The Income Statement and Statement of Functional Expense. Barbara Clemenson, CPA, CFRE

Transcription

1 The Income Statement and Statement of Functional Expense Barbara Clemenson, CPA, CFRE

2 Outline Review of the Income Statement The 990 Income Statement Numberless Analysis Statement of Functional Expenses Using the 990 as a development tool Income Statement Financial Analysis Clemenson - Income Statement Analysis 2

3 Review of the Income Statement Statement of Activities - Looks at the activities of an organization throughout its fiscal year. This balances based on this accounting formula: Income - Expenses = Profit For a nonprofit, Profit = Increases Net Assets. Clemenson - Income Statement Analysis 3

4 Review of the Income Statement Because nonprofits have three different types of funds, their Statement of Activities might include three mini-income statements -- one for each Fund: Unrestricted - Typically the normal operations of the organization Temporarily Restricted - Those fund given for a particular purposes. They are released and reclassified as Unrestricted when they are used for that purpose Permanently Restricted - Endowment Clemenson - Income Statement Analysis 4

5 Review of the Income Statement Balance Sheet Assets Liabilities Net Assets Statment of Financial Position at End of Previous Fiscal Year Before Snapshot Income Statement Expenses Income Summary of Activities that Happen During the Year Movie If Income > Expenses, Profit increases Net Assets If Income < Expense, Loss Decreases Net Assets Balance Sheet Assets Liabilities Net Assets Statment of Financial Position at End of This Fiscal Year After Snapshot Clemenson - Income Statement Analysis 5

6 The 990 Part I = Income Statement Part II = Statement of Functional Expenses Part III = Statement of Program Service Accomplishments [Not a Financial Statement but a great development tool] Part IV = Balance Sheet Schedule A Part IV-A = Support Schedule [partial cash flow statement] Clemenson - Income Statement Analysis 6

7 Income Statement Analysis The Income Statement and the Statement of Functional Expenses, more than any other financial statements, give us a picture of an organization. Expenses = What they do = Their MISSION Income = How they fund what they do Clemenson - Income Statement Analysis 7

8 Income Statement Analysis Basic Nonprofit Structure: Threelegged stool Finance/Administration Programs = Development = Expenses Income Clemenson - Income Statement Analysis 8

9 Income Statement Numberless Analysis What is the greatest source of revenue? In much the same way as the largest asset controls the Balance Sheet, the source of the greatest amount of revenue holds the organization s purse strings. How much of dependence is there on that source? How diversified is the organization s income stream? Why might the organization have made those funding choices? Clemenson - Income Statement Analysis 9

10 Denver Rescue Mission Clemenson - Income Statement Analysis 10

11 Rescue Mission of Mahoning Valley Clemenson - Income Statement Analysis 11

12 Union Rescue Mission Clemenson - Income Statement Analysis 12

13 Income Statement Numberless Analysis What are the approximate percentages of the expense categories? Program = 75.20% Administration = 5.75% Other = Fundraising =19.05% Clemenson - Income Statement Analysis 13

14 Income Statement Numberless Analysis What are the approximate percentages of the expense categories? Clemenson - Income Statement Analysis 14

15 Income Statement Numberless Analysis Clemenson - Income Statement Analysis 15

16 Income Statement Numberless Analysis Did net assets increase or decrease this year? If they decreased less than 5%, why? Investigate the organization, its programs and services, its funders and its stability. If they decreased more than 5%, seriously investigate the stability of the organization. Even nonprofits have to make a profit! Clemenson - Income Statement Analysis 16

17 Income Statement Analysis Expenses - THE MISSION The needs will ALWAYS be greater than the resources to meet those needs. Each organization needs to determine which needs it will try to meet. Clemenson - Income Statement Analysis 17

18 Income Statement Analysis Expenses - THE MISSION Defining Parameters Major Social Service Provider of All Services in the Community Major Social Service Provider of Some Services in the Community Niche Social Service Provider---One of Several Providers of Similar Services in the Community Clemenson - Income Statement Analysis 18

19 Income Statement Analysis Expenses - THE MISSION The Organization s Parameter Decisions will be influenced by and will influence their development decisions. The more comprehensive they want to become in offering Social Services, the more likely they will need to work with and accept funding from government agencies. Clemenson - Income Statement Analysis 19

20 Income Statement Analysis Expenses - THE MISSION Organizations not only need to define what they will they WILL be, but also what they will NOT be in the future. Their Mission Statement and Goals will positively define what they will do. Their parameters will positively define the extent to which they will exercise their Mission. Their prohibitions will negatively prevent them from acting outside of their mission and parameters. Clemenson - Income Statement Analysis 20

