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A Financial Statement Series

Money in the form of many large bills

Although FASB Statement 117 requires a non-profit organization to produce a Statement of Activities, Revenue and Expense statement still serve a purpose. These two are similar and in the next article, we will look at the specifics for the Statement of Activities. Both statements depict how the organization derives revenue and how those funds are being spent.

A Rose by Any Other Name

In the for profit world, this statement is also known as the Income Statement, The Statement of Profitability and Loss (this is where the term P&L comes from), and sometimes the Statement of Operations. We will just keep it simple and refer to it as the Statement of R&E (for revenue and expenses), especially since nonprofits don’t have profit.

In its simplest form, the Statement of R&E begins with a revenue section, followed by an expense section. The total revenue minus the total expenses produces The Bottom Line. If the revenue is greater than expenses, you have revenue over expenses. If the expenses exceed the revenue, you have revenue under expenses, sometime displayed as a red number, hence the term in the red. No one wants to be in the red.

The Beginning, A Very Good Place to Start

The Statement of Revenue and Expenses has a defined format. First up is the heading. The heading is important because that tells you three things:

The name of the organization,

the statement type,

and the time period for the statement.

Statements of R&E report results over a defined period of time. That means there is a starting date and an ending date for the statement. For example, the statement might report revenue and expenses for a month, or a quarter, or annually, or since your last birthday. Just be sure the dates are stated in the heading.

The body of the statement is next. The body contains the revenue section, and the expenses associated with earning that revenue for a specific time period. Revenue is the money coming in. The expenses section is the money going out. Even though this section reflects money going out, the amounts are reported with positive signs.

For a simple statement, the next section is The Bottom Line. Expenses are deducted from the revenue received and a total is reported. Nonprofits often use the term Revenue Over (Under) Expenses rather than the term profit.

More than One Way to Count Money

An important question to ask is, “What method does the organization use to report revenue?” You mean there is more than one way to count the cash? Well, you count the cash the same, but you report it differently. A cash basis organization reports the revenue when the cash is received. Many organizations use the accrual method rather than the cash method.

Under the accrual method, revenue is reported according to accounting rules. For example, revenue might be reported when the item is shipped rather than when the cash is received for the order. For service organizations, revenue is recognized when the service is provided. Suppose fees are collected for child care classes. Under the accrual method, the revenue is recognized (and reported) when the participant takes the class rather than when the fees were received. No matter which method is chosen, it applies to both revenue and expenses.

Matchmaker, Matchmaker

Accounting has a term called matching. Accounting rules say that the expenses listed should be for the period matching the revenue reported. Expenses will also be reported either with the cash method or the accrual method

It is Not Cash

Statements of Revenue and Expense also include non-cash items. Depreciation is a noncash item. Depreciation is a way of reporting the wear and tear of some assets such as equipment, vehicles, computers, or machinery. Depreciation spreads the cost of those assets over time. So while depreciation isn’t using up cash at the time of the report, it is a reminder that assets are wearing out and will need to be replaced someday. Non-cash items are one reason the income (or loss) reported on the bottom line will not match the cash in the bank. Amortization is another non-cash item. Similar to depreciation, amortization spread the cost of intangible assets over time.

The Bottom Line

And finally, the bottom line plus a few other terms. Sometimes, there are levels of The Bottom Line. Some organizations report Net Operating Income. This is income before interest and taxes. Operating revenue and expenses will be monies earned or spent directly related to the mission or the business. Non-operating items will be reported next. If the organization has taxable income, the taxes will be reported in this section. Interest income and expenses may be reported here. After the non-operating items comes the final bottom line. This is known as Excess Revenue Over (Under) Expenditures. You know how to do the math now.

The Final Note

Generally, if the revenue is more than the expenses that is a good thing. However, no one financial statement tells the entire story. There are several financial statement types and each one is needed to answer the question, “Is this organization well managed?” Next up, The Statement of Activities, a statement specific for nonprofits.

