Show me the Money: The Statement of Financial Position

Financial Statement Series

The statement of financial position required for nonprofits by FASB Statement 117 is similar to the balance sheet which we discussed in a previous article in this series. The statement of financial position addresses the restriction in net assets that the balance sheet does not. The balance equation is still the same:

Assets=Liabilities + Net Assets

This statement, like the balance sheet, lists assets in the order of liquidity, liabilities in the order that they are due, and the difference between the assets and the liabilities is the net assets.

Because nonprofits are funded by donors and other organizations such as grantors, donors may place restrictions on the contributions to the organization. Assets need not be reported on the basis of donor-imposed restriction unless they are designated for long-term purposes or received with donor-imposed restrictions that limit their use for long-term purposes. In those cases, there are guidelines for breaking out and reporting the assets designated for long-term use.

Net Asset Restrictions

Information about the nature and amounts of the restrictions on net assets may be reported by using a separate line for each type of restriction. Information on restrictions may also be included in the notes for the financial statements.

Permanently Restricted Net Assets

These are assets that the donor has instructed the organization to maintain in perpetuity.

Endowments are examples of permanently restricted net assets. Commonly, a donor contributes funds for an endowment with instructions that the principal may not be spent but the income generated by the endowment fund may be used by the organization.

Temporarily Restricted Net Assets

Temporarily restricted Net Assets either have a donor-imposed time or purpose restriction. Perhaps money is donated to a school for use within a specific school year. A building fund is another example of temporarily restricted funds.

Unrestricted Net Assets

These are net assets which have neither a permanent nor a temporary restriction placed on them. In the absence of donor restrictions, net assets are unrestricted.

Final Note

The statement of financial position offers unique insights into the special circumstances of a nonprofit organization. Looking at the statement balances, a reader might ask the following questions:

• Is there enough cash to pay the bills?
• Are investments diversified per organization policy?
• Are receivables being collected in a timely manner?
• Are vendors being paid in a timely manner?
• How long have liabilities been on the books?
• Are tax liabilities being met in a timely manner?
• Are the restricted funds protected?

A properly prepared statement of financial position is part of the complete package of financial statements for nonprofits.

Next time we’ll look at the statement of cash flows.

Laura Reifschlager

Trainer

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7 Lessons Learned From Working In Retail

I applied for the position on a whim. A few years ago, I was between jobs while purchasing a bridal gift at a home goods store. Holiday season was approaching, so I applied for temporary work. Surprisingly, I learned some key lessons during my short tenure there which relate to many business arenas, including the nonprofit world. Read on to discover how I applied these lessons to break the all-time sales record for an ordinary household product.

That home goods store requires that their cashiers do suggestive selling at the registers. The first item to sell was a set of nonstick skillets for $50. I was nervous about asking customers who had already made their purchases to add another $50 to their ticket. No one will buy these was my first thought.

Lesson 1: If you don’t ask, there is no opportunity for success. Each customer not asked to buy the skillets was an opportunity missed. And surprisingly to me, many said yes to adding another $50 to their ticket. Several even added more than one set of skillets to their ticket. So ask for what you need!

Once I made the first sale, I learned the next lesson.

Lesson 2: Success breeds success. The confidence gained from one “yes” fueled the next sale. My confidence grew. My fear diminished. I was encouraged to keep asking customers to purchase the skillets. So remember that success in asking for what you need will lead to more success in getting what you need.

However, not everyone said yes. Sometimes they said no.

Lesson 3: No once doesn’t mean no the next time. Even no for the fourth time in a row doesn’t mean no the next time. Not everyone will say yes to your request. But no once doesn’t mean the next answer will be no.

Lesson 4: Not every day is a yes day. Some days, the answer is no all day long. But on no days, hang on to lessons 1 and 4. Tomorrow will be a new (and different) day! When the answer is no, regroup and re-evaluate the request. And return to lessons 1 and 4 for encouragement.

Learning to handle the no responses and remembering lessons 1 and 4 taught me lesson number 5.

Lesson 5: Success is contagious. The excitement generated from one sale often produced the next sale. The next person in line did not want to be left out. Be excited when you receive a yes answer. Publicize it! Let others know. Create an atmosphere such that others want to share in the success.

