Financial Management Intermediate level

1. Financial ManagementIntermediate level This project has been funded with support from the European Commission. This publication reflects the views only of the author, and the Commission cannot be held responsible for any use which may be made of the information contained therein.

2. REVEAL Course Intermediate Financial management Level: Intermediate Domain: Financial Management Non profit organisations do not measure their success exclusively or primarily by their financial result but rather by outcomes related to their missions or by a double bottom line that considers both financial and programs results. Financial skills are necessary, even if not sufficient, to effective non profit management. Through this course you will improve your skills in accountancy, budgeting, financial reporting and fundraising.

3. Module 1 Accounting and record keeping Bookkeeping, accounting and financial management: some definitions It may be useful to clarify a few terms, especially the differences among bookkeeping, accounting and financial management. Bookkeeping refers to the methods and systems by which financial transactions are recorded, either by hand or on a computer. Accounting encompasses the rules by which financial transactions are classified and reported. There are two types of accounting: - “Financial accounting” deals with the financial information published for use by parties outside the organization. - “Managerial accounting” deals with information that is useful to an organization’s managers but it is not required to be made available to others. REVEAL Course Intermediate Financial management Module 1: Accounting and record keeping

4. Financial management relies on accounting statements for data, but it focuses on the meaning of those figures. Financial management usually involves the analysis of various financial ratios that may provide indicators of trends and the organization’s financial health. Thus, the key in bookkeeping is accuracy; in accounting, consistency, and following the rules; and in financial management, making judgments and establishing policies to guide the organization’s financial life. REVEAL Course Intermediate Financial management Module 1: Accounting and record keeping

5. REVEAL Course Intermediate Financial management Module 1: Accounting and record keeping Financial cash accounting Associations must keep registers – even informal ones – that will allow them not to lose track of their financial – and consequently economic – movements. There are different accounting systems for associations in different countries, but usually the most common approach is based on financial cash accounting (only recording revenues/expenses), that the financial statement will build upon. Financial cash accounting is the simplest way to describe economic events and transactions of the association. As a matter of fact it is simply based on ordering and classifying all revenue and expense items.

6. REVEAL Course Intermediate Financial management Module 1: Accounting and record keeping Managing financial cash accounting requires a smaller operating structure. As a matter of fact it is sufficient to make use of a two-column accounting book (or journal) in which the first column will conventionally highlight all the association incomes, while the second one will pinpoint all its expenses. Financial cash accounting has unfortunately a big fault: it does not account for economic and patrimonial facts – even relevant ones - with no financial manifestation.

7. REVEAL Course Intermediate Financial management Economic-patrimonial accounting In some countries bigger organisations may choose more complex accounting systems that better meet transparency and clarity needs and help to draw up a truthful and correct financial statement. In the so-called economic-patrimonial accounting (or accrual accounting) - which takes into account both the economic and financial dimension - each management transaction leads to a ‘couple’ of values of the same amount but opposite sign, that are the expression of economic variations (revenues/expenditures) and financial variations (credits/debts). This leads to the drawing up of the financial statement (Assets and liabilities statement and profit and loss account). Accrual concept accounting makes use of a general ledger or a computer-assisted accounting system. It is a more complete accountancy system and facilitates the drawing up of the financial statement. Module 1: Accounting and record keeping

8. REVEAL Course Intermediate Financial management Module 1: Accounting and record keeping • Accounting books • For non-profit organisations (especially the smallest ones) it is sufficient to make use of a ‘petty cash book’ or a general journal (paper or spreadsheet version) keeping record of all revenue and expense items shared out among all the identified entries. • Accounting books must respect some principles, in particular: • Chronological sequences • Order • Analyticity and accuracy of entries.

9. REVEAL Course Intermediate Financial management Module 1: Accounting and record keeping • An accounting book is a document in which (and through which) accounts are kept. • Among accounting records, we can include: • General Journal • The general journal is an accounting support that must report chronologically all the transactions concerning the accounting period. It is a document recording all accounting movements. • Inventory book (List of items) • By the term inventory we usually mean the physical/material recognition of significant elements within the organisation.

