In this webinar, Stephanie Skryzowski will show you the foundation of financial management, why transparency in your financials is important, who should see your financials, how to present the financials, and specific reports and metrics attendees can review and share with stakeholders.

Full Transcript:

Steven: All, right. Stephanie, my watch just struck 1:00. Is it okay if I go ahead and get this party started?

Stephanie: Yeah, let’s do it.

Steven: Awesome. Well, welcome everybody. I should say good afternoon if you’re on the East Coast. Good morning, if you’re out on the West Coast. Thanks for being here for today’s Bloomerang webinar, “Nonprofit Storytelling with Financials.” And my name is Steven Shattuck, and I’m the Chief Engagement Officer over here at Bloomerang, and I’ll be moderating today’s discussion as always.

Just a couple of housekeeping items before we get going here officially, just want to let you all know that we are recording this session and we’ll be sending out the recording as well as the slides later on this afternoon. So if you missed the slides or maybe if you have to leave early and you want to be able to watch the rest of the presentation or review it, don’t worry, we’ll get all that good stuff in your hands in just a couple hours after we conclude here, so just be on the lookout for an email for me.

And most importantly, if you are listening live today, please feel free to use that chat box right there on your webinar screen. We’re going to try to save some time at the end for Q&A. So don’t be shy. We love to answer your questions live. Love for these sessions to be interactive, so don’t sit on those hands, keep them coming throughout the next hour or so. And you can also do that on Twitter. I’ll keep an eye on the Twitter feed for questions and comments.

And if you have any trouble hearing us through your computer speakers, we find that the audio by phone is usually a little bit better quality. So rather than giving up on us completely, try dialing in by phone if you can, if that’ll be comfortable for you, if that will not annoy a coworker or anything like that. Just check your email, the confirmation email from ReadyTalk. We’ll have a phone number in there that you can dial into for an audio.

And if this is your first Bloomerang webinar, I just want to say an extra special welcome to all of you joining us for the first time. We love it. We love doing these webinars, do them just about every single week. We only miss a couple weeks out of the year. Bring on a great guest, you know, this week is no section at all.

But if you never heard of Bloomerang beyond that, we are a provider of donor management software and we’d love for you to get to know us a little bit more if you are interested in that or maybe if you’re shopping soon, just check out our website. You can even look at a quick video demo and take this software for a little bit of a spin. Don’t even have to talk to us to do that. So check that out.

Don’t do that now, do that later on because y’all are for real treat of a webinar of popular session. We’ve got over 1,000 registrants here to hear from our new friend, Stephanie Skryzowski. Stephanie, you doing okay? Thanks for being here.

Stephanie: Yeah, thanks for having me.

Steven: Oh, yeah, I’ve looking forward to this one for a while now. Excellent topic. It’s one that we’ve been asking for, so I really appreciate you taking time out of your day and your travel schedule to do this for you. I just want to brag on you real quick. If you all don’t know, Stephanie, check her out for sure. She is the founder and CEO over at 100 Degrees Consulting and her specialty, really awesome. She helps folks kind of share the impact of what their organization does through all of their financials, through the numbers that they are producing, the impact they’re making, and you’re going to see what that looks like here over the next hour or so.

She’s got an awesome online course, I think she’s going to talk to you about it later on called Master Your Nonprofit Numbers. It’s a financial management course for nonprofit leaders. So if you are a CEO or a board member or an ED listening today, definitely check that out. She got her Master’s in Public Admin over from NYU and does a lot of traveling and speaking. So if you see her name on a conference session, definitely check that out because you guys are really in for a treat. This a cool presentation. I’ve been looking at the slides the past week or so. And I don’t want to take any more time away. So, Stephanie, the floor is yours, my friend. Tell us all about storytelling with financials. Go for it.

Stephanie: Awesome. Thank you, Steven. Well, I’m super excited to be here and thank you all for taking the time out of your busy schedule to talk about numbers. So I won’t go over too much more about my bio since Steven just did that really generously. Thank you. But I really love helping leaders like you better understand, use, and communicate your financials to obviously create financial sustainability with your organizations, make really smart decisions, have a greater impact on the world. And so, we’re going to talk about kind of A to Z about storytelling with financials today. And this is a great session, even if you are not a fan of numbers or you say that you hate math. There’s no accounting, no math included here, so hopefully, you can follow along and really learn to love your numbers and the impacts that they can have on your community.

So let’s dive in. So today I really want to talk about . . . we’re going to talk about kind of three main things. First of all, the find the foundation of financial management and really how to implement this foundation and really making sure that you’ve got these sort of three pillars, the three pieces of the foundation in place because we know that if we don’t have a solid foundation, we’re not really going to be able to make the greatest impact in sort of using our financials to tell our stories. Then we’re going to talk about financial transparency. So in order for us to tell the story about our organization, we have to be transparent about the numbers. And I know there are a lot of sort of hang-ups and objections on why we might not want to share too much about our numbers. It’s kind of sensitive. So we’re going to talk about that as well. And then we’re going to go over the five key financial reports and some metrics within each of those that are going to help you to share your financial story.

So there’s a lot in here. Like Steven said, you’ll get the replay, you’ll get the slides. So don’t feel like you have to take notes, but please feel free to ask questions in the chat box. I’ll ask you a couple of questions along the way, and we’ll make sure we tackle your questions at the end of the session.

So here we go. So in order to really set up your organization for success, we talked about the foundation of financial management, and there are sort of three key pieces here, budgeting, bookkeeping, and reporting. So let’s dive into just a couple of best practices with each of these three elements because this is what we really need in order to make sure we’ve got good reports that we can tell a really solid story with.

