1May 26, 2015

YWCA USA Financial Leadership & Management ProgramDemystifying Expenses: Categorizing and Cost Allocations (Part 1)

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Join us on Twitter: @SpectrumSteve

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WELCOME

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Today’s Conversation

• The Dual Bottom Line• Determining True Costs

– Specific vs. Shared Costs– Program vs. Supporting– Cost Allocation

AGEN

DA

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Financial Leadership Model

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Financial Leadership Model

a) Staffing

b) Internal Controls

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Tenets of Financial Leadership

1. Move beyond mission vs. money thinking.

2. Cultivate financial leadership on the staff and board.

3. Understand your business model.

4. Recognize the relationship between strong infrastructure and strong programs.

5. Set the tone of accountability and sustainability.

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Financial Leadership Model

a) What am I looking at?

b) How do I assess?

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Assessing Financial Health

• Immediate Financial Health– Cash to pay bills

– Cash flow projection

– Budget

• Long-term Financial Health– Reserves

– Profitability

– Income diversity

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Financial Leadership Model

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The Dual Bottom Line

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The Dual Bottom Line

Surplus

Surplus

Surplus

Surplus

Deficit

Deficit

Deficit

Deficit

Surplus

Programs Organization

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The Dual Bottom Line

Revenue

Deficit

Surplus

Expenses

Profitability or

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Understanding Your

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What goes into the price?

Coffee Beans Water

Paper

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What goes into the price?

Coffee Beans

Technology

Gas for roasting

Strategic Planning Costs

Marketing & Advertising

Equipment

Accounting

Water

Paper

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Nonprofits need to do the same thing!

Coffee Beans

Paper

WaterGas for roasting

Equipment

Marketing & Advertising

AccountingTechnology

Strategic Planning Costs

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So, why don’t we?

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JARGON

Specific Costs

Shared Costs

Admin Costs

IndirectCosts

Direct Costs

Nonprofit World Funder World

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Peeling the Onion:Categorizing Expenses

Specific Expenses

Specific Program

Program A

Program B

Specific Supporting

Administration

Fundraising

Common or Shared

Expenses

Allocated to both categories

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Program Costs

Program A

Program B

Administration

Fundraising

Specific Costs

Shared Costs

Admin Costs

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Peeling the Onion:Categorizing Expenses

Specific Expenses

Specific Program

Program A

Program B

Specific Supporting

Administration

Fundraising

Common or Shared

Expenses

Allocated to both categories

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Specific vs. Shared: Definitions

Those expenses that relate to an individual program or activity of the organization.

Those expenses that are used by multiple programs or activities of the organization.

Specific Expenses Shared Expenses

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Specific vs. Shared: Examples

• Program supplies• Client

transportation• Development

Director’s Salary

• Office supplies • Rent• Telephone &

utilities• Liability insurance• Technology

support

Specific Expenses Shared Expenses

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Specific vs. Shared:Footnote

• Expenses are categorized as specific or shared by HOW THEY FUNCTION, NOT by what they are.

For example:

• Pens and paper for classrooms

• Pens in the office supply cabinet

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Peeling the Onion:Categorizing Expenses

Specific Expenses

Specific Program

Program A

Program B

Specific Supporting

Administration

Fundraising

Common or Shared

Expenses

Allocated to both categories

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Program vs. Supporting: Definitions

“Activities for which the organization was created to conduct.”

Fulfill the purposes or mission of the organization.

All activities of a nonprofit organization other than program services.

Program Services Supporting Services

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Program Services: Examples

Support Groups

Shelter

DV Prevention Program

Outreach and Awareness

Youth Development

Employment / Economic Development

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Supporting Services:Administration

Expenses associated with organization function and management.

These include:• Board expenses and other

costs associated with oversight and general management.

• Legal, accounting, finance, budgeting, general record keeping.