10. REVEAL Course Intermediate Financial management Module 2: Budgeting Module 2 Budgeting Developing and managing the budget A non profit organization’s financial statements are important documents both to individuals inside and outside the organisation. Some say that the budget reveals an organization’s “real strategy” despite what may be written in the strategic plan or other documents because the budget is a tangible expression of what the organization’s real priorities are.

11. REVEAL Course Intermediate Financial management Module 2: Budgeting The budgeting process starts with the translation of the strategic plan to the annual planning. Organization should make: the Operating Budget, that tracks all revenues and expenditures; the Capital Budget, that concerns the purchase or disposal of long-term physical assets , such as buildings and equipment; the Cash Budget, that tracks the flow of cash during the year, whether related to operating or capital activities.

12. REVEAL Course Intermediate Financial management Module 3: Financial reporting Module 3 Financial reporting Financial statements A financial statement is a record aiming to meet the legitimate informative demand of the stakeholders involved, through a global overview on the management flow. Financial statements are a basic document providing all the information needed: in this sense they have to be deemed a communication tool. Furthermore, they become an essential support in assessing the organisation’s performance and carrying out its government actions: in this sense, financial statements are a management tool for the organisation.

13. REVEAL Course Intermediate Financial management Module 3: Financial reporting Financial Statements of non profit organisations: Statement of Financial Position or Balance sheet; Statement of Activities or Income Statement; Statement of Cash Flows; Statement of Functional Expenses.

14. REVEAL Course Intermediate Financial management Module 3: Financial reporting • Statement of Financial Position or Balance sheet • The Statement of Financial Position (balance sheet) provides a snapshot of the organization at a point in time, usually the end of a fiscal year. • It summarizes: • Assets, “ the items that the organization possesses, with which it carries out its programs and service”; • Liabilities, “the amounts of borrowed money, or debt, that the organization has used to finance some of those assets”; • Net Assets, “the difference between assets and liabilities”. • Assets always equal the sum of liabilities and net assets. • Statement of Activities or Income Statement • The Statement of Activities shows the flow of revenues and expenses of the organization, and the resulting changes in net assets, over a period of time, generally a fiscal year (Statement of revenues, expenses, and changes in net assets).

15. REVEAL Course Intermediate Financial management Module 3: Financial reporting Statement of Cash Flows The Statement of Cash Flows shows cash inflows and outflows over the year, enabling us to see how the cash amount changed from one year to the next.. Statement of Functional Expenses The Statement of Functional Expenses shows how every category of expenses was allocated among the uses of each program or project of the organization and also the fund-raising, and management in general.

16. REVEAL Course Intermediate Financial management • Social performance indicators • Indicators are a set of concise information describing factual observation from different possible perspectives: created or distributed social value, ethics, philanthropy, environment, etc. Indicators, apart from being clear and essential, must be: • formulated in a significant way • shared within the group • measurable • standardizable • In defining selection criteria for social performance indicators it would be wise to follow some principles: • An imperfect indicator is always better than nothing • If possible, compare your indicators with those ones made available by external sources • Use different indicators for different aims • Develop a range of indicators • Do not provide more information than the one that will be probably used Module 3: Financial reporting

17. REVEAL Course Intermediate Financial management • Mission statement • A Mission Statement is a document containing all the extra-accounting information available, in order to complete – together with the accounting one – the basic informative framework provided by the financial statement. • A Mission Statement could be structured as follows: • Institutional framework • - Stakeholders identification • - Illustration of the plans and programmes aiming to ensure the pursuit of the Mission • 2. Support work aiming to consolidate institutional activities • Description of support actions • 3. Relationship with the environmental context • - Nature and characteristics of the relationship • - Description of any environmental bound that might have affected the general management • 4. Organizational shape • - Analysis of the organizational shape that highlights strengths and weaknesses Module 3: Financial reporting

