the intersection of finance and strategy: using financial data to inform strategic decisions
TRANSCRIPT
The Intersection of Finance and Strategy:
Using Financial Data to Inform Strategic Decisions
February 2, 2015
By
Brent Copen
What are some
common financial
“pain points” for
nonprofits?
What value do we
create when we
solve them?
What makes nonprofits different?
3
Market failure
Third party payers
Difficulty accessing growth capital
The Nonprofit Business Model
4 Strategic Financial Solutions © 2015
Mission
& Programs
Operating structure
Financial Model
Business Model
The Nonprofit Business Model
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Operating Structure
Financial Model
Mission & Programs
Geography competitive
advantage
Revenues
& Capital
A Question for the group
Are nonprofits allowed to
generate profits?
6
Surpluses Reinvested in The Business
7
New opportunities
Facility
Rainy day
Investment
A Question For The Group
Who “buys” the
products and services of
the nonprofit?
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Customer fee $
Third party payer
funding $$$
Service cost $$$$
Defining Service Cost & Customer Fee
Customer fee $$$$
Service cost $$$$
Traditional Model Nonprofit Model
9 Source: La Piana Consulting
For Profit:
Service Cost = Customer Fee
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Item Cost Fee
Ingredients
Coffee $0.12
Dairy $0.05
Cup + lid + sleeve $0.25
Overhead
Labor $0.90
Rent $0.25
Marketing $0.12
G & A $0.50
Operating profit $0.30
Service cost $2.49
Customer fee $2.49
Non Profit:
Service Cost ≠ Customer Fee
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Item Cost Fee
Ingredients
Coffee $0.12
Dairy $0.05
Cup + lid + sleeve $0.25
Overhead
Labor $0.90
Rent $0.25
Marketing $0.12
G & A $0.50
Operating profit $0.30
Service cost $2.49
Customer fee $2.00
A Question for the group
Is cash always fungible
in the nonprofit sector?
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Rules of Nonprofit Accounting
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Unrestricted Temporarily Restricted
Permanently Restricted
Three categories of contributions and net assets
Rules of Nonprofit Accounting
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Income Statement or Statement of Activities
Total Change in Net Assets (surplus/Deficit): $450,000
Temporarily restricted Change $400,000 Receipts in excess of releases
Unrestricted Change in Net Assets $50,000
Non-operating Revenues $100,000 e.g. building campaign
Unrestricted Operating Change in Net Assets ($50,000)
Balance Sheet or Statement of Financial Position
Total Net Assets (Equity): $15M
Permanently Restricted $10M e.g. endowment
Temporarily Restricted $4M e.g. multi-year funding
Unrestricted Net Assets $1M
Unrestricted Plant and Equipment Net Assets $1.5M
Unrestricted Liquid Net Assets ($500k)
Cash and Cash Equivalents $2M
Temporarily Restricted $1.8M Prepaid for future uses
Unrestricted $200k
Statement of Activities
<#> Strategic Financial Solutions © 2015
Program Profitability
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Program Direct Indirect
$ in Thousands School Afterschool Fitness Residential Camp
Subtotal
Program General Total Budget
Revenue Earned
Tuition/fees 972 207 826 217 2,222 2,222
Rental income 1,145 1,145 1,145
Other 42 42 42
Revenue Contributed
Individual 25 1 26 67 93
Grants 5 14 19 19
Net assets released 97 97 97
0
Total revenue 1,044 222 826 1,242 217 3,551 67 3,618
Expenses
Total expenses 1,258 208 731 988 180 3,365 421 3,786
Surplus/Deficit -214 14 95 254 37 186 -354 -168
Allocation 157 26 91 124 23
Total surplus/deficit -371 -12 4 130 14
Projected
Deficit
Matrix Map
17 Source: Compasspoint
School
After School
Fitness
Residential
Summer Camp
0.00
1.00
2.00
3.00
4.00
($300,000) ($200,000) ($100,000) $0 $100,000 $200,000 $300,000 $400,000
Imp
act
Profitability
Matrix Map
Increased accountability, rigor and transparency
Better financial planning tools and responsiveness to
shifts in the environment
Business planning: testing economic logic of future
plans, market awareness, financial modeling, risk
assessment, measuring results
Improved financial performance and reporting, surplus business models and reserve building
Trends For The Sector
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