Get to know our Lead by Numbers presenters: Jill Foley and Jenn Dimeck
On July 20th, financial gurus- Jill Foley founder of Four Leaf Financial & Accounting and Jenn Dimeck founder of Provident Consulting will be leading our event Lead by Numbers. Learn what they have to say about taking the next step in your career, starting your own business, managing nonprofit finances and much more!
Jill Foley, Four Leaf Financial & Accounting
When you manage to find a well-paying, salaried job with great benefits you should hang onto it indefinitely right? Well not necessarily. It all depends on what you value most in your life. I’ve always wanted to work for myself, but thought the timing wasn’t quite right. I felt I needed more skills, experience, and money in the bank. But the reality is if you have the drive, determination and perseverance, you can succeed at just about anything. This mentality is what led me to leave my secure job of three-and-a-half years in public accounting and start my own business. I founded Four Leaf Financial & Accounting, PLLC in January of this year and am letting my entrepreneurial spirit and confidence in my own abilities lead the way. I started Four Leaf to offer high quality accounting, financial and consulting services to nonprofit organizations, while providing exceptional client service with the added bonus that I don’t have the stereotypical “accountant personality”. My clients find me relatable, approachable and fun to work with. I go above and beyond for them.
Starting your own business is not for the faint of heart. It is scary and a ton of work. You’ll work harder and more hours than you ever have before. But if you’re meant to be an entrepreneur, it won’t feel like “work” and all the time invested and sacrifices made will seem minuscule in comparison to the bigger goal. Being able to dictate your own schedule, make your own path, and create a bigger impact on the business world are driving forces that justify that somewhat uncomfortable shift from working for a boss to working for yourself.
If you’re seriously thinking about branching out on your own, then great for you! Our country is founded on entrepreneurial businesses and we need more of them. Since starting my own business, I’ve been approached by three other people looking for advice on doing the same. Dreams only come true by setting a goal and making a plan. If you have the drive, make it happen. If you have skills and experience to offer, make it happen. If you believe you can have a bigger impact on your own, make it happen. At the end of the day, I always knew I could get a job if things didn’t work out. Luckily, it looks like I’ll only be working for myself for the foreseeable future.
When considering the shift to an entrepreneurial lifestyle, it is critical to have the right connections in place before making that leap to owning and operating a business. Networking is the best way to spread the word about yourself and what you do, and having a solid foundation of colleagues and potential clients prior to starting your business is of paramount importance. I have been a YNPN member for four years, a YNPN Board member for two years, and the YNPN Board Treasurer since January 2016. Everyone I met through YNPN knew I was a CPA that worked with nonprofits, so it wasn’t a huge surprise to them when I went out on my own in a similar capacity. What did surprise me however, was what a strong impact those connections I’d make through YNPN Phoenix would have on my success. Keep in mind it might not be a direct connection, but could be a friend, colleague or associate of a connection that might lead to referrals, sales, etc. The connections I’ve made through YNPN Phoenix have impacted my budding business significantly, and it’s all because someone knew someone who knew me. Take the time, network and make meaningful connections. It won’t happen overnight, but when it does happen, it will be great.
Jenn Dimeck, Provident Consulting
The Ultimate Guide to Managing your Nonprofit's Finances
Managing finances personally or for a company is a daunting task. There are so many variables! What if income isn’t regular? What if the A/C breaks down? What if a new opportunity comes along that we never thought of?
Sweating yet? It’s ok. I’ve got you covered. Raise your hand if your SURE!
Honestly, I live for this stuff. But, I have to admit that managing finances makes me sweat sometimes, too. There’s not a money tree growing outside my door, and I have to make critical decisions about new opportunities and unforeseen expenditures, too. So, how do I do it? The simple answer is detailed planning. But, planning is not done in a bubble. Everyone has to be on board and lending their experience and expertise to the process.
Record comes to a screeching halt.
Hold up! How are you going to make sure that everyone understands the importance of managing finances? You know you have people on your team that don’t even balance their own checkbooks much less want to dive headlong into the finances of the organization. They signed on to make an impact in the community, to change lives, save the planet, and make art - not to worry about how much is spent on office supplies or if a new copier can be purchased.
The key to managing your nonprofit’s finances is to make the connection between the numbers and your impact story. And, the key to making this connection is transparency and communication. This begins with your strategic plan or business plan.
