Financial Management

TermsBudget

◦Financial plan that outlines and forecasts the revenues and expenditures over a fiscal year

◦ Fiscal year

◦Budget year

Budget cycle◦Length of time required to prepare,

administer & close out a single year budget

Budget Cycle

Budget preparation – 6-9 months

Budget in progress – fiscal year

Budget close out – 2-3 months

Fiscal Year 2011 Fiscal Year 2012 Fiscal Year 2013

Compulsory IncomeCollected by govt. through taxing

& regulatory powers at different government levels

◦Real property tax◦Personal property tax◦Sales tax◦Excise tax◦ Income tax◦Local option tax

Compulsory IncomeReal property taxes

◦Land & whatever is developed or growing on the land

◦Different rates for different levels Personal home, business, undeveloped

land, farm

◦96% of property taxes stay locally

Compulsory IncomePersonal Property taxes

◦Allowed in 41 states (not IL)

◦1. Household tangible property Autos, $, livestock, furniture

◦2. Business tangible property Inventory, business fixtures, furniture,

equip

◦3. Intangibles Stocks & bonds

Compulsory IncomeSales taxes

◦Imposed on the sale of tangible goods At-home food & drugs exempt DE, MT, NH, OR – no sales tax

◦Largest source of state tax revenue◦Second largest for cities◦Range 4-10%

1-2% stays with local government

Town of Normal EgThe State of Illinois collects a sales tax

at a rate of 7.75%, which is distributed as follows:

◦5% to the State of Illinois ◦2.50% to the Town of Normal◦0.25% to McLean County

Up from 6.25% in 2010

Compulsory IncomeExcise taxes

◦Hotel-Motel tax Sports facilities

Spurs’ AT & T Arena (2.5%) Comiskey Park (2%)

◦Car Rental tax American Airlines Center in Dallas Atlanta Hawks Philips Arena

◦Sin taxes Cleveland’s Progressive Field, Quicken Loans

Arena & Browns Stadium

Compulsory IncomeIncome taxes

◦Municipal, state & federal levels IL 2011 = 5% flat tax… $50,000 = $2,500 IL 1990-10 – 3%... $50,000 = $1,500

Compulsory IncomeLocal option taxes

◦Applied at the local level◦Legislatively enabled at the state

level

◦Remember IL sales taxes (7.75%): 5% to the State of Illinois 0.25% to McLean County 2.5% local option tax

Gratuitous IncomeReceived without expectation of

return◦Grants

NIH

◦Bequests Life insurance, wills

◦Sponsorships & donations $$, land, stocks, bonds…

Earned IncomeCash resources generated from

fees & charges◦Entrance fees, admissions◦License & permit fees◦Rental fees◦User fees◦Sale of goods

Investment Income

Invest unneeded revenue

◦Stocks, mutual funds, money

marketsChicago Metro YMCA

Contractual ReceiptsRevenue generated from

contractual agreements◦Home health care contracts◦Concessions◦Pro shop

Overview by SectorSector/ Income Compulso

ry (taxes)Gratuitous Earned Investme

ntContractual

Market Sector

None None Major source

Major source

Can be a major source

NPO None Major source

Major source

Limited, based on available cash

Growing importance

Public Sector

Essential

Growing importance

Major source

Limited, based on available cash

Growing importance

Operating ExpendituresRegularly occurring costs

◦Personnel Usually the largest expenditure

◦Supplies◦Equipment◦Utilities◦Services

Capital ExpendituresUsed to finance projects that are

costly◦Major purchases lasting 10+ years◦Facilities, renovations, equipment◦Independent of operating budgets◦Covers 5-6 years (CIP)◦Priorities are reviewed & shifted annually

Capital Improvement PlanLand acquisition 1,000,000

Outpatient facility construction25,000,000

Subtotal – Construction 26,000,000

Equipment – physical rehab 500,000

Equipment – orthopedics 100,000

Equipment – respiratory care 100,000

Subtotal - Equipment: 700,000

Total Capital 26,700,000

Line Item BudgetsItem

◦Specific item or object for which monies will need to be allocated Postage, equipment