Click here to read the previous article in this series.

LauraHeadshotLaura Reifschlager
Trainer

A Financial Statements Series

ClaculatorAccounting systems capture accounting transactions. Financial statements are constructed from these transactions and depict the economic activity and financial position of the organization. Knowing how to read financial statements may help you determine the health of a non-profit. Is it well-funded? Is it properly managed? How is the organization spending its resources? How have the assets or liabilities changed over time? Several key statements provide clues to these answers.

In a for-profit organization, net income can be a measure of success. Non-profit organizations use any surplus revenue to achieve its goals rather than distribute the surplus as profit. Changes in net assets are referred to as surplus or deficit and are carried forward. Thus FASB (that’s the Financial Accounting Standards Board) requires a different set of statements for non-profits.

This is the first in a series of articles where I’ll unravel the mysteries of those reports in easy-to- understand terms.

To begin, let’s look at some of the most popular reports produced. Then, in subsequent articles, we will look at the most common ones in a little more detail.

FASB Statement 117 requires that a complete set of financial statements for a nonprofit organization include:

  • A Statement of Financial Position
  • A Statement of Activities
  • A Statement of Functional Expenses for Voluntary and Welfare Organizations and encourages it for other not-for-profit organizations
  • A Statement of Cash Flows
  • Financial Statement Disclosures

A Statement of Financial Position is similar to a balance sheet in that it shows the ending balance of the assets, liabilities and net assets (also called net equity) at a specific point in time. Further, net assets must be classified based on the donor-imposed restrictions of permanently restricted, temporarily restricted, or unrestricted.

A Statement of Activities is similar to an Income Statement, also known as a Statement of Revenue and Expenses, in that it reports the changes in net assets over a period of time. The change in net assets is also reported based on the restriction categories of permanently, temporarily, or unrestricted.

A Statement of Functional Expenses is the Statement of Activities with expenses reported by functional classification such as programs and services, management and general expenses rather than the natural classification of salaries, office and supplies expenses, and maintenance, to mention a few examples.

A Statement of Cash Flows summaries the inflow and outflow of cash by an organization over a defined period of time. Because many organizations use accrual accounting, the recognition of revenue and expenses is often different from the actual timing of cash receipts and disbursements. The  cash flow statement is intended to address the actual flow of cash and validate the ending cash account balance reported.

And finally, A Statement of Financial Disclosure simply stated is a list of explanations and comments that explain certain aspects of an organization’s procedures. FASB Statement 116 as well as FASB Statement 117 require specific disclosures for nonprofit organizations.

There. I’ve now defined the basic statements. A good fund accounting software program should provide these statements both “out of the box” and with customizable features. Sage 100 Fund Accounting provides standard statements that can be run without any changes as well as the ability to customize each report for the needs of specific organizations.

Stay tuned for more details on the most frequently used financial reports.

Update: Follow the links below to view the next articles in this series.

Show me the Money: Understanding the Statement of Revenue and Expenses

Show me the Money: The Statement of Activities with Functional Expenses

Show me the Money: Understanding the Balance Sheet

Show me the Money: The Statement of Financial Position

LauraHeadshotLaura Reifschlager
Trainer

SocialMedia

We recently held a conference for our business partners, and as the social media specialist I, of course, was asking everyone for their twitter handle so we could connect online.  I was surprised to find that only about a third of them had a handle (separate from the company handle) and even fewer were actually active on Twitter.  Most people explained that they “don’t have time for that” or that they simply don’t know what to tweet about and that they only use Facebook for connecting with friends and family.  I was asked over and over again why social media is important to their business.  My response to our partners applies to nonprofits as well, so I’d like to share my reasoning with you here on the blog.

#1 Social media is “free” marketing.   I use quotation marks around the word free because, while Facebook and Twitter do not charge anything to sign up for an account, we all know that time is money.  Social media can be time consuming, but there are plenty of tips, tricks, and tools out there to help you to be more efficient at it. In the end, the donors, volunteers, and influencers that you connect with are more valuable than the time it takes to engage with them in social media.