Lesson 6: Project confidence. Believe in what you are asking. I bought a set of the skillets so I could say I own the skillets and offer my own testimony about their value. With my level of confidence, the only item I could not sell was the Topsy Turvey tomato grower. (The product lacked greatness, and I could not manufacture any greatness.) Be genuine. Believe in what you are asking. Be a part of your mission.

Lesson 7. Smile. Build a relationship. Be likeable. People like doing business with others they like and with whom they have a relationship. If my friend posts a request to support her half marathon for her ill friend, I will support the cause, not necessarily for the ill friend but because I want to support my friend.

The final product I was asked to sell was the unglamorous room deodorizer for $6.99. Even though the product was packaged as two for $9.99, we were asked to sell the singles for $6.99. Using all the principles above, I sold 32 room deodorizers on one Saturday afternoon, breaking the record and amazing a visiting manager. And that brings me to the final lesson:

Hang on to those yes days. The memory of success will serve as encouragement for those no days and remind you that the next day just might be a yes day.

 

Laura Reifschlager

Trainer

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Innovation And The Social Balance Sheet

Innovation can mean many things to many people. Innovation and accounting are usually not words that go well together. Innovative accounting usually = new ways to justify questionable practices. Enron had a very innovative accounting department. When applying innovation to accounting, we shouldn’t be focused on creating new recipes with which to cook the books. Instead, we should be innovative about how we measure things and look beyond just OUR books to the social balance sheet.

A non-profit organization “success” should be measured beyond simple financial results, overhead ratios, number of clients served and other traditional methods of tracking efficiency. The effect of their services on their customers, and thus society at large, should also be given weight in that evaluation.

Let’s say you’re a human services agency and have a choice of two programs for improving health outcomes. Both help, but the more expensive one has a difference in the number of days a client is sick or hospitalized. When you look at both programs strictly from a budget/efficiency perspective one serves fewer people and is more expensive, looks like “inefficiency” at work. From the organizations’ standpoint that might be true if we only look at how much money it costs US.

But what about the savings to our clients and society as a whole? If that person stays out of the hospital, the local community sees large cost savings. If the person doesn’t miss work because they are ill or taking care of something (like waiting in line for discounted services), then that’s productivity that isn’t lost to their employer as well as direct wages the client doesn’t lose. When you consider that many non-profit clients are in tenuous circumstances to begin with, these savings in time and money on their part may make the difference between staying afloat or going under in a reinforcing spiral of work issues, health issues, medical access, food and nutrition and ultimately housing issues. Keeping more of them afloat reduces the strain on many other services besides the one our organization provides. In accounting terms, it keeps them in the asset vs. the liability section of the social balance sheet.

Finding ways to measure this success and tell this story, rather than beating tired ratios of efficiency to death, is real innovation. Statements like “saved average customer 4 sick days” don’t sound terribly impressive, but “saved average customer $15,345 in lost time, wages, hospitalization and social welfare costs” makes a stronger case that even bean counters can appreciate. Then you can make a better case when you ask “Is it worth $100 of our money to save the customer and society at large $10,000?”.

Tom Tweedel

Sr. Customer Support Analyst

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4 Innovation Lessons You Can Learn From Panera

I have had my eye on the Panera Cares café concept since its inception three years ago.  Would it be more than a cause marketing initiative or CSR campaign? Would it positively impact the communities it serves?  Would it be successful?  After hearing founder Ron Schaich’s present “Innovating Philanthropy: Panera’s Social Experiment”, I think the answer is yes to all of the above. In his presentation, he described his inspiration for Panera Cares cafes and the process of taking the idea and making it a reality.   What I walked away with (other than a good feeling about Panera) is a handful of lessons any nonprofit can use to help them innovate.

Study What Others Are Doing and Develop Your Own Approach

Ron knew he wanted to expand on the company’s philanthropic efforts, he knew he wanted to address hunger or food insecurity, but he didn’t know what he wanted to do until he learned about the SAME Cafe in Denver, Colorado.  He visited the SAME Cafe and many similar organizations to observe and learn how they deliver on their mission.   The result is the Panera Cares Café a “pay what you can” restaurant.  The menu lists suggested donation amounts, but every customer is served regardless of whether they are able to pay or not.  Ron took the concept of a community café and modified it to work for Panera.