Depending on your organization’s size and maturity, you may not have a full blown strategic plan, but you should have a business plan. If you didn’t write a business plan in the beginning, then take a look at your 1023 application (it should be in your permanent file). The IRS essentially requires you to write a business plan when you fill out the 1023. Look at the narrative section that talks about your programs and how these will be funded and compare that to the financial section of the application.
If you have a strategic plan, now is the time to dust if off and put it into action. It, too should have a financial section that forecasts your revenue and expenses in relation to the plan. Review these plans with your team and determine if anything needs to be added, deleted, or changed and document the reasons why. Make sure all the changes include changes to the financial section of the plan. Everyone likes to dream big dreams, but few can successfully translate those into dollars and cents.
Regularly, your team should come together and review the strategic plan and build an operating plan. How often is regularly, you ask? As usual, the answer is it depends. At a minimum, this should be done annually. However, if you operate in a volatile environment where the rules seem to keep changing, or if you are a brand new organization blazing new trails in unknown territory, then quarterly may be your best option.
There are many proponents to real-time strategic planning. In my opinion, this isn’t really planning but reacting. However, I do believe lean, nimble strategies have a place in regular planning and planning cycles do not have to look like our grandfather’s 3, 5, and 10 year plans.
Budgets have a bad reputation for being a vehicle whereby each department or program begs for pennies in order to serve their constituents. Add to that the long, drawn out process filled with spreadsheets and boring meetings, and you’ve got yourself a culture-killing, trust-busting recipe for disaster.
How do you avoid this? By treating your budgeting process as an exciting extension of your planning process.
I mean it! The best operating plans stem from the best strategic plans. And the best budgets stem from the best operating plans. This is where your team gets to allocate the organization’s resources to accomplish their goals. This is also where your team makes commitments to each other to raise funds, earn revenue, and spend judiciously to move the organization forward.
Now that we’ve given the budgeting process its rightful place, let’s talk about the process.
Beginning at the End
The best place to start is at the end.
Beginning with the end in mind, a.k.a. Your operating plan, will tell you what areas need your attention, how you plan to staff, and where you need to make investments. It will also tell you how you plan on bringing in funds.
Let's look at an example. Stacey's Purr-fect Cat Rescue's strategic plan calls for reducing the feral cat population by 15% over the next 3 years by capturing, taming, neutering and re-homing cats. Their operating plan this year is to hire a volunteer coordinator, teach 20 volunteers how to safely capture feral cats, expand their foster home network to 30 homes, and raise $50,000 through a Cats Broadway themed gala.
The operating plan is another great place to plan for seasonality. Since each operating goal is a SMART goal and has a due date, related revenue and expenses can be budgeted in the corresponding month or months.
Using the Past to Predict the Future
Notice we didn't say anything about increasing last year's revenue and expenses by 10%. In my opinion, it's a bit of a cop-out. It really does nothing to move your strategy forward. However, historical information is invaluable when predicting future costs.
Let's look at Stacey's Purr-fect Cat Rescue's plan to teach 20 volunteers how to safely capture feral cats. The rescue has worked with volunteers in the past, so they have a good idea of how much it takes to recruit and train volunteers. The organization would look at past financial information to see how much they spent on printing, advertising, communications, volunteer events, professional services and other items related to training volunteers. Since they also have information on how many volunteers they recruited last year, all they have to do is divide the total costs by the number of volunteers to get their cost per volunteer.
Seasonality is another important historical characteristic. Just taking your budget and dividing it by 12 months does not help you plan for peak expenses or donation slumps. We all know cash is king. Don't get caught with too little in the bank to cover your winter heating bill because you've been managing to an unrealistic straight-line budget.
To use historical information to predict seasonality, run last year's financial statements with each month in it's own column. Compare that to the year before. Are there similar trends in revenue and expenses? Are there any anomalies like a large donation or a one-time unusual expense?
Research the Unknowns - It's not a Guessing Game
Budgeting shouldn't be a complete guessing game. If we just throw numbers at the wall to see what sticks, we are setting ourselves up for failure.
Take time to research unknown costs. Looking for a new piece of equipment? Call a couple of manufacturers or other users and talk about the cost of ownership (operating costs and maintenance). Hiring new staff or considering raises? Purchase compensation surveys from Guidestar or look at the 990s of other nonprofits in your area. We live in the information age. Don’t underestimate the power of Google.