#2 People are connected to and through technology.  With the rise of mobile apps and smart phone technology people use social media to stay in touch and up to date on what’s going on in the world now more than ever.  Whether we are checking up on our Facebook friends in line at the super market, tweeting from our favorite restaurant, or liking the pages of our favorite organizations, we are using social media to stay in touch with the people, businesses, and causes that matter most to us.

#3 You can catch more fish with a wider net.  Once you get the people in your organization to like or follow you in social media they can share your posts with all of their friends in social media, and so on.  Your effort to reach one person can, in fact, reach many many more.  The algorithms in Facebook, for example, push content to the top of the news feed the more times it has been liked or shared, so if you just get the ball rolling then your followers will keep it moving for you, expanding your audience.  The key here is posting content that people will be proud to share

All you need is an email address to sign up for most social media platforms.  They will walk you through the process and even give you an overview on how to use it.  If you already have an account, it’s time to get active.  You can start out with just one tweet or post a day and work your way up to more once you get a feel for it. What should you post?  As a nonprofit, you’ll want to engage by sharing information and photos about your mission, opportunities to get involved by making a donation or volunteering, and updates on your progress toward your goals.

Take the plunge and dive into social right now! You’ll be glad you did!  If you have any questions feel free to ask in the comments section below.

Leslie Z

Leslie Ziegler

Social Media Specialist

drawing

Of all the sessions I attended at SXSW Interactive Festival this year, there was no other session that made me feel quite like the one presented by Von Glitschka, “Drawing Conclusions: Why Designers Should Draw.” Experiencing feelings of guilt and shrinking in my chair are good descriptors. I’m a software Designer, you see. Von made it his mission to convince his audience that drawing improves design and enables a designer to create smarter. He succeeded. He also convicted me when he threw out terms like, “creatively lazy”, “computer as a crutch,” and “you’ve become a ‘tooler’”. He directly said, “You can’t call yourself a designer if you can’t draw.” You know how sometimes when you sit in church and, out of your own guilt, you think the preacher is talking directly to you and about you? Well, that’s how I felt at Von’s session that hour.

coloring

I would argue, though, that drawing is not just for designers. Everyone should draw because everyone needs to be creative in some way. Are you trying to find a creative solution to what market segment your sales department needs to focus on next, or do you need a, “think-outside-the-box” solution to target your nonprofit donors? Before you jump to conclusions, draw what that could look like! Von put it so well when he said that drawing is a universal communicator. It’s part of human instinct. As a child (think back to your kindergarten years), when you were given a box of crayons, you drew. It doesn’t matter where you live, what culture you grew up in, or what language you speak; drawing bridges the gap when words fall short.

Looking instead of creating.  If you work in an environment that is not deadline-driven, I envy you. Most of us don’t always have the time to use the best methods to produce our best work. Often times, though, we use that as an excuse to skip the creative process and march too quickly down the path of least creative resistance, as Von puts it. He states that this path puts us closer (dangerously closer) to having a bigger industry problem like copyright infringement. When you avoid drawing because you know it will take more time to pull it off well, you move out of creating and move into looking for solutions. Remember that we are to be great, not shallow, thinkers. It’s no wonder why over the last 20 years the creative process has declined while copyright infringement has inclined. Von reported that, over the last five years, his work has been infringed upon over 200 times (maybe more he says), and around 20 of those situations required him to get a copyright lawyer. He states that every single one happened because designers went looking for a solution rather than creating it themselves.