• Salary of ED except what’s allocable to programs & fundraising

These DO NOT necessarily include:• Rent, telephone, utilities, office

supplies, postage• Receptionist’s salary• All of the ED’s salary

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Understand Staffing Costs

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Peeling the Onion:Categorizing Expenses

Specific Expenses

Specific Program

Program A

Program B

Specific Supporting

Administration

Fundraising

Common or Shared

Expenses

Allocated to both categories

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What is allocation?

Allocation is the systematic process of splitting certain expenses between activity centers (cost centers) based on several factors.

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The Regulatory Environment

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2CFR Part 230 / OMB Circular A-122

All costs must be:

• Reasonable

• Allowable

• Allocable

• Consistently applied

• Documented

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Acceptable Basis

• Units of service costs

• Cost-to-Cost allocation

• Full time equivalents (FTE’s)

• Payroll expenses

• Square footage

• Specific expenses

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Employment / Economic

Development

Domestic Violence

Prevention & Intervention

Childcare / Youth

Development AdminFund-

raisingShared Costs TOTAL

Salaries 83,800 194,800 18,300 30,400 33,000 45,000 405,300 Benefits 12,570 29,220 2,745 4,560 4,950 6,750 60,795 Personnel Expense 96,370 224,020 21,045 34,960 37,950 51,750 466,095

- Professional Fees 19,900 143,000 1,500 3,400 - 167,800 Supplies 5,800 1,400 1,800 8,000 200 13,500 30,700 Telephone 4,900 4,900 Postage 2,600 2,600 Occupancy 12,100 12,100 Depreciation 6,500 6,500 Insurance 500 6,200 6,700 Technology 2,900 2,900 Travel 2,700 11,400 3,480 1,100 100 18,780 Printing 2,900 1,600 3,600 5,500 13,600

Total Specific Costs 127,670$ 381,420$ 27,825$ 47,960$ 41,850$ 105,950$ 732,675$

Program Activities Supporting Activities

Bottom Line AllocationFor the Nine Months Ending September 30, 2014

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Allocation Calculation

Program FTE’s Allocation Percentage

Total FTE’s – Shared FTE’s (Percentage of shared costs given to program)

For Economic Development:

2.70 0.22 or 22%

(14.70 – 2.20) = 12.5

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Employment / Economic

Development

Domestic Violence

Prevention & Intervention

Childcare / Youth

Development AdminFund-

raisingShared Costs TOTAL

Salaries 83,800 194,800 18,300 30,400 33,000 45,000 405,300 Benefits 12,570 29,220 2,745 4,560 4,950 6,750 60,795 Personnel Expense 96,370 224,020 21,045 34,960 37,950 51,750 466,095

- Professional Fees 19,900 143,000 1,500 3,400 - 167,800 Supplies 5,800 1,400 1,800 8,000 200 13,500 30,700 Telephone 4,900 4,900 Postage 2,600 2,600 Occupancy 12,100 12,100 Depreciation 6,500 6,500 Insurance 500 6,200 6,700 Technology 2,900 2,900 Travel 2,700 11,400 3,480 1,100 100 18,780 Printing 2,900 1,600 3,600 5,500 13,600

Total Specific Costs 127,670$ 381,420$ 27,825$ 47,960$ 41,850$ 105,950$ 732,675$

Allocation Rate 22% 41% 2% 18% 17% 100%

Allocation of Common Costs 23,309 43,440 2,119 19,071 18,012 (105,950) -

Total Expenses 150,979$ 424,860$ 29,944$ 67,031$ 59,862$ -$ 732,675$

Program Activities Supporting Activities

For the Nine Months Ending September 30, 2014

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Employment / Economic

Development

Domestic Violence

Prevention & Intervention

Childcare / Youth

Development AdminFund-

raisingShared Costs TOTAL

Salaries 83,800 194,800 18,300 30,400 33,000 45,000 405,300 Benefits 12,570 29,220 2,745 4,560 4,950 6,750 60,795 Personnel Expense 96,370 224,020 21,045 34,960 37,950 51,750 466,095

