) 2,068 6,257

-2% 100% -5% 24% 52%

7,495 7,495

1,873 1,873

5,622 5,622

300% 300%

6,945 65,721 72,666

51,672 51,672

6,945 14,049 20,994

100% 27% 41%

4,375 291

5,932 3,276 -

(1,556) (3,276) 291

-26% -100% 100%

5500 · Travel 5575 · Travel/Mileage Total 5500 · Travel 5700 · Occupancy 5755 · Maintenance and Repairs 5768 · Rent Total 5700 · Occupancy 5800 · Insurance/Fees/Business Costs 5830 · Other (Miscellaneous) 5843 · Bad Debts 5845 · Bank Service Charges 5850 · Insurance 5850-01 · Professional Liability 5850-02 · Directors & Officers 5850-03 · Workman's Comp & Business owner 5850 · Insurance - Other Total 5850 · Insurance 5853 · Merchant Fees 5866 · Refund 5860 · Payroll Expenses Total 5800 · Insurance/Fees/Business Costs Total Expense Net Ordinary Income

5,945 3,000 1,978 10,923 2,749 3,167 2,372 23,878 908,502 (48,063)

4,896 2,855 1,126 8,877 510 1,622 2,354 22,571 742,244 (55,151)

1,049 145 852 2,046 2,239 1,545 19 1,307 166,258 7,088

21% 5% 76% 0% 23% 439% 95% 1% 6% 22% 13%

105,000 105,000

113,000 113,000

(8,000) (8,000)

-7% -7%

105,000 56,937

(921) (921) 113,921 58,770

921 921 (8,921) (1,832)

100% 100% -8% -3%

Other Income/Expense Other Income Restricted Income Unreleased: Foundations Total Other Income Other Expense 4085 · Unrealized gain(loss)-investmnt Total Other Expense Net Other Income Net Income

Page 2 of 2

Case 14

16,685 17,750 23,600

Program Investments

Communication

Supplies & Eqpt.

255,493

270,060

(14,567)

(14,567)

100,984

2,933

5,588

226

458

215

3,337

35,576

52,651

86,417

77,119

9,298

Jul 15

243,954

255,493

(11,540)

(11,540)

99,869

1,588

5,467

138

894

1,542

616

33,455

56,168

88,329

60,624

27,705

Aug 15

220,396

243,954

(23,557)

(23,557)

113,240

5,671

7,139

124

5,025

3,744

1,363

36,864

53,311

89,683

60,685

28,998

Sep 15

186,151

220,396

(34,245)

(34,245)

91,966

1,270

9,459

108

3,410

2,618

1,744

21,666

51,690

57,721

55,724

1,997

Oct 15

183,340

186,151

(2,811)

(2,811)

77,498

5,601

886

179

2,696

1,542

2,229

13,077

51,287

74,687

61,062

13,625

Nov 15

205,426

183,340

22,087

22,087

79,028

1,227

6,482

141

3,065

1,609

46

12,427

54,031

101,114

65,575

35,539

Dec 15

7,792

7,792

(16,518)

(6,550)

250

249

1,100

(250)

(315)

(22,650)

11,648

(8,726)

(24,925)

16,200

25,280

25,280

1,074,721

30,750

68,500

2,001

22,500

18,000

17,000

282,000

633,970

1,100,001

800,000

300,000

Variance Est. 2015 to Budget YE Projections

250,844

205,426

45,418

45,418

288,242

10,093

18,517

813

3,288

3,781

6,756

64,023

180,972

333,660

216,891

116,769

Q1 2016

290,497

250,844

39,653

39,653

294,007

10,295

18,887

829

3,353

3,857

6,892

65,304

184,591

333,660

216,891

116,769

Q2 2016

Case 15

Note that Budget Cash Balance includes CDs but Cashflow cash balance is the operating cash. Note that the shading shows what has been reconciled. July-Sept are completed and this report project October through NOTES ON THIS FORMAT Q2 of 2016. Note that the first six months of 2015 are now hidden as columns.

539,209

23,072

Net Cash, End of Month

Ending Cash Balance

(10,000)

Balance Sheet Cash Changes

516,137

33,072

Inflow-Outflow, Activities

Beginning Cash Balance - See note

1,058,203

24,200

Insurance/Fees/Business Costs

Total Cash Out (Expense)

68,750

Occupancy

2,250

259,350

Consultants& Prof Serv.

Travel

645,618

Compensation

Expense

1,091,275

775,075

Earned Income & Other Income

Total Cash In

316,200

2015 Budget

Contributed Income

Income

Roots to Canopy Projected Cashflow as of 09-30-2015

July 2015 through June 2016 As of Sept 2015

Projected Cash Flow

Case 16

INSERT TAB 5

Organizational Capacity People, systems, and resources available to pursue program activities

Leadership Capacity

Provided on behalf of

Asset Capacity Business model, financial reserves, donor base, partnerships, etc.

Program Capacity Demand, design, effectiveness. mission outcomes

An Organization IS Interdependent

© Orgforward

Finance Requires Context

Provided on behalf of

Financial Systems

Budget

Reports

Vetting Efforts Against Outcomes

Provided on behalf of

Provided on behalf of

Source: A Graphic Re-visioning of Nonprofit Overhead, Nonprofit Quarterly, By Curtis Klotz of Nonprofits Assistance Fund, August 16, 2016

Each of our programs is built around, supported by, and shares responsibility for Core Mission Support functions

Re-Align Thinking About Organization Model

Provided on behalf of

Data & Financial Models

Program Staff

Senior Staff

Draft Budget Finance Committee

Treasurer

Final Draft Budget

Financial Reporting

Action Plan

Provided on behalf of

Board

Approved Budget

Outcomes / Strategic Goals

Long Term Bond Mortgage Loan (over 1 year)

Current Liabilities Accounts Payable Accrued Expenses Payroll Liabilities Deferred Revenue Line of Credit Current Portion of Loan

Assets < Liabilities > = Net Assets

Debit Balance

Credit Balance

Net Assets

Liabilities +

Assets =

Statement of Financial Position

Reserves Terms & Concepts

Provided on behalf of

Temporarily Restricted Permanently Restricted

* Operating Net Assets * Operating Reserves * Other Reserves

Unrestricted

Other Assets Deposits Long-term Investments Long-term Receivables

Fixed Assets Furniture & Equipment Real Property Accumulated Depreciation

Current Assets Cash Receivables (Short term) Inventories Prepaid Expenses

Source: Nonprofit Finance Fund Provided on behalf of

Understanding Asset Restriction - Utilization

© Orgforward

Infrastructure

Assets

Vision Advancement

Leadership

Provided on behalf of

Programs

Organizational Wellness & Sustainability

Intended Benefit to the Community

Direct Beneficiaries – Those who directly benefit from the work of the organization

Whom do we expect to benefit?

Beneficiaries

Organizational Outcomes

Backers – Those who provide resources to the organization

Which specific conditions or outcomes will this organization’s work specifically create or influence from the above list…

What conditions does this organization work to actively influence and/or change?

Community Outcomes

What values are embedded in that vision of our community?

What needs to be in place within the community to achieve the benefit we hope for?

What community level benefit do we hope for?

Community Benefit Mapping Tool

Indirect Beneficiaries (Backers)

©2016 Orgforward (available online at www.orgforward.net/usefulstuf)

Success Indicators

Assumptions

Types of Programming/Strategies

Next steps: What leadership, resources, and infrastructure will support the organization’s strategy?

What theories and/or assumptions do we have about why we do the work the way we do it?

What approaches do we believe will create the benefit identified above?

What is the proof that the organization’s work and approach are effectively creating the intended outcomes for beneficiaries?

How will we know that we are successful at creating the benefit and conditions we intended?

Direct Beneficiaries

How do the beneficiaries actually benefit? - What opportunity is the organization creating for each beneficiary?