But I can’t draw like Picasso.  It doesn’t matter if you can’t produce life-like portrait pencil drawings or Japanese cartoon drawings. Von likened “drawing” to terms like, “doodling” or “sketching.” Drawing does not have to be complex; it can be as simple as drawing stick figures. If you’re someone like me who does not make it a routine habit to draw, then it can be frightening when challenged to come up with a visual solution at work. We have to kill this fear because it kills our creativity. I equate this fear as kryptonite to creativity. We need to think back to our kindergarten years (how easy and fun it was) the next time we’re faced with the temptation to think we need to live up to Picasso.

grace0000089Grace Francisco

Design Analyst

Innovation can mean many things to many people. Innovation and accounting are usually not words that go well together. Innovative accounting usually = new ways to justify questionable practices. Enron had a very innovative accounting department. When applying innovation to accounting, we shouldn’t be focused on creating new recipes with which to cook the books. Instead, we should be innovative about how we measure things and look beyond just OUR books to the social balance sheet.

A non-profit organization “success” should be measured beyond simple financial results, overhead ratios, number of clients served and other traditional methods of tracking efficiency. The effect of their services on their customers, and thus society at large, should also be given weight in that evaluation.

Let’s say you’re a human services agency and have a choice of two programs for improving health outcomes. Both help, but the more expensive one has a difference in the number of days a client is sick or hospitalized. When you look at both programs strictly from a budget/efficiency perspective one serves fewer people and is more expensive, looks like “inefficiency” at work. From the organizations’ standpoint that might be true if we only look at how much money it costs US.

success

But what about the savings to our clients and society as a whole? If that person stays out of the hospital, the local community sees large cost savings. If the person doesn’t miss work because they are ill or taking care of something (like waiting in line for discounted services), then that’s productivity that isn’t lost to their employer as well as direct wages the client doesn’t lose. When you consider that many non-profit clients are in tenuous circumstances to begin with, these savings in time and money on their part may make the difference between staying afloat or going under in a reinforcing spiral of work issues, health issues, medical access, food and nutrition and ultimately housing issues. Keeping more of them afloat reduces the strain on many other services besides the one our organization provides. In accounting terms, it keeps them in the asset vs. the liability section of the social balance sheet.

Finding ways to measure this success and tell this story, rather than beating tired ratios of efficiency to death, is real innovation. Statements like “saved average customer 4 sick days” don’t sound terribly impressive, but “saved average customer $15,345 in lost time, wages, hospitalization and social welfare costs” makes a stronger case that even bean counters can appreciate. Then you can make a better case when you ask “Is it worth $100 of our money to save the customer and society at large $10,000?”.

DSC_5179

Tom Tweedel

Sr. Customer Support Analyst

vine

The other day as I was preparing my blog post, Video Visuals for Nonprofits, I came across this great article about the Vine app on the Sikich blog.  I had intended to include information about this 6 second video phenomenon in my post, but since Tea Kurpalo, Sikich blogger and marketing extraordinaire, already explained it so well I decided instead to feature it as a guest post.  Read on to find out how your nonprofit organization can use this fun free tool to further your mission.

Trend alert! The latest social media craze, Vine, is spreading like wildfire. Has your organization adopted this new content marketing tactic?

What is Vine?
Twitter’s new (and free!) video-sharing mobile app, Vine, was created to serve the same purpose as its strictly-140-characters-or-less founder―to capture and share brief moments in time (six seconds to be exact) in a creative way that allows you to express yourself using a fusion of picture, motion and sound. Essentially, Vine is to Twitter what Instagram is to Facebook―a more personal, captivating and concise way to visually display what you are saying and humanize your brand.

Companies are finding Vine to be an affordable alternative to professional video marketing and are showcasing their organization’s personality and mission while finding fun ways to interact with their audiences and garner more online exposure―all at no cost.

How can my company use Vine?