- Professional Fees 19,900 143,000 1,500 3,400 - 167,800 Supplies 5,800 1,400 1,800 8,000 200 13,500 30,700 Telephone 4,900 4,900 Postage 2,600 2,600 Occupancy 12,100 12,100 Depreciation 6,500 6,500 Insurance 500 6,200 6,700 Technology 2,900 2,900 Travel 2,700 11,400 3,480 1,100 100 18,780 Printing 2,900 1,600 3,600 5,500 13,600

Total Specific Costs 127,670$ 381,420$ 27,825$ 47,960$ 41,850$ 105,950$ 732,675$

Allocation Rate 22% 41% 2% 18% 17% 100%

Allocation of Common Costs 23,309 43,440 2,119 19,071 18,012 (105,950) -

Total Expenses 150,979$ 424,860$ 29,944$ 67,031$ 59,862$ -$ 732,675$

Program Activities Supporting Activities

For the Nine Months Ending September 30, 2014

Economic Development Shared Allocation:$105,950 * 22% = $23,309

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Excluded Costs

• Fundraising• Lobbying• Alcoholic beverages• Entertainment costs• Investment mgt.• Housing and personal

living expenses for officers

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Nonprofit Expenses

$127,670

$23,309

Admin Costs

Specific Costs

Shared Costs

Admin Costs

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Peeling the Onion:Categorizing Expenses

Specific Expenses

Specific Program

Program A

Program B

Specific Supporting

Administration

Fundraising

Common or Shared

Expenses

Allocated to both categories

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Employment / Economic

Development

Domestic Violence

Prevention & Intervention

Childcare / Youth

Development AdminFund-

raisingShared Costs TOTAL

Salaries 83,800 194,800 18,300 30,400 33,000 45,000 405,300 Benefits 12,570 29,220 2,745 4,560 4,950 6,750 60,795 Personnel Expense 96,370 224,020 21,045 34,960 37,950 51,750 466,095

- Professional Fees 19,900 143,000 1,500 3,400 - 167,800 Supplies 5,800 1,400 1,800 8,000 200 13,500 30,700 Telephone 4,900 4,900 Postage 2,600 2,600 Occupancy 12,100 12,100 Depreciation 6,500 6,500 Insurance 500 6,200 6,700 Technology 2,900 2,900 Travel 2,700 11,400 3,480 1,100 100 18,780 Printing 2,900 1,600 3,600 5,500 13,600

Total Specific Costs 127,670$ 381,420$ 27,825$ 47,960$ 41,850$ 105,950$ 732,675$

Allocation Rate 22% 41% 2% 18% 17% 100%

Allocation of Common Costs 23,309 43,440 2,119 19,071 18,012 (105,950) -

Total Expenses 150,979$ 424,860$ 29,944$ 67,031$ 59,862$ -$ 732,675$

Program Activities Supporting Activities

For the Nine Months Ending September 30, 2014

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Nonprofit Expenses

$127,670

$23,309

Admin Costs

Specific Costs

Shared Costs

Admin Costs

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Peeling the Onion:Categorizing Expenses

Specific Expenses

Specific Program

Program A

Program B

Specific Supporting

Administration

Fundraising

Common or Shared

Expenses

Allocated to both categories

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Administration Allocation Calculation

Program + Shared Expense Allocation Percentage(Total Expenses - Admin Exp.)