So budgeting. So first of all, I know that a lot of people don’t really like the budgeting process, right? It often feels like an exercise in scarcity where we’re constantly trying to cut things. There’s never enough funding, there’s really never enough resources to go around, so the budget feels like this exercise where we’re just sort of shaving down, and down, and down. But I really like to think of budgeting as being rooted in abundance, right? There’s always more where that came from. Sometimes it doesn’t feel like it, but really thinking about first, what resources do we need to accomplish our program objectives and then figuring out how to find those resources. There’s a little bit of a mindset shift, I think, but that’s number one.

Ideally, your budget is done. It’s approved by the board at the beginning of the fiscal year, so you can really start using it as a management tool from day one. Your budget serves as a roadmap for planning your income and expenses for the year. We’re really mapping out month by month what’s coming in, what’s going out, what we’re raising, what we’re spending so that we have a very clear path that we’re following.

We want our budget to be aligned with our strategic plan. So that is one thing that I see a lot of organizations not doing, right? We create these amazingly ambitious strategic plans, but then we don’t budget for the resources to actually accomplish what we set out to do in our strategic plan. And so, the two should really be tightly aligned.

The budget is a tool to track your performance against plan. It’s like a management tool that we use throughout the year and it can really help us with strategic decision-making, figuring out if and when any particular activity is realistic. So we want to make a big investment in staff and add a couple of new staff members or buy some new equipment. By mapping out our revenue and our expenses month by month, we can very easily tell, “Oh, yeah, okay, this looks like it’s doable.” Or, “Hey, March is really not a good month for us. I think we need to bump this back to September.” So there’s a lot in the budget when it’s done really well.

Okay. So the second pillar, the second sort of piece of the foundation of financial management is around your bookkeeping. Like I said before, we’ve all heard the term garbage in, garbage out, right? And our bookkeeping is really the source of our data that we’re going to use for all of these reports and metrics and pieces of the stories that we’re going to talk about later. So we want to make sure that our accounting system is really set up to give us the right data and good data. So making sure that our organizational budget is in the accounting system, any grant budgets are in there, that we’re tracking the appropriate restrictions, and classes, you know, programs, making sure that everything is tracked really well so we have some solid data to work with.

Then we also want to make sure we’re closing the books on, you know, in a really timely manner, right? I’ve worked with organizations before where I asked to see, you know, the most recent financials that they run and they’re like three months old. So maybe they’re not, you know, not closing the books in a timely manner. So we want to make sure that, again, we’ve got super timely, accurate data to work with, making sure that all of our expenses, all of our revenues in there and not really trying to catch up on our bookkeeping, you know, months and months at a time.

And the third piece of the foundation of financial management is around reporting. So our financial reports, we’ve, you know, there’s a handful, there’s five that I’m going to talk about today, but even if you’re just reviewing a couple, maybe just your income statement and your balance sheet, we want to be looking at these monthly, we want to have this real time visibility so that we can make good decisions based on current data. If we’re not looking at our, you know, our income statement till the three months later, we don’t really have the best, most up-to-date information to be able to make decisions.

We also want our financial reports to be reviewed by our leadership team at our organization, our board for sure, or maybe our finance committee on a regular basis. And this, you know, we’re going to talk a little bit about transparency as well and just being able to share your financials and have more eyes on your numbers are absolutely going to help strengthen that financial management at your organization.

And then I’m going to show you some examples of some of the reports, but we want to make sure that there’s really a consistent format. And so, if you’re sort of looking at one format, one month, want to use that same format the next month for the report so we can really compare data. We want to make sure that, you know, we’re not looking at numbers in a vacuum, we’ve got some comparative information in there, and again, that that’s really up-to-date.

Okay. So our key takeaways, talking the foundation of financial management. We want a budget that aligns with our strategic plan that we can really use as a tool. We want to make sure our bookkeeping is solid. We’ve got . . . you know, we’re able to pull accurate reports on a timely basis and then we want to make sure that we’re looking at those financials monthly for real time visibility.

So I want to ask you, and you can just pop this into the chat box, which area, out of these three that we just talked about, is the biggest opportunity for growth at your organization? Where do you think you can really like take this to the next level? But where do you think you might need a little help at your organization? Budgeting, bookkeeping, reporting. All right? We’ve got lots of reporting coming in. Wow. Lots of reporting. Okay. Some budgeting. Good. Good, good, good.

Okay, well, I’m glad you’re all here because we’re going to talk a lot about reporting today, so that’s perfect. Lots of reporting and budgeting. So it sounds like everybody’s kind of got the bookkeeping piece nailed down, which is awesome because that’s our sort of the foundation of what we want to have this good data in. So I’ve got a couple of all of the above, long-term budgeting. Awesome.

All right, so let’s keep rolling. Okay. So your number story matters. So when we talk and hear about storytelling, we’re not thinking about numbers. We’re not thinking about your numbers story, right? But I want to try and switch that mindset a little bit and think about how you could tell your story in a more robust way using your numbers. And here’s why. So a lot of people ask me, “Well, why does it matter? Like donors are, you know, maybe that’s not what they care about. They’re not numbers people, they’re not finance people. It doesn’t matter.”

So when we are more transparent about our numbers, it really breeds a deeper sense of ownership with whoever we’re telling about our numbers, and that ownership leads to greater engagement. So, for example, at an organization that I have worked with before, we started being more transparent about our numbers with the staff. So we started sharing the monthly financials with them and explaining the income statement and the balance sheet and what those numbers meant. We also started involving them in the budgeting process. And I mean everyone down to the program coordinator level all the way up to the C-suite.