18. REVEAL Course Intermediate Financial management Module 4: Fundraising Module 4 Fundraising How to organise small fund raising events Each well-planned event is an opportunity to raise funds – both during and after its implementation. The main steps to follow are: CLEARLY FOCUS ON THE OBJECTIVES CHOOSE THE “RIGHT” EVENT DEFINING A BUDGET IDENTIFY THE PROJECT MANAGER RESPONSIBLE FOR THE EVENT ORGANIZATION DEFINING A TIMETABLE ENGAGE PARTICIPANTS THANK EVERYBODY

19. REVEAL Course Intermediate Financial management Module 4: Fundraising The programmes (annual campaigns, capital raising) The general fundraising plan of is a set of all programs and fundraising activities of a non profit organisation. Bearing in mind that fundraising is an ongoing process of interaction between the organisation and the surrounding world, its effectiveness depends on a good planning and rigorous execution. The better the planning, the better the results. Once your good cause and objectives (strategic and operational) have been defined you can draft your General Development Plan starting from the definition of the economic needs. QUANTITY and QUALITY must be clear as well as the necessary resources.

20. REVEAL Course Intermediate Financial management Module 4: Fundraising Non profit organisations’ needs refer to 4 types, corresponding to 4 fundraising programs :

21. REVEAL Course Intermediate Financial management Module 4: Fundraising The so called ‘donor stool’ explains the relations between donor, source and program :

22. REVEAL Course Intermediate Financial management Module 4: Fundraising • The annual campaign is the core element of a successful fundraising program. The aim is to get donations from the annual income of the donor to meet the organization’s needs in terms of cash. • Capital raising is an intensive fundraising program to collect in terms of capital. • Major donations are the ones that everyone wants! Large donations are transversal to all programs and are usually bestowed in the framework of the annual harvest linking a donor further to the organisation.. • Planned gifts represent a sophisticated tool for fundraising: these donations are planned when the donor is alive, but the organisation reaps the rewards later, usually the death of the donor.

23. REVEAL Course Intermediate Financial management Module 4: Fundraising The gift pyramid that shows the various degrees of donor involvement and interdependence of all the components of fundraising :

24. REVEAL Course Intermediate Financial management • ANNUAL FUNDRAISING • Formula (how it works): receive the donation, repeat the donation, make the donation increase. •  Annual fundraising plays a key-role within a successful fundraising programme. It aims to obtain donations from the donor’s annual income in order to face the organisation requirements in terms of liquid assets. • Annual fundraising programme builds upon three different levels: • POTENTIAL DONORS FOR INITIAL DONATIONS. • RECEIVE THE FIRST DONATION: • Inform the potential donor about the activities carried out within your non profit organisation, the reason why donations are important and the possibility to affiliate to your organisation; • Ask for a donation; • Thank the potential donor that now has become a donor. Moduloe4: Fundraising

25. REVEAL Course Intermediate Financial management Moduloe4: Fundraising • 2. DONORS WHO REPEAT DONATIONS. • - REPEAT THE DONATION: • Write to the donor to tell him what your organisation has been able to do thanks to his contribution; • Invite him to take part in programmes/activities carried out within your organisation; • Thank him for his faithful attitude in constantly donating; • Advice that he should go on donating every year. • 3. ANNUAL DONORS WHO INCREASE THEIR DONATIONS. • MAKE THE DONATION INCREASE: • Arrange events or activities that motivate donors to contribute more and more through constant donations; • Thank them even for small donations; • Show them the opportunities for those who donate more. For instance: Donors club.

26. REVEAL Course Intermediate Financial management Module 4: Fundraising • In order to properly plan a fundraising campaign you must know that: • According to the fundraising profile – shown in the Pareto chart in the graph below : • - 60% of the donations amount will derive from 10% of the donors, • 20% of the money will derive from 70% of donors • the remaining 20% of donations from 20% of donors.

27. Thank you! This project has been funded with support from the European Commission. This publication reflects the views only of the author, and the Commission cannot be held responsible for any use which may be made of the information contained therein.