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?

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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?

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Surpluses Reinvested in The Business

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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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Conclusion

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