And so, once they felt like they understood and they really felt a greater sense of ownership for the organization, for the numbers, and so, they were able to be more engaged, they were able to take part in budget conversations and, you know, make decisions that were aligned with, you know, or aligned with sort of what’s in the budget and tried to find ways to save money and participate in a greater level.

So thinking about that a little bit more, so sort of three of benefits of financial transparency. So first of all, increased engagement. I’ve seen it happen before, whether it’s with your board, your staff, your donor base, definitely increased engagement.

The next section in the middle where it says increased contributions. So a few months ago, there was a study, an academic study that GuideStar published that showed that transparent organizations received 53% more in contributions the year after they became more transparent.

So the link is here below. You have to actually pay for the article. GuideStar has just like this sort of abstract posted, but what the full article is saying is that when organizations begin to share more of their financial and other information on GuideStar, they receive 53% more in contributions the next year going from not transparent at all to transparent, 53% more. I think that’s huge. And, you know, it was a sample that had to do with I think like 14,000 organizations on GuideStar, but I think the principle carries throughout, right? So as we are becoming more transparent, we’re also improving our donor relationships and building trust with our donors is going to help retain ongoing support.

I’ve worked for this one organization who, you know, I think . . . backing up, I think a lot of times when we get, you know, when we do our 990, or when we get our audit, we simply take our audited financials, post them on our website and then kind of forget about it, right? But this organization I worked with actually wrote a specific email to their entire donor base, their whole list, and attached their audited financials and said, “Hey, we want to share with you our audited financials. We had a great audit, we feel really good about it, and we want to share it with you.” So I think that, you know, their donors really appreciated that level of transparency. So a benefit of financial transparency as well, improving donor relationships.

So when we’re talking about who are we sharing this story with, I kind of grouped this into two sort of buckets. Internal stakeholders, so our board, our staff, those are people inside our organization and then our external stakeholders. So maybe individual donors, your institutional funders, foundations, and things like that, volunteers, anybody outside of your organization. So there’s different ways to tell a story and different metrics and things that are going to be useful to different groups of people that we will talk about.

And then I guess a question, well, how do I share this story? So with our internal people, our board and our staff, obviously, our board’s going to be looking at our financial statements. But what we can do to sort of take it to that next level, perhaps with our staff who maybe don’t really understand the balance sheet, or don’t know how to interpret or read an income statement. We can put together super simple, high-level dashboards with relevant talking points that are going to make sense to them that are going to tell the story in a way that resonates with them. And I’ll show you that in a little while.

On the external stakeholder side, obviously we have, you know, the things that we have to do, right? Our 990, our audited financials, those are things that we have to post on our website that we have to fill out, obviously, our Form 990, so we don’t have a whole lot of control of how we’re sort of telling our story with those documents. But our annual report, for example, or maybe the emails that we send to our donor base on a regular basis, those are opportunities that we can share, some of these numbers and add some color to the story that we’re already telling.

So tell your story to stakeholders is going to, it is going to, I’ve seen it happen, build and grow trust, relationships, and contribution.

So we’re going to get into talking about how to do all this, but first, I want to know who do you share your financials with now? Are you sharing with your board, staff? Are you sharing with . . . You know, are you sharing with your donors aside from sort of the basics of your 990 and your audit of financial? Lots of boards. That’s good. I’m glad everyone’s sharing with your board. That should definitely be, that’s a must.

Is anybody sharing with, you know, sharing with your funders, kind of being sort of open and transparent about your numbers? Board and staff, annual report is shared online. Some donors through the annual report. Okay. We’ve got lots of annual reports here, so hopefully we can find some ways to sort of beef up your annual report with some of the metrics that we’re going to talk about today. Okay. Some staff. Interesting.

All right, let’s keep rolling and we are going to talk about how to do this. Let us dig in. Okay. So when I am . . . So when we’re talking about the financial reports that we want to sort of glean some new metrics from, I’ve got just five. So our comparative income statements and comparative balance sheet, a budget versus actual, a statement of functional expenses, and a cash flow forecast. So four of these, the first four are ones that you can very, very easily get on from your accounting system. So if you’re using QuickBooks, those are the ones that you can pull very easily from QuickBooks.

The cash flow forecast is in Excel and I’m going to show you a template, and it’s a little bit different. But these are things that should be able to, if you’re not already looking at them, you should be able to get access to them very, very easily. So my point is that these are not, you know, any crazy reports that you need some special software for.

So let’s dive in and I’ll show you each of them now. So first is the comparative income statement. So I think we all know the income statement. Sometimes it’s called the statement of activities, sometimes it’s called . . . in the for-profit world, it’s called a P&L or profit and loss. So we’ve got just like very basic breakdown revenue at the top, expenses in the middle, and then our net income at the very, very bottom, which is just revenue minus expenses.

So the first thing I want to point out here that’s really important when you’re running this is the word comparative. So often, when I ask . . . you know, when I ask the new organization that I’m working with for the most recent income statements, they’ll give me something that has like just this first column here on the left that has just the current period with nothing to compare it to. And so, I have no idea if those numbers are good, or bad, or high, or low. Sort of looking at the numbers in a vacuum is not really helpful. So let’s talk about a couple of metrics on here that are really important to understand.