Focus on the Experience  

Ron anonymously visited community cafes around the country as a customer.  He observed the total experience from the look and feel of the facilities to how diners hung their heads as they ordered.  He was motivated to create an experience in Panera Cares cafes that is “just as good as the one you pay full price for” at the retail store.   And, the experience is entirely Panera – as a guest at a Panera Cares Café you order off the same menu as a Panera retail store and the food, service and standards are all the same.  This was extremely important in order to create an experience that every customer would want and enable non-paying customers to “dine with dignity”.

Hone Your Skills, Perfect the Plan, Iterate Until It’s Right

When the first café opened in Clayton, Missouri Ron worked 80 hours a week running the café to learn and improve upon the initial concept.  He spent hours tweaking the way the café communicated the “take what you need, but leave your share” idea.  Initially customers ignored instructions because they didn’t understand the concept.  They have since modified their communications (it’s the “pay what you can” model) and added a greeter at the door to help walk customers through the process.  He also spent hours creating a custom “point of sale” system.  One that utilizes the technology to place the orders with the kitchen, but that totally and anonymously allows customers to give.  For any skeptics reading, Ron shared that 60% of the guests donate the suggested amount, 20% donate more and 20% donate less.

Don’t stop innovating!

Today there are 5 Panera Cares Cafes and they are all self-sustaining with money left over.  The Panera Cares Foundation is expanding and figuring out ways to do more.  In addition to addressing food insecurities, they are developing job training programs and focusing on at-risk youth.

Panera (the for-profit entity) has 1,652 bakery-cafes nationwide and had $2.1 billion in sales in 2012.  If you ask their employees, what their most proud of, it’s often Panera Cares.

Want more information on the “Experience” check out the Panera Cares reviews on Yelp.

3.5 Stars in Portland, OR  http://www.yelp.com/biz/paneracares-portland

4 Starts in Clayton, MO http://www.yelp.com/biz/paneracares-clayton

3.5 Stars in Dearborn, MI http://www.yelp.com/biz/paneracares-dearborn

3 Stars in Chicago, IL  http://www.yelp.com/biz/paneracares-chicago

4.5 Stars in Boston, MA http://www.yelp.com/biz/panera-cares-boston

Patricia Tynan

Sr. Marketing Manager

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Sustainability In A World of Change

I was talking with a coworker about this month’s blog topic which is “Sustainability”. There is a lot to say on the topic, but as I got to thinking about it I realized perhaps we really need to think about what sustainability is.

By the Book – relating to, or being a method of harvesting or using a resource so that the resource is not depleted or permanently damaged for future generations.

From a non-profit perspective, I would say that it means “How do we make sure we can continue our mission forever”. Sounds simple enough. Find out how to run things well and don’t bite off too much at once, but as I continued to think about it I realized that sustainability is much more than that.

Nothing, not life, not the earth even the stars will last forever. In time everything collapses and becomes something else. Most of what we think of as matter was originally forged by stars and scattered throughout the galaxy upon their destruction.

Are organizations any different? Should we be striving to swim against the order of the universe or should we instead ride with it and accept the transformations? History is full of stories of rise and fall, and for a select few, rising again.

Sustainability is more than making sure we can do something forever because in time something will bring an end to things as we know them. When we think of sustainability, we must also think about transformation and what we become after the change. The world does not sit still; challenges, opportunities and problems we face today could not even have been conceived a century ago. Sustainability means looking forward into the near and intermediate future and having a plan of what to become in that future, and in some cases adapting to a sudden and complete change that happens today.

Sustainability is more than careful use of a resource so that you still have some for tomorrow. It also means recognizing and preparing for what you can do with that resource when (not if) tomorrow becomes a very different place.

Tom Tweedel
Sr. Customer Support Analyst

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Dan Pallotta: The Uncharitable Double Standard

Recently I have had the pleasure of watching Dan Pallotta speak on his ideas around how we must change our expectations and controls around the business of bringing about social change and good. I got to see the TED talk as well as see him in person as a keynote speaker at #13NTC, the annual conference of NTEN (Nonprofit Technology Network). http://www.nten.org/

If you haven’t seen Dan’s TED talk, stop reading this now and take the time to watch his talk. I would much rather you saw this first hand than rely on a poor summary from me.