21 Income Statement Analysis Expenses - The MISSION What is the Mission? Clemenson - Income Statement Analysis 21

22 Denver Rescue Mission Clemenson - Income Statement Analysis 22

23 Denver Rescue Mission Clemenson - Income Statement Analysis 23

24 Denver Rescue Mission Clemenson - Income Statement Analysis 24

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27 Income Statement Analysis Expenses - The MISSION Using the 990 as a Development Tool Part III: Statement of Program Service Accomplishment, can be very effectively used as a development tool to highlight and showcase your organization s mission accomplishments. You do NOT have to limit yourself to the small spaces they provide. Insert your own schedule and really show off your organization! Clemenson - Income Statement Analysis 27

28 Denver Rescue Mission OK use as Development Tool Clemenson - Income Statement Analysis 28

29 Rescue Mission of Mahoning Valley Clemenson - Income Statement Analysis 29

30 Union Rescue Mission Clemenson - Income Statement Analysis 30

31 Much better use of 990 as a development tool! Clemenson - Income Statement Analysis 31

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34 Use of 990 as a Development Tool Another way to increase the value of your 990 as a development tool is to file with the 990 a copy of your audited financial statements. 990s are not audited. Filing a copy of your audit with the 990 assures viewers that the 990s numbers are accurate and verifiable. Clemenson - Income Statement Analysis 34

35 Use of 990 as a Development Tool Even if your organization is totally government funded, use the 990 as if public support depended on your emotionally and effectively portraying your organization. Because if the government makes cuts, it will only continue supporting you if you have perceived community value! Clemenson - Income Statement Analysis 35

36 Income Statement Analysis Income Various sources of income carry with them unique challenges. Clemenson - Income Statement Analysis 36

37 Streams of Funding Private Funding from Individuals: Many donors/small gifts Need personnel and database to process, record and receipt gifts Donors acquired and cultivated primarily through Direct Mail Can rely heavily on technology and, if desired, consultants for assistance to limit in-house staffing costs Clemenson - Income Statement Analysis 37

38 Streams of Funding Private Funding from Major Donors, Businesses and Foundations: Fewer donors/large gifts Donors acquired and cultivated primarily through personal relationships Needs intensive time commitment by staff to develop and follow-up on relationships; write grants and comply with reporting requirements. Clemenson - Income Statement Analysis 38

39 Streams of Funding Special Events Funding Successfully planning and executing special events takes considerable staff time and Board commitment. Planning and execution might be outsourced, and funding can be helped through corporate sponsorships. There is the risk that the event will fail for unforeseen reasons. Clemenson - Income Statement Analysis 39

40 Streams of Funding Entrepreneurial Income [Thrift Store Income for Rescue Missions] Adequate staff, facilities and equipment to receive, sort, display and sell merchandise Labor-Intensive with Retail Hours Paid Staff Clients Volunteers Must contend with competition from Discount Stores and other Thrift Stores Clemenson - Income Statement Analysis 40

41 Streams of Funding United Way United Way Oversight of Sponsored Program(s) and Budget Auditing and Reporting Requirements Site Visits and Budget Meetings Black-out times for Organizational Fundraising during United Way campaign Movement towards Outcome Based Measurement for Program Evaluation Movement towards more Program and Agency directives based upon Community Needs Clemenson - Income Statement Analysis 41

42 Streams of Funding Government Funding Reporting requirements of the granting agencies Federal: OMB Circular A-133 for nonprofits receiving $500,000 or more Cash Flow issues with Fee-for- Services Possible certification requirements Compliance with government regulations Clemenson - Income Statement Analysis 42

43 Denver Rescue Mission Clemenson - Income Statement Analysis 43

44 Denver Rescue Mission What interests me here is how much of their contributions are in cash and how much are noncash contributions % Cash 43.28% Noncash Clemenson - Income Statement Analysis 44

45 Denver Rescue Mission When I seen noncash contributions, I always ask myself: What do they consists of? How are they valued? How are they expensed? Clemenson - Income Statement Analysis 45

46 Denver Rescue Mission This large percentage of noncash contributions can mean several things: An excellent procurement program in development for organizational needs A large retail operation A car donation program Clemenson - Income Statement Analysis 46

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49 Denver Rescue Mission Clemenson - Income Statement Analysis 49

50 Summary The Income Statement reveals the heart of the organization: Expenses = Programs = MISSION Income = Development = Funding Basic Income Statement analysis gives us an idea of how effectively an organization is using its resources to fulfill its mission The 990 may also be used as an effective fundraising tool Clemenson - Income Statement Analysis 50