So first of all, so we’ve got four metrics on the income statement that I really like looking at. When I’m doing a deep dive into an organization’s numbers, here’s where I’m going, and I’m going to show you sort of how you can share some of these with your stakeholders.

So first of all, your revenue diversity, and this is really showing the percentage of revenue that you’re getting from each source. So in this case, as we go back one slide, in this case, it looks like we just have it broken down into two buckets. So that’s not going to be really telling. But basically, it’s looking at how much of your revenue is coming from each source that you have. Now, this is something interesting to look at because if we’re looking at an organization that’s getting 90% of their funding from like one government funder, that might be something that you want to talk about internally with your board, with your team. Is this a risk factor? If that donor disappears, what happens to our organization? It’s also something that you can share externally, and I’m going to show you just a sort of visualization of that on the next slide.

So let’s talk about the next metric, just looking at revenue and expense growth. So we can really, again, by including some percentages on here, we can see what has increased or decreased from the previous period. So in this case, we can see it looks like we’re looking at Q4, 2017 compared to Q4, 2016 and our revenue is actually decreased by 43%. So that might be something that we would want to ask about. You know, again, internally, this is used as a management tool. We can say, “Okay, well what happened?” Well, maybe we had a fundraising event last year that we didn’t have this year, etc. Same thing on the expenses. You know, why have our expenses gone up so much over the last year or decreased so much?

Your burn rate. So the third metric here, your burn rate is your average monthly expenses. So this was something that, you know, is not necessarily something that you would share externally, it’s more of an internal metric to just really understand. And so, in this case, basically what you do is just take your total expenses divided by whatever period you’re looking at. And so, if you’re looking at your budget for the year, you could divide your total expenses by 12. If we’re looking here, we’re looking at a three months period. So divide, you know, about 99 by 3, and that’s about $33,000 a month that we are spending on average. And that’s going to come into play when we talk about cash flow in a little bit as well.

And finally, your operating margin, which is your, you know, I use quotes for profitability. Obviously, we’re not setting out with the sole purpose of making a profit, but it really just measures your revenue left over after all of your expenses. And this is something that I think you can share externally. I think it’s an interesting thing to be able to share because you do want to be building a reserve to show your financial sustainability that you’re going to be around for the long haul, making an impact on the communities that you’re serving.

So now I’m going to show you a couple of ways to sort of visualize some of this data. And you will notice that all of what I’m going to show you today was created in Excel. There is no fancy software needed to be able to tell the story at all. You know, most organizations don’t have access to any sort of, you know, fancy financial modeling software or anything. So I want to show you the way that you can actually implement this. So this pie chart just shows revenue diversity. It shows how much of our revenue we’re getting from each source. And I think this is interesting. This is a great thing to be able to show in an annual report, super simple. And yeah, it just kind of shows the breakdown of your revenue by source.

Here’s an example of a revenue dashboard. So perhaps, your board of directors is really just focused on the revenue side of things and they really want to sort of do a deep dive into how your revenue is doing. So this sort of snapshot that we created with just a little Excel chart in PowerPoint, it just shows, you know, our budget versus actual, some variances, also comparing to last year and then I think the important thing to note here is some key insights. And so, this is where we can sort of explain what happened, right? We exceeded the 2018 year-to-date budget by 39,000 due to an unexpected foundation guest. Boom. Our board is able to look at this quick snapshot, understand what’s going on without having to comb through a whole income statement.

Here’s another example of another income statement dashboard. If, you know, this is a possible example for an annual report type of, you know, type of communications to donors. You can show your growth in your revenue and your expenses over time by just mapping them out, plotting them out on a super simple chart like this. And, again, adding some talking points below to sort of increase the impact of the visual. So you can see, you know, revenue has increased steadily over the last 19 years, 500% in the last 10 years, 67% in the last five years. Those types of numbers are really interesting to help sort of enhance what you’re showing visually.

Okay. So the second report that I mentioned is a comparative balance sheet. And again, like I said, the keyword here is comparative and making sure that we’ve got some variance and variance percentage in here so that nobody’s got to do any type of math when they’re looking at your balance sheet. They can see the current period, the previous period, and how much it has changed. So I will note on the, you know, on this sort of idea of using comparative data, it does not necessarily matter what you are comparing to. Right? So it looks like this was looking at March 31st, 2018 compared to the prior quarter, so December 31st, 2017. You can also compare it to the prior month. You can compare it to the prior year. Whatever you feel like for your organization is going to tell the most interesting story just as long as you have the comparative data on there.

So, again, I’m just like quick, quick refresher. A balance sheet is also called the statement of financial position in nonprofits a lot. So they’re the one in the same. So assets at the top, liabilities in the middle, equity on the bottom.

So let’s talk about a couple metrics that we’ve got on the balance sheet that are important to understand. So months of cash on hand. So this really answers the questions, if not another dollar were to come in the door, how many months could we operate? How many months could we keep paying our people, running our programs if not another dollar came in the door? And I think this can be used both internally and externally. So internally, it’s definitely an important management tool. So many organizations I work with have less than three months of cash in the bank, and so are constantly in this cycle of cash crunch.

And so, how to calculate this, basically, we’re taking our total bank balance, right? So we’ve got bank accounts up here, our total bank balance divided by our monthly burn rate. And so, if you remember, on the last report, our monthly burn rate was about $33,000 a month. And so, in this case, we’ve got just over two months of cash in the bank. So our goal, I think we should, you know, we want to sort of build a reserve, right? We want to have a rainy day fund.