Impressive speaker isn’t he? I was very impressed with both his ideas and the facts that back up his message. Expect to see Dan in front of congress at some point… But let’s get to Dan’s message.

The existence of our organizations at a high level is to carry on the business of social change and good. In essence, we exist to “make the world a better place”. This is our product. Realization and delivery of this product is arguably more challenging and complicated than many for profit businesses. We ask donors to part with their money in return for the feeling of having made a difference.

Yet for all the complexity and difficulty of delivery, we restrict the tools that nonprofit entities are allowed to use. Many of Dan’s objections to our current system revolve around how we think of overhead and how we measure effectiveness. We all refer to non-program spend as “overhead” or “administrative costs”. Are they really? Dan does a great job of pointing out just how wrong our ideas are here.

In the for profit business world, we are fond of saying that it “takes money to make money”. We look for and pay for good leaders, we advertise, and we invest in innovative risks that might not pan out. It is part of how we win in the private sector.  We demand growth and results and offer rewards to those that make it happen.

However we have been taught that these expenditures are wasteful when it comes to nonprofits. The measure we’ve been taught to pay attention to is maximizing “program spend” and minimizing “administrative overhead”. Why wouldn’t we want to hire exemplary leaders that are capable of really impressive and disruptive results? Why wouldn’t we want to create awareness and “sales” of our product through high quality advertising? Why is it ok to sell potato chips in this fashion, but not fund providing clean water in developing countries?

If we are looking to solve hard problems like eradicating AIDS or Breast Cancer, why would we limit the quality of tools that people may use to make that happen? Why don’t we want our best leaders working directly on it? Why not our best advertising firms? Our best software engineers, technologists, and speakers? Why do we reserve that talent for “for profit” pursuits? Why do we make this talent choose between what is good for them personally and their family and causes we all know are globally and temporally important? Do we just seek the “good feeling” of having donated to a compelling cause, or do we truly want to see results toward the goals? Our current framework of measurement does not incent the behavior we say we would like to see, nor the results we desire.

Yes, Dan has me a bit fired up. Through listening to him, I too believe a change is needed. I hope you’ve found him inspirational. He’s not just talking though; he’s starting up his own organization to help drive this change. You can read about it here. http://charitydefensecouncil.org/ . You can also follow Dan on twitter @danpallota.

Grant Howe

VP of Research and Development

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Would You Fail The Marshmallow Test?

This year’s SXSW Interactive conference (or what I prefer to call the Skinny Jeans Conclave) boasted some big name speakers and the largest crowd to date (almost 27K people).  My favorite session was “Fools Fear Failure – Designing Better Ways to Fail” featuring a panel of consultants, academics and software designers sharing their experiences of failure in the social sector.  Gearing up for my failure panel with Beth Kanter at NTEN’s Nonprofit Technology Conference (NTC), I wanted to hear these panelists’ take on how to fail informatively.

One of the panelists shared an interesting team building experiment where teams of four are given 20 pieces of raw spaghetti, one yard of tape, one yard of string and a marshmallow.  They were given 20 minutes and were instructed to build a structure as tall as possible with the jumbo marshmallow sitting on top. This experiment was conducted over seventy times with several different types of teams.

The team that consistently performed the worst?  Recent MBA graduates. They had been trained and taught to approach a problem in a very systematic way – pick a leader, brainstorm options, pick the best plan, execute the plan.  The problem was when they executed the plan few anticipated the weight of the marshmallow and as the clock ran down the spaghetti structures keeled over and there wasn’t enough time to rebuild.

Guess who did consistently better?  Recent graduates… of kindergarten.  Why did kindergarten graduates do better than the MBAs?  Well for one, they didn’t waste time picking a leader.  But more importantly they jumped right in and started building.  They would build, fail and refine.  By testing the marshmallow on top of the structure with prototypes they were able learn what worked and what didn’t work fast. Some would watch their process and think it unorganized and chaotic. But they learned from their failed structures with enough time to build something taller and stronger. The kindergartners didn’t fear failure, they subconsciously embraced it as a path to the end goal.  Watch the original TED talk about the marshmallow test here: http://marshmallowchallenge.com/TED_Talk.html.

Failure doesn’t have to be another “F-word”.  Failure is best when it is synonymous with learning and worst when it is repeated. Does your nonprofits act more like an MBA or kindergartner graduate?