Community Benefit Mapping (cont)

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Whom do we expect to benefit? This section asks you to identify the sub-set of the community your organization directly benefits. The specific community may have two potentially distinct members. Direct Beneficiaries generally refers to the people or entity that you are in direct contact with and receives/benefits from the services you offer. If there is an indirect beneficiary, whose benefit can be directly linked to the service you are providing to your primary beneficiary, you may include them, but indicate that they benefit indirectly. Backers are those that provide resources to the organization. Since some beneficiaries may also be backers (they pay fees or contribute), you will likely have some overlap.

What conditions/outcomes does this organization work to actively influence and/or change? In the broader landscape of conditions listed above, there are specific conditions an organization focuses on making possible. Which specific conditions is the organization focusing on making possible through its work? These are the targeted outcomes, the organization will work to advance within the community.

What needs to be in place within the community to achieve the benefit we hope for? In order to create the community we envision, what conditions need to be in place in the community. This is not limited to the conditions the organization focuses on. It is the larger view of the entire community and all the conditions that need to be in place for the envisioned community you want to naturally occur. What would people need to have, access, believe, or want in order to achieve the community benefit we aspire to?

What community level benefit do we hope for? This section asks you to identify the vision the organization has for the broader community. This is not a vision of what the organization will be, but rather a vision of what the organization wants the broader community to be. Values: In this subsection, list the values that are at the heart of the vision. What values do the people in the organization need to embody to support that vision and guide their decisions and actions.

The worksheet sections (in order as they appear):

The worksheet is a tool for identifying and unpacking an organization’s vision of the community within which we all live and understanding the specific community benefit the organization makes possible. It serves to build a shared understanding of why the organization exists (vision) and how it intends to create community benefit (mission). (It is not intended to evaluate or lead to a rewrite of the mission – although it might)

Worksheet Instructions

Community Benefit Mapping (cont)

©2016 Orgforward (available online at www.orgforward.net/usefulstuf)

Next Steps: What leadership, resources, and infrastructure will support the organization’s strategy? Consider what organizational structure best supports a healthy and sustainable organization that can deliver on the strategy identified.

What theories and/or assumptions do we have about why we do the work the way we do it? We all have reasons for why we do the work we do in the way that we do it and what change we expect to result from the work. Here, we ask you to articulate that theory. Our theory often has assumptions or beliefs that are at the core of why we think our way is the “best” way. Take a moment to try and identify those assumptions.

What activities do we believe will create the benefit identified above? What are the actual activities the organization engages in to create the change we hope to see? What programs or organizational efforts do we engage in?

How will we know that we are successful at creating the benefit and conditions we intended? At the end of the day, how will you know that the community the organization serves is seizing and benefiting from the work of the organization and that the organization’s method for doing it is effective at creating the desired change?

How do the beneficiaries actually benefit? This section provides space to be more specific about your approach and identify the specific opportunities the organization makes possible for each beneficiary listed above. Notice that Backers are now considered Indirect Beneficiaries as they should be benefiting too from the opportunities the organization is making possible.

Community Benefit Mapping (cont)

Long Term (Conditions Δ)

Short Term (Immediate Gains)

Systems & Activities (Actions)

Constituents (Entities Reached)

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Mid Term (Actions Δ)

Execution (what will be done) - Internal

The model / philosophy / theory that is the basis for the program’s approach to creating the outcomes above (a.k.a: what will it take to create the outcomes/conditions above?)

Outcomes (what will different community/individually) - External

Strategy

Program Outcomes / Benefits - What specific organizational outcomes will this program advance (links to organization’s strategy)

Program Operations Model

(Resources Required)

Assets

Insurance/Government Fees, etc:

Evaluation/Data:

Travel:

Facilities:

Equipment / Supplies:

IT:

Communications:

Contractor / Professional Fees:

Special program costs:

Direct Expenses Salaries/Benefits:

Expense/Cost Drivers What will determine the scale of direct expenses for this program (Salary/Hrs Worked, # of sessions, ???)

Special capital cost requirements? (equipment replacement, etc.)

Carrying portion of fundraising & administration costs (based on allocation policy)  

Other Expenses (Overhead / Indirect) Allocation of Indirect Costs – Factors the will influence these costs  Allocation Policy  Special factors – exceptions or extraordinary allocations  Special funder requirements  Established indirect rate

Other Financial Drivers Are there any other factors that may impact the financial viability of the program (# of volunteers, environmental factors, partnerships, calendars, ???)

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Restricted Contributions, such as grants or donations:    

Program Quick Budget Direct Revenue Earned revenue, such as fees for service:      

Revenue/Profit Drivers What will determine the scale/amount of revenue this program will directly earn (# of participants, # of sessions, ???)

Financial Modeling

Program Operations Model

Indicator(s)

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Effectiveness Metrics – How will you measure the effectiveness of the program’s outcomes (Indicators = what you are looking for; measure = how you will measure for that) Outcomes Long Term Mid Term Indicator(s) Method(s) Indicator(s) Method(s)

Evaluation

Program Operations Model

Short Term Method(s)

Change in Assumptions (How will you assess whether the underlying assumptions behind the program are valid/appropriate)

Change in Financial Model (What do you need to monitor that could alter the basis of the program’s financial model and how will you monitor it)

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Sustainability Measures Change in Community (Scenario) (How will you track environmental/community changes that may impact the opportunities the program is designed to create)

Efficiency Measures – How will you measure the efficiency of resources used by the program Resources (Effort) Allocated Mission Outcomes Achieved (What measures will you use to determine how much of the organization’s (How will you measure this program’s contribution resources are being allocated and consumed by the program) to overall vision / mission fulfillment)

Program Operations Model

INSERT TAB 6

GLOSSARY OF FINANCIAL TERMS FOR NONPROFITS Accounts payable The amount owed to others for services or merchandise received by the organization.

Accounts receivable The amount owed to the organization for services or merchandise provided to others.

Accrual-basis accounting A system of financial recordkeeping in which transactions are recorded as expenses when they are incurred (i.e. when a bill is received for merchandise or services provided to the organization) and as income when it is earned (i.e. when services or merchandise is provided by the organization, or the organization receives a commitment of a contribution) rather than when cash is paid or received. The alternative is Cash-basis accounting.

Accrued expense Costs of operation that have accumulated, but are not yet due or payable.

Accrued interest Interest costs that have accumulated, but are not yet due or payable.

Allocation A method of accounting that divides expenses among different program, administrative, and fundraising categories based on a formula that recognizes the use of the resources such as use of the facility or staff time.

Allowance for doubtful accounts An amount reflecting the portion of the accounts receivable which the organization reasonably believes it may not collect.

Assets What is owned by the organization.

Audit A financial report that has been tested and verified for accuracy and prepared in accordance with Generally

Accepted Accounting Principles. An essential component of the audit is the Opinion Letter.

Balance sheet A report showing the financial condition – Assets, Liabilities, and Net Assets - of the organization at a particular moment in time. Referred to as a Statement of Financial Position in the nonprofit sector.

© Nonprofits Assistance Fund 2006

Glossary of Financial Terms for Nonprofits Board-designated funds A condition placed by an organization’s board of directors on how an amount of money is to be used. A common type of board designation is for Operating Reserves. For accounting purposes, these funds are considered unrestricted because the condition was not specified by a donor.

Bridge loan A short-term loan with a specific repayment source.

Capital expenditure Payment of money to acquire fixed assets, such as a building or equipment

Capitalizing an asset Recording the cost of land, a building or equipment as fixed assets rather than as an expense when purchased.

Cash equivalents Funds which can be quickly and easily converted to cash; those bank accounts, money market funds or other investments which mature within 90 days.

Cash-basis accounting A system of financial recordkeeping in which transactions are recorded when cash is received or spent. The advantage over accrual-basis accounting is its simplicity.