And I think that, you know, this is something that we can talk about externally. I think a great goal for any organization is to have three to six months of cash in the bank depending upon your size, but that’s something that you can work towards and tell your donors about and, you know, sort of tie it to financial sustainability. And I got lots of questions around that because a lot of a lot of nonprofit leaders are afraid their donors are going to think they have too much cash in the bank if they have a big reserve. I don’t think that’s necessarily the case, but it’s interesting to actually run the metric and see what that number is because even if that number sort of feels big, maybe it’s only two months of expenses in the bank which, you know, is really not that much.

So the next metric is our time to collect receivables. And so, this one is basically how long it takes you to bring in pledges. So if you’re the type of organization that has a lot of people, you know, making commitments to give but then you’re not actually seeing the cash until, you know, however long in the future, this one is particularly relevant. So we’re basically looking at, yeah, looking at our accounts receivable.

So I’m going to share with you a resource at the end that shows you exactly how to calculate this. And it’s actually all in Excel, so you don’t have to do any math. But this is an interesting metric, really to understand with one organization that had a huge fundraising event every year and would raise a ton of money from it and the revenue looked so good when they were looking at their financial statements, but their cash balance in the bank was like, you know, dismal and sort of coasting into payroll on fumes and wondering like, “What in the world is going on when our revenue looks so good?”

Well, we ran this calculation and found out that it was taking their donors almost six months to basically make good on their pledges from this event. And so, what they did, you know, using that as a management tool was to sort of implement a collection strategy from their team and building those relationships with donors so that they didn’t, you know, they didn’t take six months to make good on their pledge.

Okay. So the third metric on the balance sheet is looking at your asset and liability growth, so just looking at variances from the prior period. And, again, we can see here, for example, our bank account balance grew 16% over last quarter, which I think is, you know, it’s a good thing looking at our liability. Okay, well, it looks like our other current liabilities actually grew 45%. So what’s going on there? What’s driving that?

And finally, the quick ratio. So this is a pretty standard sort of accounting ratio where it just basically looks at your ability to pay your debt. So some organizations don’t have any debt, right? Maybe you have a credit card but you pay it off every month whereas others . . . You know, I know other organizations operate on a line of credit sometimes because cash can get really tight. And we’ve got, you know, institutional funders that work on reimbursement grants and, you know, you kind of need some cash to quote you. So there’s, you know, this organization, this example has a small line of credit here.

So basically what the quick ratio looks at is, are your current assets more than your current liabilities? We want that to be like definitely at least, you know, at least one times more assets than liabilities. So that’s an important one to know as well. And, again, making sure that we stay on top of that internally.

Okay, so let’s talk about just a couple of ways to sort of visualize some of this data. So looking at asset growth, just a very, very simple. Again, done in Excel bar charts. And something that might even make sense more robust is adding a couple of talking points here. How did our assets grow from almost 800,000 to 1.2 million in the course of a year? What happens there? Right? So adding a couple of talking points there would be really helpful for the audience.

Here’s an example of a balance sheet dashboard that basically takes all of the data from your balance sheet and kind of boil it down into one little snapshot that is a lot easier for somebody who’s not really a numbers person or finance person to be able to digest. So, first of all, we are mapping out our bank balance, our cash balance over, it looks like a period of five different quarters and showing how that sort of fluctuates. And then we’ve got some talking points down here that say our current cash balance is enough to cover five months of operating expenses. And so, that is you got cash on hands metric.

Then we say cash balance is on an 81% since this time last year. And so, what we’ll be using that with variance metric. Our time to collect accounts receivable is 60 days. So again, we’re using the time to collect AR metric. So you can really easily incorporate some of these into what you’re already doing and visualize the data so that this is a lot more pleasant and digestible to look at than just a plain balance sheet.

Okay. So number three on the third report that I mentioned was our budget versus actual. So when I asked the question and maybe I’ll ask it in a couple minutes, again, but usually when I ask the question, these five reports, which one are you running right now? Pretty much everybody says budget versus actual because we all have an organizational budget and we all are mapping ourselves against it, which is awesome. One thing I really like to see is some varying percentages in here because that I think is really helpful to just be able to your eyes to quickly go to like what’s over, you know, 5% or 10% really easily.

So the biggest thing that, you know, again, like I just said, the biggest thing that we’re looking at, the biggest metric is really a revenue and expense variances from budget. We’re using this as a management tool. So I would say, you know, a budget versus actual report is not necessarily something that we’re sharing externally with the exception of perhaps, you know, if we’re reporting to a funder on their particular grant budget, of course, we’re going to show budget versus actual, but just the organizational DBA is probably not something that we would like put in our annual report, for example.

Okay. So the next report, number four, is the statement of functional expenses. So it’s also sometimes if you use QuickBooks, it might be called the income statement by class. You might have your admin fundraising programs sort of broken into classes in QuickBooks. But basically, what this is, you’ll see the statement of functional expenses on your audited financials. You’ll see it broken down like this on the 990. And we’re taking our expenses, our income statement and breaking it down by admin, fundraising and programs.

So there’s lots of . . . We’re going to talk about some benchmarks around like program expenses and things, but the things that we want to look at on here are your Program, Admin, and Fundraising Ratios. And so, what we’re measuring is the percentage of expenses dedicated to programs versus administrative costs. And I think we all know that sort of, you know, the debate in the nonprofit industry that we need to even stop measuring this period. But I think for now, the fact is that some institutional funders, some, you know, charity watchdog organizations are still looking at this. So it’s important for us as nonprofit leaders to know.

