an introduction to financial management and reporting

An Introduction to Financial Management

and ReportingDC Department of Small & Local Business

Development

John Pace, CPA, CVASenior Manager, Client Services

Steven Lyons, CPASupervisor, Client Services

December 12, 2013

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John Pace, CPA, CVASenior Manager, Gelman, Rosenberg & Freedman CPAs

15 years of accounting and finance experience

Provides assistance to GRF clients in the capacity of temporary controller/chief financial officer, with duties such as cash flow planning and analysis, financial statement preparation, financial performance analysis, budgeting and bookkeeping.

Financial Management and Reporting

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Steven Lyons, CPASupervisor, Gelman, Rosenberg & Freedman CPAs

12 years of accounting and finance experience

Provides assistance to GRF clients in the capacity of temporary controller/chief financial officer, with duties such as cash financial statement preparation, budgeting, bookkeeping, financial performance analysis .

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Firm Bio

Gelman, Rosenberg & Freedman CPAs, located in the Washington, DC metropolitan region since 1981, is a professional services firm that provides clients with financial, tax and consulting solutions. For more than 30 years, our business has supported the financial and operational success of nonprofits locally, nationally and around the world. Our professionals also offer accounting and consulting services to government contractors, businesses, individuals and attorneys in need of advisory support.

Our mission, vision, values and philosophy provide a foundation upon which we strive to succeed. We want our clients to perceive Gelman, Rosenberg & Freedman as more than just accountants who deliver a once-a-year engagement. We seek to become trusted financial advisors who work throughout the year to provide clients with insights and expert advice.

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Agenda

Questions

Types of Financial Statements

Overview of Financial Statements

Common Reports

Cash vs. Accrual

Budgets

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Types of Financial Statements

Audit

Review

Compilation

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Sample Audit Report

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Sample Reviewed Report

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Sample Compiled Report

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Overview of Financial Statements

Financial statements offer a insight into the company’s financial health.

User of Financial Statements are potential investors, bankers, insurance agents, bond companies etc.

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Measure the activity showing how we got from one image to another (Income Statement or Statement of Activities)

Snapshot

Take a photo and capture the image (Balance Sheet or Statement of Financial Position)

Take a photo and capture the image (Balance Sheet or Statement of Financial Position)

December 31st                               

January 1st    

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Nothing here about salary or living expenses

Moment in time

Assets are what you have

Liabilities are what you owe

Equity is the difference. It’s also the sum result of your whole history

Smith Consulting, Inc.

Balance Sheet

September 30, 2013

Assets

Checking account $ 1,000

Savings account 250

Total cash 1,250

Auto 7,000

Total Assets $ 8,250

Liabilities -

Car Loan 6,000

Equity 2,250

Total Liabilities and Equity $ 8,250

Balance Sheet - Basic

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Balance Sheet - Advanced

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Balance Sheet - Advanced

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Smith Consulting, Inc.Income Statement

For the Year Ended December 31, 2013

RevenueFees $ 10,000 Interest income 100

Total Revenue 10,100

ExpensesSalary 7,000 Travel 1,000 Supplies 300 Rent 200

Total Expenses 8,500

Net Income $ 1,600

Measures activity over time

How much cash do you have?

Who are the users of this report?Maybe bankers, owners, potential owners or

management

What do they want to know?Profitability, ability to repay

a loan, etc.

Income Statement-Basic

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Income Statement-Advanced

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Cash Flow Statement

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Equity Statement

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Questions?

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Common Internal Reports:

Budgets

Cash Projections

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Budgets

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Budget Process Developing a budget involves consideration of

strategic priorities, gathering data, articulation of assumptions and lots of communication. And a little math.

Using a budget involves clear reporting aligning budget categories with accounting data, more discussions and then making decisions.

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Budgets Are … Budgets are based on FACTS and ASSUMPTIONS

More about priorities than numbers

A roadmap for implementing the strategic plan

Budgets should tell a story. Are there any new activities or changes to existing activities?

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Budgets Are Not … Budgets are not law –budgeting is a totally different

concept than a government’s budget.

“Budgeted” doesn’t necessarily mean that the money is there

Budgets are not meant to be final – reality tends to get in the way

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What do you do when you get a budget report?

What should you do with budget reports?– Format can really vary so make sure you understand what the

numbers represent (esp. terms, dates and signs)– Help discover errors by making sure the numbers make sense -- do

they agree with your recollection of what actually happened?– Use them to keep program on track or identify things that will go

over/under budget– Ask questions!