Cash flow The movement of cash into and out of an organization; or the difference between cash receipts and cash disbursements during a period of time.

Cash flow statement A report of incoming and outgoing cash during a specified period of time.

Chart of Accounts A list of all accounts used in accounting system, including assets, liabilities, income and expenses.

Collateral An asset which is pledged to a lender until a loan is repaid. In case of default, the lender legally owns the right to obtain or sell the collateral to repay the loan.

Committed grant A contribution for which the organization has received a formal notification from the donor that an award will be made at a future date.

© Nonprofits Assistance Fund 2006

2

Glossary of Financial Terms for Nonprofits Conditional promise to give A commitment by a donor to make a contribution to the organization if a specific requirement is met. The agreement becomes binding once the requirement is met.

Contribution A donation, gift or transfer of cash or other assets.

Current assets Cash, investments, receivables, and other assets that can be expected to be available as cash within twelve months.

Current liabilities Those liabilities due to be paid now or within the next twelve months.

Current portion of long term debt The amount of the principal payments due and payable on loans within the next twelve months, if the original term of the loan was longer than one year.

Deferred revenue Income for which payment has been received before it has been earned. It is reflected as a liability on the

Balance Sheet until it is earned and can be recognized as income in a future accounting period.

Deficit Expenses in excess of income; an operating loss or a negative change in Net Assets.

Depreciation The recognition, by recording an expense, of the decrease in value of a fixed asset over its expected physical or economic life. The value of Land is not depreciated.

Direct costs Those expenses which are specifically attributable to a program area or cost center.

Earned revenue Income received for providing services or goods, rather than as a voluntary contribution.

Financial Accounting Standards Board (FASB) The national governing board which sets the accounting standards known as Generally Accepted Accounting

Principles (GAAP).

Fixed assets An asset that has a relatively long useful life, usually several years or more, such as equipment, furniture, buildings and land. Also called Capital Assets. © Nonprofits Assistance Fund 2006

3

Glossary of Financial Terms for Nonprofits Functional Expenses Categories of expense delineated by the type of expense: program services, management & general, and fundraising. Required for IRS form 990 and audited financial statements. Often reflect the use of allocations.

Fund accounting A system of accounting based on separating information into groups which reflect organizational divisions or donor-imposed restrictions.

General Ledger Accounting system tool for recording all transactions

Generally Accepted Accounting Principles (GAAP) The set of norms and standards of nonprofit accounting practices established by the Financial Accounting

Standards Board (FASB) to help ensure the accuracy and consistency of financial records and reports.

Grants Contributed assets given by an individual or another organization with no reciprocal receipt of services of goods. Sometimes are given with a legal restriction imposed upon its use.

Income Statement A financial report that summarizes income and expenses and resulting surplus or deficit for a given period of time. Also known in the nonprofit sector as the Statement of Activities.

In-kind contribution A contribution made of goods or services rather than cash.

Internal controls The system of practices, procedures and policies intended to safeguard the assets of the organization from fraud or error and ensure accurate recordkeeping.

Liabilities What the organization owes to others, including accounts payable, debts, mortgages and other obligations to pay.

Long-term debt/liabilities An obligation to pay a loan or other obligation with a maturity or due date of more than one year.

Net assets The difference between the organization’s total assets and its total liabilities on the balance sheet indicating the net financial worth for the organization. Net assets is the accumulation of the difference between cumulative income less cumulative expenses over the life of the organization. Divided into Unrestricted, Temporarily

Restricted, and Permanently Restricted net assets. © Nonprofits Assistance Fund 2006

4

Glossary of Financial Terms for Nonprofits Net fixed assets The value of land, buildings, equipment and other fixed assets owned by the organization after the deduction of the accumulated depreciation of those assets.

Notes payable The amount an organization owes to others for loans.

Notes receivable The amount an organization is owed for loans made to others.

Operating expense General term for expenses incurred for all the activities of the organization.

Operating reserve An unrestricted fund balance set aside by the organization’s board to stabilize an organization’s finances by providing cash as a cushion for planned or unplanned future expense or losses.

Overhead The costs that cannot be identified with a program activity but are needed for the general administration of the organization. This expense is often distributed among programs based on a formula.

Permanently restricted funds Funds which the donor has indicated may not be spent by the organization, but which are invested to produce a stream of income that can be spent. Frequently called an endowment.

Pledge A formal commitment to make a contribution of a specific amount.

Prepaid Expense An expense that is paid before use of the good or service, such as insurance paid in advance.

Refinance To replace one loan with another, usually in order to extend the maturity, change the payment amount, or to consolidate several loans.

Release from Restrictions The accounting transaction used to transfer temporarily restricted funds into an organization’s unrestricted accounts when the restriction has been satisfied (such as when a special project is initiated).

Reserves An amount set aside by the Board to be used in case of losses or an unexpected expense.

© Nonprofits Assistance Fund 2006

5

Glossary of Financial Terms for Nonprofits Restricted funds Contributions which are designated by the donor for a specific use. See also temporarily restricted funds and permanently restricted funds.

Revenue Income earned from services performed or merchandise sold (as distinct from support, or contributed income).

Secured loan A loan for which something of value is pledged in the case that repayment cannot be made.

Short term debt/liability A loan which is issued with a final payment date of one year or less.

Support Income from voluntary contributions and grants (as distinct from revenue, or earned income).

Technical assistance Help and advice provided on a specialized subject matter.

Temporarily restricted funds Contributions given by the donor or granting organization for a specific use or for use during a specific period of time. The limitation is satisfied at a defined time or when certain activities have been performed and the funds are released from restriction.

Unconditional promise to give A pledge to make a contribution of cash or another asset without requiring the organization to meet any condition prior to receiving the contribution.

Unrealized gain (loss) The increase (decrease) in value of an investment asset held by an organization but which has not been received through the sale of the asset.

Unrestricted funds Contributions given without the donor placing any restrictions or limitations as to their use.

Unsecured loan A loan made without collateral.

Working capital The portion of an organization’s assets which is not invested in fixed assets or obligated to pay current liabilities, but is available to fund day to day working needs; Also known as net current assets.

© Nonprofits Assistance Fund 2006

6

THE 10 BEST WEBSITES FOR NONPROFIT FINANCIAL MANAGEMENT Maryland Nonprofits and the Standards for Excellence http://www.marylandnonprofits.org/ Greater Washington Society of CPAs http://www.nonprofitaccountingbasics.org/ Nonprofit Operating Reserves Initiative ~ Policy Development Toolkit http://www.nccs2.org/wiki/index.php?title=Nonprofit_Reserves_Workgroup Center for Nonprofit Risk Management http://www.nonprofitrisk.org Also has a great e-newsletter about nonprofit management. Nonprofit Finance Fund http://nonprofitfinancefund.org/about-nff/what-we-do Nonprofit Assistance Fund http://www.nonprofitsassistancefund.org/ CompassPoint Nonprofit Services http://www.compasspoint.org/ Also co-sponsors a good e-newsletter Board Café – Blue Avocado about nonprofit management http://www.blueavocado.org/frontpage Guidestar http://www2.guidestar.org/ Also has a great e-newsletter about nonprofit management. IdeaEncore Network https://www.ideaencore.com/ Also has a great e-newsletter about nonprofit management.

There are so many good resources on the web that there is no need to have an extensive library, but this book is by the experts and has rave reviews: Nonprofit Sustainability: Making Strategic Decisions for Financial Viability [Paperback ~ $30] Jeanne Bell (Author), Jan Masaoka (Author), Steve Zimmerman (Author)

Charter for the Finance and Audit Committee            

Will recommend and review financial policies for final adoption by the entire board of directors; Will educate the board on current financial status and sustainability and trends that tie to strategic goals; Will provide guidance and direction for preparation of the Center’s budget annually; Will review budgets prepared by the staff, determine consistency between the proposed budget and the organization’s plans, and make recommendations to the board of directors; Will report to the board any financial irregularities, concerns, opportunities and develop risk management policies; Will recommend financial guidelines to the entire board of directors (for example, but not limited to, establishing a reserve fund or obtaining a line of credit for a specified amount); Will define the requirements for, and receive and review timely and accurate financial reports so that the board may perform its fiduciary responsibility; Will oversee short and long-term investments; Will recommend selection of the auditor and meet annually with the auditor; Will advise the executive director and other appropriate staff on financial priorities and as relevant and needed, review issues related to information systems; Will review annually financial services providers, vendor relationships and major grants and contracts, based upon volume and criticality; and Will review financial policies annually.