So in this case, you know, the math is quite simple, right? We’re just looking at the total, you know, for example, total program expenses of 403 divided by the total expenses of 532 and we get 76%. So this organization is spending 76% of their expenses on programs, 17% on their fundraising, and 7% on their admin.

So the other thing that I like to look at on the statement of functional expense is to look at your cost per program. So basically, I’m talking about like the organizational cost for one unit of whatever it is that you do for your program. So maybe it’s one student or one program participant, or one school or one patient. It’s different for everybody’s organization.

Doing it very, very simply is looking at direct costs. So taking our total program expenses divided by how many of whatever unit we’re serving. So, for example, if you know, $400,000 we spent on programs and we’ve got 400 program participants, so we’ve got $1,000, our costs, our unit cost is $1,000 per say, student. Now, of course, that doesn’t take into consideration or sort of overhead to also run our programs, but this is just looking at sort of direct costs, which I think is important to know. And a lot of times we do talk about that kind of thing in fundraising, so it’s something that you can share externally as well.

Now, because I would get the question, I want to talk about some benchmarks around functional expenses. So, again, there’s a lot of debate in the nonprofit industry on whether we should even be talking about this because we all know that in order for our organizations to grow, for our organizations to be sustainable, for our people to continue serving and committing their expertise to the nonprofit industry, we need to be able to invest in them. And so, I am in no means saying that these are numbers that we need to focus on, but the fact is Charity Navigator is basing their ratings at least partially on some of these metrics as well as the Better Business Bureau.

So what they say, Charity Navigator says they want you to be spending more than 85% of your expenses on programs, less than 10% on fundraising and less than 15% on admin. So I realized that these do not add up to a 100%, obviously, but these are their sort of guidelines where they want you to be spending within approximately. And Better Business Bureau, they’re just a little bit different. They don’t report on admin, but they do say, “More than 65% of your expenses should be spent on programs and less than 35% on fundraising.” So they’re a little bit different. And, again, not necessarily something that we need to spend a lot of focus on, but I did want you to see what these organizations are looking at.

Okay. So a couple of ways to visualize some of this data. Looking at our program ratios, for example. So basically just a super simple bar chart here with the breakdown of programs is here in green, fundraising expenses in blue, and admin in red and just showing year over year, what was the breakdown of our total expenses in each of these three areas. And you can see as a percentage of total, it looks like in 2017 we actually spent more on admin. So, again, another way to kind of make this a little bit more robust is just to add a couple of talking points here, “Hey, we invested in, you know, a new accounting system,” or, “you know, a new . . . ” whatever, “New equipment in 2017.” So there’s, you know, so that there’s a little bit of context behind the number.

Okay. So the last report that we are going to talk about today is a cash flow forecast. So this report is super special because it combines our actuals, so what actually happens with projections. So what is going to happen in the future. And I would say out of all these reports, this is the one that not very many organizations are doing. Not enough organizations are forecasting their cash flow into the future to be able to make decisions now and avoid a cash crunch later.

So a couple metrics on here, really I guess the main one is really looking at months of cash on hand. So how many months of cash, again, do you have in your accounts? And so, what I like to do, what I have on this template is basically you can . . . The way it sort of laid out is if you look at January or opening cash balances, how much money we have in the bank, January 1st. We’ve got our incoming money here in January, what came into our bank account, what came in the door, and what went out the door in January and our January 31st and new balance.

Now, what I’ve done and this Excel template then you see below is months of cash on hand. So in this case, this organization in January had four months of cash on hand. And you can see this number changes as the cash balance throughout the year has decreased. And, in fact, in September, it looks like they have less than one month of cash on hand at $48,000 in the bank.

So what this really does is, yes, it allows you to see how much cash you had on hand in the past, but more importantly, you can see how much cash you’re going to have in the future. So it looks like in Q4 of 2018, this organization, they’ve got some big cash receipts coming in. And so, by the end of the year, they’re going to end up with nine months of cash in the bank, which is great. Maybe they have a, you know, a pretty slow Q1 of the following year, so they’re going to need that cash balance. But I think that the key here is being able to sort of project into the future.

Okay. So we talked about the metric, we talked about how to calculate that. And, again, it’s something that you can use internally, potentially externally in the right way as well. So here are the five financial reports again, a comparative income statements, a comparative balance sheet, a budget versus actual, statement of functional expenses and our cash flow forecast. That was a lot. We just went over a lot. So I want to ask you, looking and thinking about this five reports that we just went over and the few metrics that we gathered from each of those five reports, what do you think is going to help tell a better story about your organization? What clicked for you? Where do you really think that like, “Oh, we should definitely use that one maybe in our next annual report?”

Budget versus actual, comparative P&L, some graphics and reports. Cash. Cash, cash, cash. Yes. Functional expenses. Cash flow. Statement of functional expenses. Awesome. Okay. So we’re kind of all over the place. All seem helpful. Good. Making the reports comparative. Yes, yes, yes. Revenue sources. Budget versus prior cash. Awesome.

Okay. Well, I have a little treat for you if you’re interested in the cash flow that I will share with you in just a second. Awesome. I’m glad that everybody kind of pulled something out that’s going to be most useful for them. So taking a little breath here and thinking about everything that we learned today, so understanding really when . . . We talked about why does transparency matter. We have seen through the study that GuideStar did that it leads to increased engagement, increased contributions hugely important for our organizations to add to our stories with this financial data.

So we dug into the numbers. We talked about really how to understand, calculate some of these key metrics for a more robust story. And you don’t have to be a math whiz or a finance person or even have a finance person on your team to be able to do this. Super, super simple metrics that really takes that story to the next level.