Internal Reports: Comparisons to Budget

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Smith Consulting, Inc.RBI Program

January to August 2013

YTD YTD YTD 2013 2013

Actual Budget Variance Budget Remaining

Expenses

Salary 2,300 3,000 700 6,300 4,000

Travel 800 800 - 1,600 800

Supplies 300 150 (150) 250 (50)

Consulting - 100 100 200 200

Total Expenses 3,400 4,050 650 8,350 4,950

Sample Budget vs. Actual Report Let’s look

through the terms and information presented

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Content will vary

Variance between what?

Is a positive budget variance good or bad?

A Different Budget vs. Actual Report

Smith Consulting, Inc.RBI Program

January to August 2013

August YTD YTD 2013

Actual Actual Budget Budget Variance Expenses

Salary 1,000 2,300 3,000 6,300 700 Travel - 800 800 1,600 - Supplies 200 300 150 250 (150)Consulting - - 100 200 100

Total Expenses 1,200 3,400 4,050 8,350 650

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Percent of what?

Why is salary less than 50%

Do other percentages make sense?

Another Budget Report Format…

Smith Consulting, Inc.RBI Program

January to August 2013

August YTD 2013 Budget % of

Actual Actual Budget Variance Budget Expenses

Salary 1,000 2,300 6,300 4,000 37%Travel - 800 1,600 800 50%Supplies 200 265 250 (15) 106%Consulting - - 200 200 0%

Total Expenses 1,200 3,365 8,350 4,985 40%

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Other Internal Reports: Projections

What time period is projected?

How were the projections done?

Smith Consulting, Inc.RBI Program

January to August 2013

YTD Remaining Projected 2013 2013

Actual Projected 2013 Budget Variance Expenses

Salary 2,300 3,000 5,300 6,300 (1,000)Travel 800 800 1,600 1,600 - Supplies 300 150 450 250 200 Consulting - 100 100 200 (100)

Total Expenses 3,400 4,050 7,450 8,350 (900)

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Cash Projections

Starts with actual cash balance and typically goes out 6 months

Often called “cash flow report” but that is not what accountants mean when they use that title

Smith Consulting, Inc.

3 Month Projected Cash Flow as of 8/31/13

2013 2013 2013

  September October November

Beginning Cash $ 68,300 $ 62,500 $ (13,000)

Cash In

Contributions 86,500 6,300 127,000

Ticket Sales 5,000 4,500 6,900

Total Cash In 91,500 10,800 133,900

Cash Out

Regular monthly (80,000) (80,000) (80,000)

Project costs (15,000) (4,000) (20,000)

Loan payment (2,300) (2,300) (2,300)

Total Cash Out (97,300) (86,300) (102,300)

Change during the Month (5,800) (75,500) 31,600

Ending Cash $ 62,500 $ (13,000) $ 18,600

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Cash Projections (cont.)

Note that “cash in” and “cash out” are not the same as revenue and expense

The purpose is to identify times that the cash balance might be a problem -- such as during October in this example

Smith Consulting, Inc.

3 Month Projected Cash Flow as of 8/31/12

2013 2013 2013

  September October November

Beginning Cash $ 68,300 $ 62,500 $ (13,000)

Cash In

Contributions 86,500 6,300 127,000

Ticket Sales 5,000 4,500 6,900

Total Cash In 91,500 10,800 133,900

Cash Out

Regular monthly (80,000) (80,000) (80,000)

Project costs (15,000) (4,000) (20,000)

Loan payment (2,300) (2,300) (2,300)

Total Cash Out (97,300) (86,300) (102,300)

Change during the Month (5,800) (75,500) 31,600

Ending Cash $ 62,500 $ (13,000) $ 18,600

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Cash vs. Accrual Accounting

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Cash vs. Accrual Accounting Ex: In October 2010 a customer is invoiced for $1,000.

The check is sent to us in March 2011 What is the 2011 Revenue

Ex: In Dec 2010 you rented a meeting room to host a seminar. In Jan you got a bill from the facility for $800 and you paid it in Feb 2011. What is the 2011 expense?

Pay particular attention to this issue when trying to project revenue or when comparing budget to actual expenses

John Pace, Senior Manager, Client ServicesEmail: jpace@grfcpa.com

Steven Lyons, Supervisor, Client Services Email: slyons@grfcpa.com Telephone: (301) 951 – 9090Website: www.grfcpa.com

Questions & Answers