Job description for a board treasurer:        

Attend all board meetings Maintain knowledge of the organization and personal commitment to its goals and objectives Understand financial statements and, if possible, accounting for nonprofit organizations Serve as the chair of the finance committee Manage, with the finance committee, the board's review of and action related to the board's financial responsibilities Work with the chief executive and the chief financial officer to ensure that appropriate financial reports are made available to the board on a timely basis Present the annual budget to the board for approval in concert with a work plan and strategic priorities Review the annual audit and answer board members' questions about the audit and 990, with the preparers if possible

White Paper on Allocating Indirect Costs What Are Indirect Costs? In a multi-program organization, all costs can be divided into two different types: direct and indirect. Direct costs are those which are clearly and easily attributable to a specific program. For example, the cost of new basketballs is clearly related to the after-school athletics program. Similarly, it is easy to justify charging counselors salaries to the counseling program. Indirect costs are those which are not easily identifiable with a specific program, but which are, nonetheless, necessary to the operation of the program. These costs are shared among programs and, in some cases, among functions (program, management and general, and fundraising). The executive director's salary is a common example of an expense which benefits all programs and functions. Other indirect, or shared, costs may include rent, telephone, postage, printing and other expenses which benefit all programs and functions of an organization. Why Allocate Indirect Costs to the Programs? The full cost of a program rightfully includes a share of the overall costs of the organization. Knowing the full cost of a program sets a basis for financial analysis of the program, for pricing fee-based services, and for requesting reimbursement from funders for the full costs of providing services. What Are the Methods for Allocating Indirect Costs? There are several methods for allocating indirect costs. The two most common are case-by-case allocation and developing an indirect cost rate. Case-by-Case Allocation One method of allocating indirect costs is to determine a rate of actual usage for each program. For example, you may decide to keep track of long distance telephone calls and charge them to the appropriate program when you pay the phone bill each month. Similarly, some organizations use a counter or log to track copying expenses for each program and/or function. Time sheets may form the basis for allocation of salaries for the executive director, accountant, and staff whose work benefits more than one program or activity. A different method can be adopted for each line item or case. The advantage of this method is that it seems to "make sense." A major disadvantage, however, is that it often requires a great deal of time consuming record keeping. Even if you keep the records needed to precisely allocate shared expenses among programs, not all expenses will be covered. If, for example, the rent is allocated by square feet, how should you allocate the hallway and rest rooms? What about the local phone calls which can not be tracked using a code? For those shared expenses which cannot easily be divided directly into programs and functions, an indirect cost rate is useful. Common Cost Allocation

Page 1 of 4

Developing an Indirect Cost Rate The first step in determining an indirect cost rate is to separate all costs into two groups: direct and indirect costs. The indirect costs are aggregated into an indirect cost "pool" and then allocated to the programs based on a set proportion or rate. There are several measures used to determine the proportion of indirect costs to allocate (apply) to each program. The following simple example illustrates an indirect cost rate based on the relationship between total indirect costs and total direct costs: Example 1-- The Tadpole League The Tadpole League has a total budget of $3,300. The budget is distributed as follows: Program A has direct costs of $1,000 Program B has direct costs of $2,000 Indirect costs to run the programs is budgeted at $300 Total costs are $3,300 Since Program A's direct costs are one-third of the total direct costs of the agency ($1,000 out of $3,000), it should bear one-third of the indirect costs. Similarly, since Program B incurs twothirds of the total direct costs of the agency, it should bear two-thirds of the indirect costs, as well. The Tadpole League can create an indirect cost rate which will allow it to easily accomplish this allocation. An indirect cost rate (using direct costs as a base) is established by dividing the total indirect costs by the total direct costs. For the Tadpole League the indirect cost rate is: Total Indirect Costs divided by Total Direct Costs = $300/$3,000 = 10 percent of total costs Each program’s share of indirect costs can be calculated as a proportion of its direct costs: Program A Indirect Expenses: $1,000 x 10% = $100 Program B Indirect Expenses: $2,000 x 10% = $200 Total Indirect Expenses = $300 After the indirect costs have been allocated to the programs, the budget now reads as follows: Program A has direct costs of $1,000, indirect costs of $100 = $1,100 Program B has direct costs of $2,000, indirect costs of $200 = $2,200 Total costs are $3,300 This illustrates that after Program A has picked up its fair share of indirect costs, the true cost of running Program A is $1,100. As you can see from this example, using direct costs as a basis for your indirect cost rate will result in larger programs being charged with more of the indirect costs than smaller programs.

Common Cost Allocation

Page 2 of 4

Is There More Than One Way to Calculate an Indirect Cost Rate? The Office of Management and Budget Circular A-122, Cost Principles for Nonprofit Organizations, describes the method of developing a federal indirect cost rate, using these same principles. However, even within these guidelines, indirect cost rates for the same organization may vary from federal agency to federal agency. Organizations may allocate indirect costs based on how many people are served in each of their programs, how large each of their sites is, what staff effort – as measured in dollars or hours – is applied to each program or other logical methods. What Is the Standard for Allowable Indirect Costs? There is little agreement in the nonprofit or funding community about how to calculate the rate, what to include, and how much is fair. There are no across-the-board standards or maximum levels for indirect costs. Some foundations have informal, unwritten guidelines for a maximum level. Under federal guidelines, allowable indirect costs range from 3 percent to 70 percent, varying from agency to agency. Contrary to popular belief, indirect costs are not an easy measure of an organization’s efficiency or stewardship. For example, imagine a multi-service agency where each program has its own bookkeeper, purchases its own supplies, and has all its own equipment. Such an organization would have no indirect costs at all, but would be clearly less efficient than if the programs’ shared bookkeeping costs, supplies and equipment. Final Comments Because the presentation of financial information influences the way we assess an agency's finances, the selection of indirect costing methods and accounting procedures has an important impact on decision-making. Several urgent and perhaps conflicting demands are made of the indirect costing process: to attribute indirect costs in the fairest way possible, to attribute the most indirect costs to the programs that can best afford them, to eliminate as many indirect costs as possible by having each program buy its own supplies, etc. Finding a balance among these demands that clears confusion and informs decision-makers is a responsibility of all participants in the nonprofit sector.