Interested? Then join me at the NTC plenary Placing Little Bets:  Failing Informatively for the Nonprofit Technology Sector #13NTCbets for a lively discussion about how nonprofits, funders and vendors alike should not just celebrate failures but purposefully design projects to fail in order to maximize our learning.  Registration is now closed for NTC, but you can still register for the online or virtual conference here: http://www.nten.org/ntc/online

Erin Shy
Sr. Director Product Development

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Think Big And Be Inspired

Last week I attended the South by Southwest Interactive Festival here in Austin, Texas. I highly encourage you to attend this festival if you like to surround yourself with intelligent people who want to change the world.  One of my favorite sessions was a core conversation called “Think Bigger. No, Even Bigger Than That”.  Not only did I learn to Think Big & Be Inspired, I brought back some lessons for you.

1. Take a risk

During SXSW, you have the opportunity to run into a lot of characters.  No, I am not talking Mickey Mouse, I am talking about people who have made millions of dollars by being 100% original and true to whom they are and what they love. A great example is Sean Parker, the co-founder of Napster and his partner Shawn Fanning who both absolutely love music.  In 1999, the duo took a huge risk and stood up to the music industry by creating Napster, the file sharing computer program that allowed people all over the world to share their music library with absolutely anyone across the world.   These two really just wanted to share music with one another and ended up opening the internet up to what it is today, a resource that is open, free, and easy for everyone worldwide.  This duo stood up to one of the largest industry’s in the world, the music industry and started a revolution.  How about that for thinking big! What risk are you taking today?

Think Big and Be Inspired:  What risk are you taking to fulfill your organizations mission?  If you said “nothing” – STOP. What risk COULD you take to fulfill your organizations mission?

2. Design matters

“Design” seems like such an artsy term doesn’t it?   When I think about design I think about fashion design or graphic design.  Design matters for nonprofits and it starts with making sure you have a deep understanding of your organization and your mission, why it is you do what you do.   Once you have this understanding ingrained into you and everyone in the organization, it is important to bring that into the design of everything you do.  When people walk into the door of your office, or go to your website, they should know who you are and what you believe in. What SXSW taught me is that design is everywhere,  and it is something that is personal and affordable to all people and all organizations. A great demonstration of great design is Charity: water.  This organization has a clean design on their webpage (just like water) their mission statement is front and center on the home page. Their swag available for purchase is even fashionable looking, which is appropriate since they are targeting a younger audience to donate and contribute to the organization.

Check out this article on design from Philanthropy.com”Why Nonprofits Can’t Ignore Great Design“.

Think Big and Be Inspired: What is the true mission of your organization? What is something you and/or your organization could do to improve the design of the experience that people have with you?

3. Know your story and know how to tell it

The major theme for me throughout SXSW was storytelling.  Yes, I am talking about the ancient tradition of telling stories in person and in writing.  In the modern world, there are organizations everywhere that all do the same thing, and what people are craving is a good genuine story. It is important that you dig deep and peel the layers back to discover your organization’s real story and beliefs. You cannot tell the story of that you think people want to hear, stop following the rules and be yourself. If you are passionate about telling your story, it is easier to find people who see the passion and want to help you.  These are the people who will fight to the death. Make sure that when you tell your story to people you make it easy to understand for people who may have never heard of you.  Everything you do should be dripping with your mission.

Think Big and Be Inspired: What would your story be if you thought no one was listening?

How can you think bigger?  Stay tuned for a great exercise on how you can bring your team together to Think Big and Be Inspired.

I will leave you with a Ted Talk from Dan Pallotta about thinking big, “ The Way We Think About Charity Is Dead Wrong“.

Brooke Grimes
Associate Product Marketing Manager

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Three Things I Learned At ProductCamp For Your Nonprofit

This past weekend ProductCamp Austin held their 10th event.  It is the first ProductCamp globally to hold 10 events, and I was very excited to be able to a part of it.  For those of you who have never attended such an event, you are probably wondering “What is ProductCamp?”  ProductCamp is a nonprofit organization that serves Product Management, Product Marketing, and Marketing professionals with an opportunity to teach to, learn from, and network with each other. ProductCamp is a un-conference, meaning that it is FREE for anyone who wishes to attend! While your nonprofit may not have a product to sell, you do have a cause that needs donors to buy into your mission and support your organization.  Product camp is a great source of inspiration for innovation, marketing, service delivery etc.