And then finally I gave a bunch of examples on how to visualize some of this data with dashboards and super simple graphics. And I think I saw a question kind of pop up in the chat around actually creating some of these dashboards. Again, everything you saw today was created either in Excel or PowerPoint. And so, I’m assuming that pretty much everybody has access to tools like that and can make it very, very simple on themselves.

So before we open this up to some of the questions that were asked, I have a metrics calculator that I want to share with you. And so, basically, it’s helping calculate some of these numbers. So it’s telling you the exact formulas that you have to use. This calculator is in Excel, so you just plug your numbers in and it’s going to give you the, you know, the results, the answers. And so, then you can . . . You know, I think it’ll help you kind of get started to be able to learn the math so that then you can do this with your own financial reports.

So if you go to this link, it says, if pop your information in, you’ll get that financial metric workbook sent to your email and you’ll be good to go. And then also in that workbook is that cash flow forecast. So if you want to use that template as a place to start for your organization to begin mapping out your cash flow, both what’s already happened, but most importantly into the future, there’s a separate tab on the bottom of that workbook. So it’s always in the same Excel sheet. There’s another sheet in there for the cash flow forecast. Yes. So it’s /storytelling,

All right. So there’s the link one more time and I think we want to open this up to questions and I see that there a bunch in there. So, Steven, how do you want to do this? Do you want me to just click over and I can answer some or do you want to read them to me?

Steven: Yeah. I don’t mind reading them to you. I’ve been collecting them. Yeah, they’re for sure. There’s a lot here and I don’t know that we’ll get to all of them, so why don’t we keep this slide up so they have your contact information. But, yeah, just kind of rolled down the list, Stephanie, but thank you. This was really awesome as a fellow numbers and Excel and budgeting nerd, I definitely enjoyed it. So, thank you. Thank you. This is really cool for you to do this.

Here’s one from Alyssa. It looks like Alyssa that has some recurring events but they don’t always happen in the same month, year over year. So maybe doing those month-to-month comparisons is tough. Giving advice for Alyssa for tracking those things when maybe things are kind of moving targets.

Stephanie: Yeah, that’s a good question. Right. Especially if these events are like a major source of fundraising revenues, so comparing, you know, March 2019 to March 2018 is almost irrelevant. So a couple of things you can do. I also like running, in addition, to just a sort of month-to-month comparison, I’m always running a year-to-date comparison. And so, you know, we just closed, for example, we just closed August books. So I would run in August year-to-date report, January through August of this year compared to January through August of last year. So that might help capture that same event in that period. You know, you could also run on quarters or really whatever period kind of makes sense. But I would say month to month and year to date are usually the most the most relevant and hopefully that would capture what you needed.

Steven: That makes sense. Awesome. Here’s one from Caroly. In choosing reports for their annual report, what do you recommend that kind of paints the best picture without maybe overwhelming the readers of that annual report? And I’m sure you’ve seen the full spectrum where there’s not much there to where there’s pages and pages of pie chart. What do you think people should be putting in that annual report, Stephanie?

Stephanie: Yeah, that’s a great question. I think, of course, a little bit of it depends on your organization, but I think that capturing, you know, one metric around revenue and maybe for you, if you are . . . So like, for example if you’re doing an annual report celebrating your 10-year anniversary, maybe sort of mapping out your revenue growth year over year, kind of like that line chart that I showed you, that might be an interesting way to visualize that. Or maybe the most important, you know, the most important revenue metric for you might be showing that revenue diversity pie chart and where you’re getting your money from. Maybe that’s most interesting.

So I would pick one revenue, you know, one sort of revenue metric. I’d pick one expense metric. And so, again, maybe it’s, you know, maybe it’s expense growth, maybe it’s showing the percentage of expenses that are going to, you know, doing sort of like a breakdown like a pie chart, similar to revenue diversity, but that shows, you know, X amount is going to personnel versus, you know, IT versus program expenses and things like that. Or you could choose something like the statement of functional expenses like I showed you and showing that bar chart where we looked at programs, fundraising, and admin.

So, again, choosing one revenue, one expense, and then maybe something from the balance sheet. Maybe it’s your, you know, your cash on hand, your cash reserve. And if your goal is to build that cash reserve so you’ve got long-term financial sustainability, you could show that like, “Hey, we’re doing great, amazing work, but we only have two or three months of operating expenses in the bank and this is something that we want to grow.” And so, showing something like that. So I would pick, you know, pick like two or three. And I think that’s probably good, especially if you’re also including the financials in the annual report.

Steven: Makes sense. Along the same line, Jessica was wondering how you kind of craft that story if maybe the numbers don’t look great. So maybe if you’ve only got a three-month runway or, you know, missed your goals or whatever, you know, is being shown there. Is there a way to show that that doesn’t really, you know, panic people and maybe even inspire them to act? How do you kind of walk that fine line?

Stephanie: Yeah, that’s a great question. And in that study that I linked, it found that organizations who didn’t have such great numbers that they really wanted to share were a lot more hesitant to share them, and so they didn’t reap some of the benefits that the article talks about. So totally makes sense. I think that, you know, without . . . I think you can still be transparent on your numbers, and so showing the revenue diversity or your expense breakdown, kind of what major categories you’re spending in, I think those are both ways to be transparent without necessarily causing any red flags.