Putting it All Together
A completed budget should have a few components:
- A summary of expected revenue and expenses by major program and support categories.
- A separate budget for capital expenditures. These items are those that will live on your Statement of Financial Position (aka Balance Sheet) and will only impact your Statement of Activity (aka Income Statement or P & L) through depreciation expense and operating costs. So, it’s important to outline what the purchase and installation expenditures will be and how they will be funded over the course of whatever time period is expected.
- A cash flow budget. Your operating budget will most likely be based on what accountants call “the accrual method”. It’s just a fancy phrase for recording income when it’s earned (not necessarily when it’s received) and expenses when they are incurred (not necessarily when they are paid). So, you will want to forecast your cash flow based on when cash actually comes in and goes out. For example, your 3-year board pledges will be recorded as income in total when they are promised in January. However, you expect the get the first year’s payment in quarterly installments. Forecasting your cash in this way will help you identify potential cash deficits throughout the year.
- A contingency budget that modifies the spending plan for unexpected shortfalls and windfalls.
Now that your budget is finished, it’s time to do something with all this information. The foundation to good information is good data. So, it is imperative that you record your income and expenses on a regular basis with enough detail to make the data useful. At a minimum, you will need:
- the name of the donor or vendor,
- a description of the gift or expense,
- the name of any applicable grant or donor restricted fund,
- the account code from your accounting system, and
- an allocation to your functional areas (programs, general admin, and fundraising).
Timeliness is also key to catch errors and make quick decisions. No one wants to lose out on an opportunity or make uninformed bad decisions because the financial information was not up to date.
At least monthly, you should be reviewing the following 5 areas:
- Functional Expense Ratios - While there is a trend that is making fundraising and administration percentages less of a focal point, we have not made a complete swing in that direction. It’s important to keep an eye on what percentage of your expenses are program-related as well as what percentage each program makes up. This will inform future capacity decisions, funding plans, and donor conversations.
- Liquidity Ratio - Cash is king in every business, and nonprofits do not get a pass. To determine if you have enough cash to cover your immediate obligations, add your Cash, short-term investments, inventory, and short-term Accounts Receivable balances. These are your liquid assets (assets that can be turned quickly into cash). Then, add your Accounts Payable, Credit Card Payable, Payroll and Payroll Taxes Payable, and any other short-term obligations. Now, divide the Liquid Assets by the Short-term Obligations. Any number greater than 1 is in the right direction. This means you have at least as much cash as items you owe. However, you probably want to operate with a bit of margin, so set a benchmark of 1.25 to 2.0. Anything below this number means you could run into a cash crunch in the near future. Anything over this number could mean you need to invest in a reserve fund or make program investments.
- Budget to Actual Comparison - Spending to plan is important, but so is earning to plan. Tracking both income and expense to budget will help you determine where adjustments need to be made. Did an unexpected grant come through? What will that mean for program budgets? Did your annual 5k get rained out? How will you make up the income shortfall? Perhaps a major building repair is unexpectedly required. How will you reallocate resources to cover this cost? Monitoring budget to actual variances will also give you benchmarks for program and staff performance as well as environmental changes.
- Donor Restrictions - Managing donor restricted funds can be daunting. Your accounting system can help you track restricted dollars if you provide it the right data. (See above.) A separate spreadsheet might also be required if you are allocating other indirect costs (rent, utilities, staff time) to restricted funds. Keeping tabs on donor restrictions will help ensure you honor donor wishes as well as making sure you have enough unrestricted funds to cover operating costs.
- Impact and Accomplishments - What is the point of managing your finances well if you’re not making the impact you desire? Tracking program accomplishments and desired impact is an important component to financial managements as well. If you have the opportunity to make a program investment, you need to know which program will move you toward your strategic goals. Also, when making spending adjustments, knowing which programs are dead weight will make your decisions much easier. Design a process for capturing and reviewing impact measurements on a regular basis. Then, use those when completing the 990 to show off to potential donors.
Managing finances is probably not the reason why you wanted to work in the social sector. However, it is fundamental to making lasting impact in the community. Take time to familiarize yourself with this information and ask for help when needed. Contracting with a financial professional to handle your bookkeeping and tax returns, to prepare financial statements, and to advise you when budgeting and delivering information to your board and donors will not only take the load off you but will make you look really smart!
What is the number one thing you struggle with when it comes to your organization’s finances?