Common Cost Allocation

Page 3 of 4

Common Cost Allocation

Page 4 of 4

Effective Nonprofit Leaders....  ... keep mission, capacity and finance in balance. These three elements are interdependent and exist in dynamic tension. If one changes, the others change, too. This happens in all organizations, whether seen or unseen, planned or unplanned.  ... never ignore the dynamics of the “enterprise platform.” The combination of capacity and capital comprises the “enterprise platform,” by which mission is delivered. It exists in every organization. It is related to, yet separate from, program and mission. Money does not flow directly to program; it is turned into program execution via the enterprise platform. If the platform is weak, program execution will be undermined. Nonprofits with similar missions and programs can have very different enterprise platforms.  ... are proud of nonprofit tax status. It exists for a reason, and it’s a commercial reason. We enter the market when the for-profit and governmental sectors can’t, won’t or shouldn’t, generally due to a gap or failure in the market economy. This commercial flaw is why nonprofits (501(c) 3s) are provided two powerful tools to reliably subsidize operations: tax exemption and access to tax-advantaged charitable contributions.  ... insist on having clear, reliable, routine, management-friendly financial information. Effective leaders share it with their board, funders, internal and external stakeholders and use it as a tool to effectively communicate their organization’s financial story.  ... can tell their program story in financial terms, and their financial story in program terms. They, and others in senior roles and board positions, can fluidly connect money and mission based on the needs and perspectives of who they’re talking to, and what they’re talking about.  ... predict how their organization will end the year financially, on January 1. They also know what the levers are that will make their prediction more or less likely. They will continue to update predictions with “actuals” and new projections to year-end and beyond as the year proceeds. They share these routine numbers with the board, and make course corrections accordingly.  ... understand that they manage in a looking-glass world, commercially speaking. Many of the standard rules and conventions that for-profit managers rely on are reversed, or at best unreliable, in the nonprofit environment: growth almost always increases the need for fundraising and decreases “self sufficiency”; cash is not always fungible, “surpluses” are often prohibited; expenditures on overhead are seen as wasteful…and more. Leaders from the forprofit world must understand these (and other) management realities to make better decisions.  ... understand that they run at least two businesses. There’s the core business, related to delivering on mission (healing, teaching, sheltering, etc.), and then there’s the “mission support business” (usually fundraising) that makes up for the market flaw.  ... understand that growth is especially demanding in the nonprofit world, for commercial reasons. Growth is more capital intensive, takes longer, and is riskier from a quality control and mission perspective than for-profit sector growth (which is difficult as well). Increased revenue frequently means decreased net revenue.  ... distinguish regular, routine operating revenue from capital and extraordinary revenue, and manage accordingly. They match their fixed costs to reliable revenue and understand (and fill) the capital demands of rapid growth, incremental growth, and routine capacity refreshment and maintenance.

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Harvard Business School © 2008

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Harvard Business School © 2008

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Common Cost Alloc

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Protected Formula

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Operating Budget TEMPLATE-blank.xls GL Budget

Staff/Board Training

Meetings & Conferences

Licenses & Registrations

Interest Expense

Insurance

Dues & Memberships

Credit Card/Merchant Charges

Bank Fees/Bad Debt

Background checks/Want ads

Advertising

Business & Organizational

Non-Personnel

Total Personnel

In-Kind Professional Services

Contractors & Professional Fees

Salaries & related expenses

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Nonprofit Financial Ratios

Nonprofit leaders seeking to understand the organization’s financial situation usually start by reviewing the financial reports. Understanding the financial information is the building block of any financial discussion. Beyond understanding the reports, much can be learned from analysis of the information and interpretation of what it is telling you. The basic analysis includes comparing financial reports to a benchmark such as the budget or the financial report from the previous year. One essential question is: does this information match our expectations?

Financial ratios are useful if they are: • Calculated using reliable, accurate financial reports (such as an annual audit or final report) • Calculated consistently from period to period • Used in comparison to benchmarks or goals • Viewed both at a single point in time and as a trend over time • Interpreted in the context of both internal and external factors

For a more technical financial analysis, ratios can be used to deepen the understanding and interpretation. Financial ratios are an established tool for businesses and nonprofits. While there are dozens of ratios that can be calculated, most nonprofits can use a handful of them to learn more about their financial condition. This tool provides the description and calculation of 14 ratios including a mix of balance sheet and income statement ratios. Individual nonprofits must decide for themselves which calculations are valuable. To make the most of ratio calculations, start with some fundamental guidelines.

Nonprofit Financial Ratios

Fourteen of the most frequently used financial ratios for nonprofit organizations are defined on these pages. A spreadsheet with the ratio calculations is also available on the website at www.nonprofitsassistancefund.org.

Calculating and using financial ratios - Income Ratio

What It Tells Us

Reliance on Sources of Income

Largest type of income Total income

Awareness of the risk of a major reduction in income if this source of contributed income is reduced or stopped. May be helpful for more than one source of income, including special events.

= Reliance ratio

Reliance on Govt. Funding

Total govt grants & contracts Total income

= Reliance on govt funding

Earned Income Percentage

Total earned income Total income

= Earned income ratio

Self-Sufficiency Ratio

Total earned income Total expense

= Self-sufficiency ratio

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Awareness of risk in both reliance & autonomy. Govt. funding is often closely tied to specific contracts & budgets with limited cost allocations & flexibility.

Organizations with earned income have more autonomy and flexibility

The proportion of operating expenses that are covered by earned income.

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Calculating and using financial ratios - Expense & Management Ratio

what it tells us

Percentage of Budget for Personnel

Total wages, taxes, and benefit expenses Total expenses

Since staff cost is usually the largest part of the budget, any changes in the percentage of budget used for staff is notable.

= Personnel costs ratio

Benefit Expense Rate

Total taxes, insurance, and fringe benefits Total salary and wages

Benefit costs are driven by many external factors and can increase at a different pace than other costs. = Benefit cost ratio

Since this is a ratio that is frequently calculated by others, including donors & nonprofit watchdogs, nonprofits should be aware of their ratio & any changes over time

Functional Cost Allocation

Total fundraising, general and admin expense = Admin cost ratio Total expenses Fundraising Efficiency

Contributed income Fundraising expense

The average dollar amount of contributions raised from each dollar spent on fundraising.

= Fundraising efficiency

Cost Per Unit of Service

Program expense Units of Service

If the nonprofit uses program-based recordkeeping and has an identifiable “unit” of service, this ratio is very helpful in evaluating financial efficiency & identifying any changes of costs over time.

= Cost per “unit” of service

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When calculating ratios from the balance sheet, be aware of Temporarily or Permanently Restricted funds and how they might affect the ratios. Calculating the ratios using only Unrestricted Assets yields the most useful results.

Calculating and using financial ratios - Balance sheet ratio

what it tells us

Current Ratio

Current assets

Current liabilities

An indication of the organization’s ability to pay obligations in a timely way (within 12 months).

= Current ratio

A useful indicator of cash flow in the near future.

Days Cash on Hand Step 1: Annual expense budget (-) depreciation (-) in-kind expense (-) pass-through funds (-) unusual, one-time expenses

Annual cash requirement

A quick test of the operating cash or adequacy of the operating reserve. Include all unrestricted cash accounts such as savings and money market accounts. Setting a target for cash accounts should take several factors in to account, including reliability of income. ÷ 365 = One day cash requirement

Step 2:

Cash and current investments One day cash requirement

= Days cash on hand

Debt Ratio

Total liabilities Total unrestricted net assets

How much the organization is relying on funding from others, such as loans, payables, and obligated funds. Indication of how much of a cushion there is.

= Debt ratio

Accounts Receivable Aging

Accounts payable > 90 days overdue Total accounts receivable

= Aged AR ratio

Accounts Payable Aging

Accounts payable > 90 days overdue Total accounts payable

= Aged AP ratio

As receivables get older and more delinquent, it indicates potential collection or billing problems and cash flow issues.

An indication that the organization has cash flow problems and potentially severe financial problems.

WHO WE ARE Nonprofits Assistance Fund’s mission is to build financially healthy nonprofits that foster community vitality. Our financial experts help nonprofits strengthen their capacity to address unexpected events, finance new opportunities, and realize strategic goals. We fulfill our mission by helping you thrive. Find out more about Nonprofits Assistance Fund’s loans, training, resources, and financial advice tailored for nonprofits at www.nonprofitsassistancefund.org.