But if there are things that you want to share with your stakeholders, I mean, I think, first of all, we thought that the increasing that transparency, it really does build donor trust. And so, if there’s something that you know, you need help with, I would visualize it, map it out, and say, “Hey, look at . . . We have had a big . . . ” You know, maybe you could show, if you’ve had a big drop off in revenue, you can sort of show that on that like a line chart and show, “Hey, we’ve had a big drop off in revenue. Here’s the impact it’s going to have on our programs. Here’s how you can help.” So I think that sort of changing the message a little bit instead of just sort of freaking people out that like, “Oh, why is there a revenue dropped off so much?” You know, putting a talking points around it and sharing how you can help.

Steven: What about the other side of the coin, Stephanie? We had a comment here from Bruce, wondering if you’re reporting on surpluses and really good numbers, can that discourage giving? In other words, I think the question behind the question is, hey, a supporter sees you’re doing great. Maybe they aren’t as motivated because the organization seems to be doing well. Is that something that actually happens? Do you see that actually, you know, born at reality or is there a better way to report on surpluses?

Stephanie: I think that’s a great question, and it’s a fear that I hear from a lot of nonprofit leaders. I personally have not seen that in reality. I think that we get scared because we kind of want to operate in this like poverty state so people will feel bad for us and give us money, but I have not actually seen this in person.

What I think you can, you know, how you can sort of talk about it and address it is that like, yes, we are very fortunate to have, you know, to have a reserve. Like here is how that is going to be used in the future and really then share your three to five-year strategic plan and tie those two together to show like, “Hey, yes, we have a decent runway, but we also have really big goals and plans for the next five years to create a greater impact.” And so, being able to tie those two together, I think makes people a lot more comfortable to give.

And I think, you know, look at Charity: Water, for example, like they’re massive and they have a massive reserve. And so, why would I give to them when I can give to another small organization? Yet people continue to give to them. But I think it’s, you know, I think it’s tying a strategic plan and your long-term goals with that.

Steven: I love it. Awesome. Well, we probably got maybe time for one more question. I want to give you the last word, Stephanie. Here’s one from Amanda. I thought it was pretty interesting. How do you frame showing your operational margin to donors who may not feel that they need to fund you? So I think it’s a good dovetail to that previous question where things are looking good, but it’s still not enough and there’s still that gap between what you need to raise and then the programs you want to give. So how do you explain, you know, maybe an increase in need even though you’re doing well financially?

Stephanie: Yeah, I think that’s a great question too. And, you know, as we are nonprofits, most of us are recording our accounting on the accrual, on an accrual-based system, which means that a lot of times, our financials, the actual black and white numbers might look really good because we recorded multi-year revenue all in one year. So it looks like we’ve got a big surplus at the end of the year when actually, a lot of that is earmarked for future year use. And so, I think that being able to talk about that, you know, and being able to say like, “Yeah, we did have a great year. We were so fortunate to be able to get these multi-year, you know, this multi-year grants and so, of this surplus, this much as earmarks for future use.”

And so, being able to just kind of understand that and put a couple of footnotes in explaining what you’re going to be doing in the future because I think that . . . you know, I think that most of the time, like I said before, I mean we do have like really big plans. We’ve got a lot of stuff kind of coming down the runway, and so, being able to share that I think helps provide donors with a sense that like, “Okay, so my money’s still going to go towards what I want it to go to even if it looks like they got a lot of cash right now.”

Steven: Makes sense. I love it. Wow, this is awesome, Stephanie. This is a such a treat to have you and excellent advice. Thank you so much for doing this and definitely check out that free workbook. I’m going to send that in the chat one more time in case people didn’t already grab that. But, Stephanie, I know we didn’t get to all the questions. Do you mind taking questions by email for the folks that we didn’t answer here live? Is that cool with you?

Stephanie: Yeah, that is perfect. Happy to take any additional questions by email. There’s a chat function on my website, so if you wanted to continue to chat over there, we can certainly do that. I’ll be around for a bit. But yeah, absolutely. It was great. I really appreciate all the participation and really, really good questions. And yeah, please feel free to reach out if you need anything else and definitely download the financial metric workbook. I think it’ll be super helpful if you’re starting to tell your stories.

Steven: I’m going to download it myself now. I’d love to look at it myself, so you’ll probably get a little form completion for me too, Stephanie, which I guess you could ignore. But thank you. Thank you. And thanks to all of you for spending an hour out of your day. I’m so delighted that so many people, not only registered, but attended a webinar about numbers. That makes me so happy because I’m kind of a numbers geek as well.

And if you liked this webinar, join us again. We got a great session coming up next week. Our buddy, Laura Huth, is going to join us to talk about photography, optimizing the photos you use in all of your marketing communication. Going to be a great session. She’s a buddy of ours over at Bloomerang long time, a Bloomerang user, really smart fundraiser. It’s going to be a good session, 1:30 next Thursday. If you’re free, join us. If you’re not or if you feel like you’ve got photography handled, that’s okay. There’s lots of other sessions that you can register for. We’re booked all the way out through almost January, I think. So checkout all the sessions available. They are totally free, totally educational. Love to see you again on another webinar, but we’ll call it a day there. Look for an email from me with the recording and the slides. You’ll get that in a couple hours, I promise. And hopefully, we’ll see you again next week or sometime soon. So have a good rest of your Thursday. Have a safe weekend and we’ll talk to you again soon.

Kristen Hay

Kristen Hay

Marketing Manager at Bloomerang
Kristen Hay is the Marketing Manager at Bloomerang. From 2018 - 2020, she served as the Director of Communications for the Public Relations Society of America's local Hoosier chapter. Prior to that she served on several different committees and in committee chair roles.