For Economic Development:

(127,670 + 23,309) = 150,979 0.2268 or 22.68%

(732,675 – 67,031) = 665,644

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Employment / Economic

Development

Domestic Violence

Prevention & Intervention

Childcare / Youth

Development AdminFund-

raisingShared Costs TOTAL

Salaries 83,800 194,800 18,300 30,400 33,000 45,000 405,300 Benefits 12,570 29,220 2,745 4,560 4,950 6,750 60,795 Personnel Expense 96,370 224,020 21,045 34,960 37,950 51,750 466,095

- Professional Fees 19,900 143,000 1,500 3,400 - 167,800 Supplies 5,800 1,400 1,800 8,000 200 13,500 30,700 Telephone 4,900 4,900 Postage 2,600 2,600 Occupancy 12,100 12,100 Depreciation 6,500 6,500 Insurance 500 6,200 6,700 Technology 2,900 2,900 Travel 2,700 11,400 3,480 1,100 100 18,780 Printing 2,900 1,600 3,600 5,500 13,600

Total Specific Costs 127,670$ 381,420$ 27,825$ 47,960$ 41,850$ 105,950$ 732,675$

Allocation Rate 22% 41% 2% 18% 17% 100%

Allocation of Common Costs 23,309 43,440 2,119 19,071 18,012 (105,950) -

Expense without Admin. 150,979$ 424,860$ 29,944$ 67,031$ 59,862$ -$ 732,675$

Admin Allocation % 23% 64% 4% -100% 9%

Admin. Allocation 15,204 42,784 3,015 (67,031) 6,028

TRUE COST 166,183$ 467,643$ 32,959$ -$ 65,890$ 732,675$

Program Activities Supporting Activities

For the Nine Months Ending September 30, 2014

Economic Development Admin Allocation:$67,031 * 22.68% = $15,204

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Nonprofit Expenses

$127,670

$23,309

$15,204

Specific Costs

Shared Costs

Admin Costs

$166,183

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Employment / Economic

Development

Domestic Violence

Prevention & Intervention

Childcare / Youth

Development AdminFund-

raisingShared Costs TOTAL

Salaries 83,800 194,800 18,300 30,400 33,000 45,000 405,300 Benefits 12,570 29,220 2,745 4,560 4,950 6,750 60,795 Personnel Expense 96,370 224,020 21,045 34,960 37,950 51,750 466,095

- Professional Fees 19,900 143,000 1,500 3,400 - 167,800 Supplies 5,800 1,400 1,800 8,000 200 13,500 30,700 Telephone 4,900 4,900 Postage 2,600 2,600 Occupancy 12,100 12,100 Depreciation 6,500 6,500 Insurance 500 6,200 6,700 Technology 2,900 2,900 Travel 2,700 11,400 3,480 1,100 100 18,780 Printing 2,900 1,600 3,600 5,500 13,600

Total Specific Costs 127,670$ 381,420$ 27,825$ 47,960$ 41,850$ 105,950$ 732,675$

Allocation Rate 22% 41% 2% 18% 17% 100%

Allocation of Common Costs 23,309 43,440 2,119 19,071 18,012 (105,950) -

Expense without Admin. 150,979$ 424,860$ 29,944$ 67,031$ 59,862$ -$ 732,675$

Admin Allocation % 22.682% 64% 4% -100% 9%

Admin. Allocation 15,204 42,784 3,015 (67,031) 6,028

TRUE COST 166,183$ 467,643$ 32,959$ -$ 65,890$ 732,675$

Program Activities Supporting Activities

For the Nine Months Ending September 30, 2014

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Homework: Determine True Costs

Determine the true costs of programs by:

• Use our template for a program.

• Use our template for your Association.

• Use your own template and describe the process.

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Resources

• Sample Financial Statements

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Recap

Categorize Costs Correctly

Understand Your Staffing Costs

Allocate Costs

True Program Costs include:

• Specific expenses• Shared expenses• Admin expenses

• Specific vs. Shared• Program vs. Supporting

• Staffing Plan • Shared and Admin Costs• Choose a relevant basis

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Your Questions

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

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Next Webinar: June 22

Demystifying Expenses Part 2: Categorizing Expenses and Cost Allocation

• Discussion / Your Questions

• Homework Review

– Homework is not due until after the next webinar!

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Steve ZimmermanSpectrum Nonprofit Services

www.spectrumnonprofit.com

stevez@spectrumnonprofit.com

414-727-1029