Make your mark in this niche by finding a new mode for communicating different content, ideas and moments, and watch brand awareness and customer engagement grow. Here are a few ideas on how to use Vine for your business (but we’re sure as soon as you start using it, you’ll find even more reasons and ways!):

Increase Awareness

  • Brand your videos with your logo, products and services
  • Give sneak peeks into new products
  • Share daily deals and specials
  • Promote upcoming events
  • Attract visitors to your booth when exhibiting at a conference
  • Offer behind-the-scenes snippets
  • Introduce your employees
  • Share fun facts about your organization

Increase Engagement

  • Begin a conversation by asking a question
  • Start a contest and ask for video submissions from followers
  • Demonstrate how to use a new product, service or feature
  • Offer a quick Q&A after an event
  • Create and resolve a conflict in seconds
  • This is one of the many trailblazing marketing trends this year. Learn what the other marketing trends for 2013 are, as well as how to easily implement them into your integrated marketing plan, with secret tips and tricks in our free eBook, 13 Marketing Trends for 2013.

Author: Tea Kurpalo
Connect with Tea on Google+

See the original article from Sikich here.

In a recent survey, we found that over 70% of our customers own a smart phone.  What was interesting from these results was that only 13% of those customers are using their smart phones to utilize productivity tools other than email!!  With millions of free apps available, there are unlimited possibilities as to how you can become more productive, at no cost to you or your organization

Check out the three apps I use every day that help me move forward, faster!

Trello –Trello is an app that, in one glance, tells you what needs to be done, by when, and where something is in the process.  You can use Trello on your own, or you can invite other members of your organization to join with you and share lists. The drag and drop functionality of this app is intuitive, reliable, and user friendly.  You can access this app from your desktop, tablet, or smart phone (I use Trello on all three).

When you first start using Trello, you will start with a board.  I have several boards that I use throughout my day. For example, I have a “Professional To-Do” board I share with my boss and a “Personal To-Do Board” that I keep to myself.  Each board gives three lists: To-Do, Doing, and Done.  You can add items to each list by selecting “Add Card”.  Once a card is added to your list you can easily drag and drop cards from To-Do to Done in less than a second.  At the end of a project or when performance review time comes around, you can see all of the “Done” items to celebrate your accomplishments. Since you can access this app on all of your devices, you can update your boards from work, home, or on the go.  The best way I can describe this app is fluid!  Updates and collaboration with other team members is so easy! https://trello.com/


Trello

Evernote –  The concept of Evernote is an online notebook that you have with you wherever you go. Evernote has allowed me to almost completely get rid of my paper notebook in the office and gives me constant access to notes from meetings, conference sessions, and outside research.  Since all of my notes are available on any device I feel prepared in every meeting, and I can even answer questions from people who stop me in the hallway and asked me what they missed in a recent meeting.

In order to start writing, all you have to do is click one button and start typing.  You can attach pictures and files to notes as well, so you have your important files with you wherever you go.  Also, when looking for particular notes, the search functionality in Evernote makes it easy to find them. http://evernote.com/

Evernote

Twitter - I’m sure you are all asking, how can social media make you more productive?  Social media has a stigma that it is counterproductive to productivity, but it is actually very powerful when used in the right ways.   Twitter is a very quick way to see what is going on RIGHT NOW in the lives of other nonprofits, your funders, and your constituents.  “Listening” on Twitter is important to stay in touch with the needs of your constituents, what other people are saying about your organization, and what other nonprofits are doing to get results. The best thing about it is each tweet is 140 characters (or less), and you can access it from anywhere.  My favorite places to check twitter are in line at the grocery store, riding the bus, or waiting for an appointment.

Twitter has been a mainstream social media outlet since 2007, but people are still trying to figure out the best way to use it.  When you are first starting out I suggest that you only follow a few people or organizations you are interested in hearing from, so you don’t go into information overload on your Twitter feed. You can check out Leslie’s post, Twitter 101, for the basics to get you off to a good start.   https://twitter.com/

Twitter

Now that you have a few apps to get you started, go out there and experiment!  Find the apps that are right for you and your work style.  I would love to hear your comments on the apps you love that make you more productive.

BrookeGrimesBrooke Grimes

Product Marketing Manager

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