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An Integrated Balanced Scorecard Strategic Planning Model for Nonprofit Organizations Jan L. Ronchetti City of Naperville, IL Over a decade after Robert Kaplan and David Norton introduced the Balanced Scorecard as a strategic planning model in 1992, documented successes from the private sector can be found in much of today’s business literature. However, little information is available on how to implement the Balanced Scorecard in a nonprofit organization so that exceptional ongoing results can be achieved. Unique from the private sector, nonprofits are often required to minimize administrative and operating costs under the watchful eyes of congregants or donors. Tight operating budgets, heavy workloads, and confusion about how to effectively perform strategic planning are all contributing factors which can cause leaders of nonprofits to shy away from strategic planning initiatives. However, without a mission and values-driven strategy in place to guide long and short-term decision-making, a nonprofit’s ability to increase operational capacity, operate within budget allocation, enhance employees’ skill base, and meet stakeholders’ needs is compromised. This article discusses what the Balanced Scorecard is, describes implementation guidelines, and proposes practical scenarios of how to implement the Balanced Scorecard for a new outreach ministry within a nonprofit religious organization. Also, due to the widespread popularity of Rick Warren’s (1995) Purpose-Driven Church model, a scenario is presented combining the Balanced Scorecard with the Purpose-Driven Church model to demonstrate the power and flexibility of the Balanced Scorecard as a strategic planning and performance measurement tool.

Strategic planning presents a unique challenge to most organizations today, whether they are private, public, or nonprofit entities. Not only do strategic planning efforts frequently monopolize precious staff resources, but staff assigned to the strategic planning effort can be uncertain how to approach and execute this formidable task. Is planning a science or is it an art? Should an organization attempt to do strategic planning internally or should a seasoned consultant be brought in to guide the organization through the turbulence of an in-house planning initiative? These are difficult questions to answer and, while any strategic planning effort is a journey into the unknown, much of the uncertainty associated with planning can be addressed by following the guidance and structure offered by the Balanced Scorecard model. This article discusses what the Balanced Scorecard is, describes implementation guidelines, and proposes practical scenarios of how to implement the Balanced Scorecard for a new outreach ministry within a nonprofit religious organization. Also, due to the widespread popularity of Rick Warren’s (1995) Purpose-Driven Church model, a scenario is presented Journal of Practical Consulting, Vol. 1 Iss. 1, 2006, pp. 25-35 © 2006 School of Global Leadership & Entrepreneurship, Regent University ISSN 1930-806X

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combining the Balanced Scorecard with the Purpose-Driven Church model to demonstrate the power and flexibility of the Balanced Scorecard as a strategic planning and performance measurement tool. Balanced Scorecard as a Strategic Planning Model In the early 1990s, researchers Robert Kaplan and David Norton of the Harvard Business School determined that 90% of their private sector clients were unable to implement their own strategic objectives into daily operations (Niven, 2003). According to Kaplan and Norton (1992), the reasons why those organizations failed to realize ongoing, sustainable results are the same reasons why, over 20 years later, strategic planning efforts in many of today’s public and nonprofit organizations continue to fail: conflicting and competing work priorities, declining revenues or sources of funding, more work done with less staff, increased costs, and lack of an effective approach to plan and execute strategy. While the success of private sector firms is measured by return on investment and profit margins, success in public and nonprofit organizations is primarily realized through constituent satisfaction and cost containment. Even though organizational structures, methods of operations, and values may differ among private, public, and nonprofit organizations, the challenge of performing and implementing strategic planning is common to all of them. Whether an organization is profit or people-driven, Kaplan and Norton’s Balanced Scorecard provides a practical model for managers to define strategic themes and objectives, to implement strategy through all levels of the organization, and to measure performance. Simply stated, the Balanced Scorecard is a tool managers can employ to measure an organization’s operational success through direct cause-and-effect linkages back into daily operations (Huselid, Becker, & Beatty, 2005). Is it just another Management Fad? So, is the Balanced Scorecard a strategic planning model any organization can use to achieve breakthrough results or is its use confined only to certain organizations of excellence? Is it just another management fad du jour or does the Balanced Scorecard have long-term staying power as a strategic planning model? Labeled by the Harvard Business Review as “one of the 75 most influential business ideas of the 20th century” (Niven, 2005, p. 16), the Balanced Scorecard evolved from a 1990s planning model into an integrated strategic management system that links long-term strategy to short-term operations. This conceptual expansion is due in part to the evolution the Balanced Scorecard underwent as practitioners integrated it into new applications. While the generic appeal of the Balanced Scorecard has been the subject of numerous case studies, the real question is, “Is it here to stay?” Today there is no shortage of business management ideas. However, in an era of virtual organizations, instant communication, and quick fixes, according to Davenport, Prusak, and Wilson, the life span of a management idea in 2006 is approximately 3 years as compared to the 15-year average life span of a new management theory idea back in the 1950s and 60s (as cited in Niven, 2005). The fact that the Balanced Scorecard was introduced to the business world nearly 15 years ago, is still in use today in varied forms, and has evolved into a second-generation strategic management system due to its widespread use, does indeed suggest that the Balanced Scorecard is not a fad and is here to stay.

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Four Perspectives of the Balanced Scorecard A Balanced Scorecard initiative begins with identifying strategies derived from the organization’s vision and mission. Strategic themes are then developed by viewing the vision and mission statements from four distinct perspectives: Financial, Internal Processes, Customers, and Learning and Growth (Kaplan & Norton, 2004). Figure 1 provides a graphical representation of how mission and values-focused strategy drives the four perspectives.

VISION

MISSION

Financial

Internal Processes

STRATEGY

Learning & Growth

Customers

Figure 1. Balanced scorecard strategic management model for the private sector.

While private sector companies emphasize measuring success through financial measures, nonprofits also need to monitor budgets and expenses. The first perspective, the Financial perspective, defines financial strategic objectives and financial performance measures that provide evidence of whether or not the company’s financial strategy is yielding increased profitability and decreased costs. This view also captures how the organization must look to customers in order to succeed and achieve the organization’s mission. In the private sector, achieving financial strategic objectives is the primary means to realize the company’s mission. However, financial performance is complemented and impacted by three other perspectives: Internal Processes, Customers, and Learning and Growth. The second perspective, Internal Processes, represents the impact of product and service quality and helps identify which internal business processes must operate with excellence in order to satisfy customers. Internal process metrics are then developed, which communicate the level of product quality through the monitoring of in-process metrics, as well as measuring productivity associated with the number of units produced or services provided (Brown, 1996). Metrics defined for the Internal Process perspective are those that can be associated with

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satisfying customers and delivering value. As a result, delivering value to the customer with excellence yields a stronger financial performance for private sector organizations. However, for nonprofits, realizing excellence in internal operations correlates to increased constituent or congregant satisfaction, not financials (Niven, 2003). The third perspective, Customers, represents another view of internal operations that has a cause-and-effect relationship with the Financial perspective and addresses how the organization must appear to customers in order to fulfill the organization’s mission. For the profit-driven private sector, the Customer perspective supports the critical Financial perspective. However, for nonprofits, it is appropriate that the Customer perspective assumes primacy over the Financial perspective due to the critical need for constituent satisfaction. The fourth perspective, Learning and Growth, enables the other three perspectives and defines what type of staff and automation the organization must have in order to achieve the mission, support the internal processes, and satisfy the customers. In some organizations, this perspective may actually be labeled Enablers. Strategic objectives and metrics of the Learning and Growth perspective help to identify gaps between current employee skill levels, culture, and supporting information systems and discover the optimum level of operation at which these components become high performing internal processes (Niven, 2003). Benefits and Cautions One benefit of viewing an organization through the four Balanced Scorecard perspectives is that this approach reduces information overload by condensing critical data needed for decision-making. The Balanced Scorecard also meets managerial needs by distilling varied unrelated measures from multiple areas within the company into a single report and ensuring that managers are looking at all measures across the operation. This approach also introduces the safeguard that one measure is not improved at the expense of another (Kaplan & Norton, 1992). Developing organizational strategy through the Balanced Scorecard also minimizes participants’ subjectivity as they take part in the strategy-setting process and enhances managers’ ability to assess all programs for strategic impact without bias. Finally, strategic objectives represent concrete actions that support leaders in moving the organization toward achieving its mission and provide a methodology to align and leverage scarce work resources on tasks that will result in increased value to the customer. As comprehensive as the Balanced Scorecard system has proven to be, it also carries some cautions. The amount of time estimated to implement a Balanced Scorecard initiative should be carefully estimated and evaluated. This is particularly true if no Balanced Scorecard subject matter expert is available on the implementation team. Bullard (2004) stated that effective strategy development and planning typically guide 3 to 5 years of an organization’s future operations. Due to the length of this 3- to 5-year operating interval, it is beneficial that an organization allow an adequate amount of time to conduct a thorough Balanced Scorecard implementation. This 3- to 5-year operating interval contrasts sharply with the annual planning exercise conducted by many organizations that typically addresses the organization’s operations only, for a 1- to 2-year period. Due to the amount of information synthesis required in a Balanced Scorecard initiative, an organization should realistically evaluate its ability to create and maintain an ongoing Balanced Scorecard effort.

