1July 21, 2015

YWCA USA Financial Leadership & Management ProgramFacilities and Finances: Risks and Opportunities

for

ever

y w

om

an

1

Join us on Twitter: @SpectrumSteve

2

WELCOME

3

Financial Leadership Model

4

Nonprofit Program Expenses

Specific Program Costs

Shared Costs

Admin Costs

5

Why cover facilities in Financial Leadership?

• Typically largest asset

• Requires significant “non-adjustable” cash

• Can magnify or dampen IMPACT

6

7

8

Today’s Conversation

• Understanding facility options with Pros and Cons

• Avoiding pitfalls of facilities

• New trends and best practices

AGEN

DA

9

Before You Decide . . .

10

What’s Driving Facilities Planning?

• Program needs

• Administrative space requirements

• Community convening spaces

11

What’s Driving Facilities Planning?

12

Facility Needs

High Medium Low

Housing programsHealth careChild careHealth & FitnessSchools

Youth development Skills trainings / workforce developmentWorking wardrobe

Counseling AdvocacyAdministrationFundraising

Depends in part on program type and need for presence.

13

Understanding Options

14

What’s Included:• Space

– Build out?

– Shared space?

• Utilities– Technology?

• Maintenance• Tech

Terms

• Single or Multi-year• Rent stability and

increases spelled out• Options to renew• Security deposit

Leasing

15

Leasing

Advantages:

• Flexibility

– Scale of programs

– Make-up of programs

– Location of constituents

• Repair and maintenance typically not your responsibility

• Perceived less risk

Challenges

• Less stability

– Subject to local economy and rent increases

– Lack of control over terms

• Lower visibility

• Build out can be expensive

• Competition for finite financial resources

16

Owning / Buying

What’s Included:• Single or multi-tenant

facility

• Bricks and mortar

What it Entails:

• Financing:– Reserves

– Capital campaign

– Loans (construction and other)

• Construction– New or renovation

– Build out

– Design

17

Advantages:

• Stability– Multi-year mortgage payment

– Asset with capital appreciation potential

• Control of Space– Visibility, image

– “Community Institution”

• Possible lower costs– Property taxes / Depreciation

Challenges:

• Lack of flexibility– Community need or

demographics may change

• Long-term Maintenance• Skills required

– Facility management

• Market fluctuation– Rentals and value

Owning / Buying

18

Decisions, Decisions

Own “old” Facility Own “new” Facility Lease

+ Community institution

- Does it serve your programs today?

- Deferred maintenance

+ New, attractive facility

+ Designed specifically for your Association

+ Opportunity to engage / attract constituents

- Competition for operating funding

- Stability of programming

- Cost over-runs

+ Flexibility

- Hard to finance build out

- Image

19

What To Do About Our Current Facility?

1. Can our facility support our mission, needs?

• Does it accommodate programs; is it sited for accessibility?

• What capital , operating costs required in next 3-5 years?

• Do we have capacity to secure those funds?

2. Would a Sale Benefit Us Financially—Meet our space needs and Preserve Asset Value?

• Net Proceeds = Sale price minus:

Broker fees, taxes, other sales costs

Pay-off of mortgage

Repayment of government loans/grants for capital

Relocation expenses

• Net Annual Operating cost: our facility vs. rent elsewhere?

• Annual distribution for operations (e.g. 4% of last 12 quarters)

20

Decision Making Considerations

• Can the organization project operating revenue of a surplus (1 to 2%) over the next five years?

• Has the organization experienced rapid growth or does it expect to in the next five years?

– Can it predict that growth?

• What percentage of the organization’s revenue comes from government contracts?

– These doesn’t usually keep up with inflation.

21

Decision MakingConsiderations

• Does the organization only serve one community?

• Does the organization understand the migration of its constituents and their needs?

22

Can the Facility Support

Mission/Needs?

Would a Sale Benefit Us

Financially?

ActionPlan

Yes No

• Develop capital plan• Take steps to raise funds (e.g

capital campaign, rentals, financing)• Make facility improvements

No Yes

• Take steps to sell the facility• Secure alternative space• Invest net proceeds; set annual

distribution rate to maintain “corpus”

Decision Making Approach

23

FACILITY PITFALLSFinancial Leadership

24

Pitfalls: Ownership of Long-Held Historic Buildings

• Deep emotional connection

• Don’t understand community

• Lack of skills to maintain the building

• Deferred-maintenance

25

Time Out: Depreciation

• What is it?

– “ A reduction in the value of an asset with the passage of time, due in particular to wear and tear.”

• Is it cash?

• Do we have to have it?

• Do we have to fund it?

26

Pitfalls When Selling YWCA-Owned Buildings

• Overlook significant governmental obligations if used to purchase building or provide upgrades

• Use of assets to fund structural deficit

27

Time Out: Using Reserves

• What are reserves again?– Liquid reserve: Unrestricted cash + investments

• Why are we using reserves?– Timing?

– Structural?

– Investment?

28

Pitfalls When Buying (or building) Buildings

• Poor projections– Programs– Construction costs– Moving– Staff time

• Lack of contingency

29

MITIGATING PITFALLSFinancial Leadership

30

Realistic Projections

• Understand organizational facility costs:

– Maintenance (annual and ongoing)

• Include:

– Staff time

– Moving expenses

– Adequate contingency

– Program related costs

– Revenue adjustments for moving

– Capital campaign / development expenses

31

Realistic Projections

• Utilize comparable organization costs

• Fund depreciation

• Compare projections to alternatives

32

Human Capital

• Board knowledge and expertise

• Adequate facility management staff

– Especially important if considering rentals

• Consultants

– IFF, Other CDFI Loan Funds

33

Community Understanding

• Needs of constituents

• Demographics and changing location or preferences of constituents

• Real estate values and changes

• Marketplace for rentals

34

OTHER FACILITY IDEASFinancial Leadership

35

Free or Discounted Space

Advantages• Collaboration• Low rent and opportunity

to share costs• Flexibility• Access to clients

Challenges

• Less control• Inadequate space?• Need to cover costs

36

Shared Space

Advantages• Synergy between

organizations• One-stop shop for clients• Greater impact• Halo effect from being

with another great organization

Challenges

• Time consuming to arrange details

• Need to have shared values up front

• Donor perceptions• Risk from being tied to

other organizations

37

Shared Space: Questions to Ask

• Do we share the same values?

• Do our programs work well together in:

– Constituents served

– Outcomes

– Service approach

38

Shared Space:Example

Sojourner Family Peace Center

39

Your Questions

40

Recap

FacilityMISSION IMPACT

41

Recap

Use realistic projections

Know your options!(e.g. shared, in-kind)

Take advantage of resources

(e.g. human capital, YWCA intranet)

Understand your specific facilities needs

42

YWCA Facility Resources

The following resources are available on the YWCA USA Intranet Resource Library:

1. Click on “Operations and Policies” then “Buildings and Grounds”

– YWCA Facilities Management Guide

– Facilities Checklist and Budget Planning Worksheets

2. Click on “Property Management and Risk Management”

– Risk Management Self Inspection Checklist

– Risk Management Planning Guide (all risk categories)

43

YWCA FLM: Discussion Sitehttp://ywcaflm.ning.com/

44

Next Webinar: August 25th

The Art and Science of Budgeting and Dashboard Driving

• Telling your organization’s financial story

• Stages of budgeting including roles and timelines

• Cut through the clutter with a visual dashboard for engaging stakeholders

45

Steve ZimmermanSpectrum Nonprofit Services

www.spectrumnonprofit.com

stevez@spectrumnonprofit.com

414-727-1029