I was excited to attend the event to get inspiration and wonderful new ideas.  Over the course of the day, I saw several presentations ranging from “how to tell your story” to “how to segment your customer base to better suit their needs”.  I got to thinking how some of these lessons could really benefit Sage Nonprofit customers who are looking to market their cause in a competitive environment.  There are three key lessons from ProductCamp that could benefit you and your organization:

1. Create and communicate an overarching strategy.

Day and day out I am sure you have a million ideas and programs that run through your mind. It is also easy to sit in meetings when ideas are being thrown across the table, which can lead to each person in the organization running in different directions. When it comes to communicating to potential donors about your organization, make sure you have a clear concise message.

You want your donors to know what your end mission is and what you are trying to accomplish, so they know what they are supporting.

This clear message will make it seem like you have a clear focus on your mission and that their money will be going to an organization that is making a true impact.

2. Tell a compelling story about your cause or nonprofit.

There is a lot of communication out there around how to position your organization or product to look better than everyone else out there.

I heard a great session from a gentleman named Mike Boudreaux who discussed how to tell a compelling story.  Mike’s points were backed up from this great video from Scott Sinek. Both of these speakers talk about why companies like Apple tell such a better story than everyone else.  What Apple does is use “why” to differentiate themselves in the market.  Apple is a great product because they challenge the status quo.  They don’t throw their product in the face of the customers, they throw their mission.  This is a great lesson for nonprofit organizations, who are looking to share their mission.  Not only will it cause your donors to feel more connected to you, it can create a movement that makes them want to be a part of your organization. Making that connection will not only lead to people donating to your cause once, but also keep them coming back.

 

3. Know your ideal donor and what is going on in their lives.

One of the sessions I listened to was from a woman by the name of Becky Trevino who discussed the importance of properly segmenting customers.  In the marketing world, it is important to understand, exactly who to reach in order to grow the organization.  Not only is it important to understand who that person is, but also to understand what is going on in their lives.  The more information you can collect on your donors, the easier it will be to identify how your donors will respond to the messages you are sending them.  For example, if you are targeting donors between the ages of 25-50 who love animals, think about how these donors find out about your organization.  Is it online via social media, are they watching your advertisements on TV?  Also, how do these people want to donate?  Are they living on their mobile phone or maybe they want to mail a check.  You can make the greatest impression on your donors by integrating the donation process into their day to day life.

Want to attend a Product Camp?  Visit http://www.productcamp.org/  to find one near you.

Brooke Grimes
Associate Product Marketing Manager
Sage Nonprofit Solutions

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Donor Loyalty Insights

The 2013 Sage Insights Survey on Donor Loyalty is now available.   The study conducted by Sage Nonprofit Solutions has some very interesting findings that are sure to bring value to any nonprofit organization.  Having had the pleasure of being a contributor to the study I was overwhelmed by the number of participants.  Loyalty continues to be a key theme for nonprofits and a driving force for development professionals.

Ironically, the study found that 67% of the people surveyed are not surveying their own donors.  I find it hard to believe that organizations, especially growing ones can reach their full potential without asking how they can get better and what they are doing well.  For me, surveying is always the thing I recommend an organization start with.  Donor/member feedback, should serve as your guiding light.

I was delighted to find that hand written thank-you notes reigned as the king of loyalty.  I have said it before and I will say it again, the value of a hand written thank-you cannot be over exaggerated.

The study goes on to share examples of what organizations are and aren’t doing today to ensure loyalty, and for those of you that were wondering, the most utilized give-away was none other than the classic pen.  My guess is the low-cost and  practicality make it the big winner.

In reviewing the study, I was most shocked to find 29% of nonprofits are doing nothing when a donor lapses.  This is good and bad news.  Great news for those of us looking for new donors and bad news for those of us failing to follow-up.

Overall, the study reveals numerous interesting facts and ideas for how your organization can insure that loyalty is a driving force.

Take-away: Check out the full survey, and see what your organization can do to improve loyalty.

Bridget Brandt

Marketing Director

Sage Nonprofit

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