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Six Action Steps of the Balanced Scorecard Implementation 1. Formulate the Purpose (Mission Statement) The mission statement should be brief, to the point, and state the reason why the organization exists. It should also include how the organization will operate in order to have maximum impact on its stakeholders. Using the practical example of starting an outreach ministry in a church setting (i.e., a nonprofit religious organization), it will be important to capture that the ministry is being created to respond to the needs of people in the community who are typically outside the reach of the organized church. The mission statement should also reflect that ministry will be accomplished by equipping, affirming, and supporting lay leaders and participants who will be impacted by this ministry. A sample mission statement embracing these purposes might read: This outreach ministry responds to the churched and unchurched community’s needs by: a. Creating and maintaining genuine, transformational relationships. b. Equipping and supporting those called to the vocation as an outreach lay leader. c. Using strategic planning to ensure desired results and realization of the ministry’s mission. 2. State the Vision The vision statement is a word picture of what the project ultimately intends to become 5, 10, or 15 years in the future. While mission statements are often abstract, the vision statement should contain as concrete a picture of the desired end state as possible in order to provide a basis for development strategies. In the start-up outreach ministry example, it’s important to capture the ultimate vision of building relationships in the community as a means to discipleship. The underlying vision of this ministry is to be an impetus for spiritual growth in people with needs by building authentic, caring relationships with them and serving as a role model of Jesus’ love for people. The outreach ministry will be a model of service, discipleship, and fellowship that honors the Great Commandment by unconditionally loving people. Gifted and motivated lay leaders will be known for their authentic spiritual walk and caring relationships with people. We will be a springboard for meeting the practical needs and spiritual development of others. By helping people in the community build close and personal relationships with Jesus Christ, we will be used of God to build a community of resilience and faith. 3. Conduct a SWOT (Strengths, Weaknesses, Opportunities, and Threats) Analysis A SWOT analysis is a tool used to collect stakeholder input and objectively examine the organization’s operating advantages and barriers to effectiveness. What makes this tool so powerful is that it can help an organization identify internal operating strengths and external opportunities that are easy to pursue. Likewise, by understanding its weaknesses an organization identifies what processes could be improved and is made aware of possible external threats, giving that organization an opportunity to manage or eliminate them. Taking an objective look at

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advantages and potential barriers the organization realistically faces is the start of developing a strategy that focuses on strengths, minimizes weaknesses, and takes the greatest possible advantage of opportunities available. For the new outreach ministry scenario, a facilitated SWOT analysis session would optimally be held with a group that represents different levels of ministry stakeholders: church leadership, pastors, support staff, and lay leaders. In conducting the SWOT analysis, the following questions might be posed to generate responses regarding internal operations: a. Internal Strengths:

b. Internal Weaknesses:

“What do we do well?” “What advantages do we have?” “What do others see as our strengths?” “What could we improve?” “What should we avoid?” “What do we do poorly?”

After the SWOT analysis is complete, look for key strategic ideas that appear to fit in one large category of similar ideas (e.g., provide high-quality ministry support, plan to work more effectively, and streamline and automate work tasks) that might span multiple categories. These strategic ideas are valuable input to the next step of creating a strategy map using SWOT analysis input to examine the organization from the four Balanced Scorecard perspectives. Not only does the SWOT analysis provide valuable information about the organization’s operations, but it also gives the strategic planning team valuable information that may leverage resolution of other organizational issues. 4. Build a Strategy Map While a SWOT analysis results in knowledge about internal operations and external influences, the strategy map captures “buckets” of ideas called strategic themes. These themes are crafted into strategies for which objectives and performance indicators can be defined and made actionable. In the Balanced Scorecard model, these strategies are developed within the Financial, Internal Process, Customer, and Learning and Growth perspectives. While private sector firms are profit-driven and place the greatest emphasis on the Financial perspective, nonprofits usually rearrange the strategy map to have the Customer perspective on top renaming it the Constituent or Community perspective. Whether the Financial or Customer perspective is at the top of the strategy map, the topmost perspective is still supported by the other three perspectives. In the new outreach ministry scenario, the planning team would review the SWOT analysis, look for similar comments, and group them together under a common theme. For example, if several points from the SWOT analysis alluded to work inefficiencies due to poor processes or little automation, a category of “Streamline and Automate Work Tasks” could be defined as a strategic theme. Figure 2 depicts a sample strategic map the outreach ministry team might have at this point in the planning process. In determining how the outreach strategic map should be arranged, the planning team might decide to use the labels of Internal Processes and Financial for these perspectives, but choose more descriptive titles for the remaining two perspectives. In this example, Learning and Growth was changed to Enablers and, since the label Customers is not particularly applicable to ministry, the label Community was used instead of Customers.

Community

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Internal Processes

I2 Maintain process quality and consistency

I3 Educate, promote and communicate

E1 Maintain process quality and consistency

E2 Apply enabling technology

E3 Foster biblical study and lifelong learning

Financial

I1 Achieve operational excellence

Enables

C1 Deliver and sustain a transformational ministry

F1 Be responsible stewards

Figure 2. Sample strategic map for the outreach ministry team.

5. Define the Strategic Themes Once strategic themes are categorized and placed on the strategy map, the planning team should ask more questions about each strategic theme before proceeding in the planning process. Two helpful questions to ask at this point are a. “What is it?” – What is the definition of the strategic theme, taking into account the SWOT analysis input, assumptions made, and discussion points associated with the strategic themes? b. “Why is it important to the organization?” – As further discussion about a strategic theme occurs, it is easy to forget why the planning team thought it was important at the time. By documenting the “Why?” question, the team has an important reference point for future discussions about indicators, measures, and targets. For the outreach ministry project, detailed notes should be taken during the planning team’s meetings to capture key discussion points. These notes will be reviewed later by the planning team and formulated into definitions for the strategic themes. Once definitions are developed, the team should discuss each strategic theme in order to decide why it is or is not important to the organization. During these meetings, strategic themes may be added or removed, wording is frequently adjusted, and opinions should be constructively challenged to ensure that the results

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capture important operating principles that reflect the purpose, vision, and values of the organization. 6. Identify Strategic Objectives and Performance Indicators Strategic themes are operationalized through the definition of strategic objectives that describe very specific things the organization must do well to achieve its mission. However, defining strategic objectives is not enough. Performance indicators are then developed to provide measures of success. Indicators are not to be confused with metrics or targets that provide measurement standards and report performance. Indicators typically track trends, are less precise, and act as a barometer of whether progress of a strategic objective is positive or negative. In the case of a negative trend, further investigation will be required to determine the source of the root cause driving the negative trend. In the outreach example, the strategic planning team may feel that the “Deliver and sustain a transformational ministry” strategic theme in the Community perspective (which is identified in the “C1” box of Figure 2) is the most important objective to be accomplished in order to achieve the ministry’s mission. To track the organization’s progress on this objective, outreach participant data will be accumulated every quarter to assess if the objective is being met. As more data is collected, the team will need to assess whether the indicators they have defined are true representations of the ministry’s success. If no new indicators are chosen, more extensive analysis should be done to formulate precise measures and targets. Integration of the Balanced Scorecard and Purpose-Driven Church Models for Nonprofits In considering an alternative nonprofit strategic planning model, one of the most popular is Rick Warren’s (1995) Purpose-Driven Church model for religious organizations. This model promotes church growth through strategy built around five New Testament purposes of the church: evangelism, worship, fellowship, discipleship, and service. In this model, purpose (i.e., vision and mission) is driven by data collected about the targeted church growth group. In the Balanced Scorecard terminology, these are stakeholders. Key components of the Purpose-Driven Church model that contribute to its appeal are the use of data and emphasis on communication. Supporting this concept is Drucker’s (1990) conclusion that one of the most critical activities a nonprofit organization can do is to “build itself around information and communication instead of around hierarchy” (p. 30). The PurposeDriven Church model’s use of quantitative data assessment, evaluation, and validation sets the stage for positive results, similar to the data-driven Balanced Score model. Another strength of the Purpose-Driven Church model is seen in how this model guides church leaders in the definition of how the five purposes apply within the context of their own organization. The main deficiency of this model is evidenced by the lack of direction in how to operationalize strategic objectives into the daily flow of work. Without a cause-and-effect linkage established between strategy and daily work, organizations applying the Purpose-Driven Church model are more likely to grasp the concept of defining purpose rather than understanding how to implement strategy amid the reality of conflicting daily priorities and programs. The implementation shortcomings of the Purpose-Driven Church model invite users to explore alternative models to integrate into the Purpose-Driven Church model in order to actualize a nonprofit’s mission. The flexibility of the Balanced Scorecard model lends itself to this integration and is graphically

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depicted in Figure 3. The strength of an integrated model is emphasized by the data gathering approaches common to both models and by the contribution of the Balanced Scorecard’s causeand-effect linkage down into low-level operations. This integrated model also fosters a deeper level of critical thinking with regard to stakeholders, internal processes, employee and volunteer development, and financial considerations, all significant in the daily operation of any nonprofit today. VISION

MISSION

Financial 5 PURPOSES Internal Processes

STRATEGY

Learning & Growth

Customers

Figure 3. Integrated Balanced Scorecard and Purpose-Driven Church strategic model.

Implementation Tips Organizations differ in size, culture, and complexity, but key implementation points should be considered when using the Balanced Scorecard to develop strategic objectives. 1. Choose a leader with good overall knowledge of the business as a Balanced Scorecard champion. Do not delegate this responsibility out to a member of the staff. Be realistic in the amount of time this person will need to dedicate to the implementation effort (Olve, Petri, J. Roy, & S. Roy, 2003, p. 192). 2. Hold a kickoff meeting to define the Balanced Scorecard terms and clarify terminology. Niven (2005) reported to having seen the Balanced Scorecard projects take weeks longer than planned simply because participants made assumptions about the meanings of words (p. 57). 3. Keep in mind that it is often difficult for managers to define strategic objectives and metrics for the Learning and Growth perspective since it deals with the intangible areas of training and culture. When strategic objectives are being defined, it is not uncommon that Learning and Growth is the last view that has action plans and metrics defined.

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4. Be prepared to address change. New strategies will introduce some level of organizational change (Schaller, 1993, p. 91); therefore, plan for change prior to the kickoff meeting and remain vigilant to see how changing one component in the organization may impact other operations in the organization. 5. Cascade objectives down to the operational level from the strategies. Develop objectives, metrics, key performance indicators, and performance targets based on the identified strategies (Niven, 2003, pp. 133-139). Summary While many approaches to strategy development exist, the unique characteristics and mission of each organization must dictate the approach used to move the organization toward fulfilling its mission. The use of the Balanced Scorecard model provides an innovative alternative for many nonprofit organizations that do not find private sector strategic planning models applicable to their unique planning needs. The use of the Balanced Scorecard model or an alternative integrated solution where the Balanced Scored model supplements another strategic planning model already in use is an option for those nonprofits seeking to plan with the precision of a private sector firm, and committed to meeting the unique needs of their community-focused organizations.

About the Author Jan Ronchetti, PMP, is employed with the City of Naperville, Illinois and is a professional project manager with expertise in software development, human resources, and organizational effectiveness. With over 20 years of project management experience in the private, public, and nonprofit sectors, she is currently implementing a public sector Balanced Scorecard project and leading several municipal project management initiatives. Email: [email protected]

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References Brown, M. G. (1996). Keeping score: Using the right metrics to drive world-class performance. New York: Productivity Press. Bullard, G. W. (2004). Using consultation in strategy planning. Review and Expositor, 80(4), 561-569. Drucker, P. F. (1990). Managing the non-profit organization. New York: HarperCollins Publishers. Huselid, M. A., Becker, B. E., & Beatty, R. W. (2005). The workforce scorecard: Managing human capital to execute strategy. Boston: Harvard Business School Press. Kaplan, R. S., & Norton, D. P. (1992). The balanced scorecard – Measures that drive performance. In Harvard Business Review on Measuring Corporate Performance (1998, pp. 123-145). Boston: Harvard Business School Press. Kaplan, R. S., & Norton, D. P. (2004). Strategy maps: Converting intangible assets into tangible outcomes. Boston: Harvard Business School Press. Niven, P. R. (2003). Balanced scorecard: Step-by-step for government and nonprofit agencies. Hoboken, NJ: John Wiley & Sons, Inc. Niven, P. R. (2005). Balanced scorecard diagnostics: Maintaining maximum performance. Hoboken, NJ: John Wiley & Sons, Inc. Olve, N., Petri, C., Roy, J., & Roy, S. (2003). Making scorecards actionable: Balancing strategy and control. Hoboken, NJ: John Wiley & Sons, Inc. Schaller, L. E. (1993). Strategies for change. Nashville: Abingdon Press. Warren, R. (1995). The purpose-driven church. Grand Rapids, MI: Zondervan.

BALANCED SCORECARD – Generation 1 Graphic BALANCED SCORECARD: WIKI CITE http://en.wikipedia.org/wiki/Balanced_scorecard

RESOURCES

DASHBOARDS Dashboard Reporting – LISC Webinar – Jeanne Bell, presenter http://www.lisc.org/docs/experts/2006/eo_12_06_2006.pdf A Nonprofit Dashboard & Signal Light for Boards http://www.blueavocado.org/content/nonprofit-dashboard-and-signal-light-boards A Consumers Guide to Low-Cost Data Visualization Tools (idealware – free but need to register) http://www.idealware.org/reports/consumers-guide-low-cost-data-visualization-tools Dashboard Generator Data Entry Tables http://www.boardsource.org/UserFiles/File/Bookstore/DashboardDataGraphic.pdf Chandoo.org – templates and how-tos for charts, graphs in Excel (free) http://chandoo.org/wp/2009/12/18/charts-to-compare-targets/

OTHER RESOURCES Defining the Challenge: Year UP Private Placement Memorandum and Prospectus May 5, 2007 http://nonprofitfinancefund.org/files/docs/Year_Up.pdf Year Up Quarterly Performance Assessment 2006 http://www.powershow.com/view/2de77-ZGZlN/Quarterly_Dashboard_Assessment_flash_ppt_presentation Key Steps in Outcome Management http://www.urban.org/UploadedPDF/310776_KeySteps.pdf The Nonprofit Taxonomy of Outcomes: Creating a Common Language for the Sector http://www.urban.org/center/met/projects/upload/taxonomy_of_outcomes.pdf Innovation Network Logic Model Workbook http://www.innonet.org/client_docs/File/logic_model_workbook.pdf Time to Draw: Developing a Logic Model http://www.nccccurricula.info/documents/LogicModel.ppt

Bess Hamilton Foley

[email protected] 703-527-9105

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