Line◦Process of placing the items in a line so

that all items appear on the budget sheet

REVENUES  

Program fees $6,403    

EXPENDITURES  

Flights $1,127

Rental Car $270

Hotel $2,700

Gas $324

Meals $540

City Walk $141

Busch Gardens $131

Titanic Exhibit $32

Arabian Nights $114

Universal Studios $160

Disney Quest $57

Walk Disney Theme Parks $380

Medieval Times $135

Sleuths Mystery Dinner $75

Kennedy Space Center $76

Wet and Wild $78

Pleasure Island $34

Ripley’s Museum $29    

TOTAL: $6,403.00

KNR Golf Outing Activity

Determine revenues & expenditures

KNR Golf OutingRevenues

◦ Player fees ◦ Naming sponsor ◦ Gold ◦ Silver ◦ Bronze ◦ Meals ◦ Cart sponsor ◦ Mulligans

Expenditures◦ Golf & cart fees◦ Dinner ◦ Beverages ◦ Goodie bag ◦ Volunteer shirts ◦ Signage

Determining Exp/Rev

1. List all revenues 2. List all expenditures3. Set up grid4. Fill in information

 Expenditures #/hr #/hr #/hr $ Total

Golf & cart fees - 1 72 30 $2160

Dinner - - 92 15 $1380

Break Even CostsBreak even

◦Revenues = expenditures…no profit

Subsidy◦Expenditures > revenues…lose

money

Profit◦Revenues > expenditures…profit

Break evenExpenditures / # of participants

= cost per person

Cost per person x # of participants = revenue

$5220/72 people = $72.50/person

Step 3: Determine Subsidy Rate

User Group Subsidy ratePrice/hr

Youth lessons 35%

Rink rental 0%

Open skating 100%

Youth speed skating 10%

Roller derby -25%

Step 3: Determine Subsidy RateYouth Lessons

$45/hour X 35% subsidy =

◦$15.75 per hour subsidy

◦$45- $15.75 = $29.25 charge per hour

Agency

absorb

s

Individual absorbs

Step 3: Determine Subsidy RateRoller Derby$45/hour X 25% profit (-25%

subsidy) =

◦$11.25 per hour profit

◦$45+$11.25 = $56.25 charge per hour

◦Another way…..

Step 3: Determine Subsidy Rate$45/hour X 35% subsidy =

◦$45 * (1-0.35) = $29.25 charge per hour Works because you pay only 65% of the

hourly fee

$45/hour X -25% subsidy (profit)◦$45 * (1.25) = $56.25 charge per

hour You are paying 125% of the fee

Step 3: Determine Subsidy Rate

User Group Subsidy Price/hr Formula

Youth lessons 45%

Rink rental 0%

Open skating 100%

Youth speed skating 10%

Roller derby -45%

Per hour = $45

Step 3: Determine Subsidy Rate

User Group Subsidy Price/hrFormula

Youth lessons 45% $24.75 $45 * (1-.65)

Rink rental 0% $45 $45 * (1-.00)

Open skating 100% 0 $45 * 0

Youth speed skating 10% $40.50 $45 * (1-.10)

Roller derby -45% $65.25 $45 * (1.45)

OCBMost common form of budget, similar to line

item budgets

Object - item for financial cost◦ Salaries, phone bills

Classification – uniform method of grouping the objects into certain categories & subcategories◦ Personnel, Contractual services, Commodities

Example Classification

Expenditure Classification by Object2000: Services: Contractual

2100 Communication & Transportation

2110 Postage2120 Telephone

2300 Printing, Binding, Advertising2350 Advertising & Publication

Notice

Expenditure Classification by Object2000: Services: Contractual

2100 Communication & Transportation

2110 Postage2120 Telephone

2300 Printing, Binding, Advertising2350 Advertising & Publication

NoticeClassifications Sub classificationsObjects

Table 13.2: Sample Object Classification Categories

Object total

Sub-category

totalCategory

Total1000: Personnel Services $2,037,000

1100 Salaries, Regular (Full Time) $1,500,0001200 Salaries, Temporary (Part time) $25,0001300 Wages, Regular (Hourly, FT) $250,0001400 Wages, Temporary (Hourly. PT) $175,0001500 Contractual employees $75,0001600 Other Compensations $12,000

2000: Contractual Services $641,2522100 Communication and Transportation $183,252

2110 Postage $5,0022120 Telephone $23,0002130 Freight and Express $10,0002140 Travel & Lodging $70,0002150 Vehicles $32,0002160 Gasoline, Oils and Lubricants $43,250

2300 Printing, Binding and Advertising $16,4752310 Printing/Photocopying $12,0002320 Typewriting/Word Processing $5002330 Binding $5002340 Photocopying & Blueprinting $2502350 Advertising & Publication of Notices $3,225

Table: 13.4: NIFS Combination of a Program Budget and OCB

Object totalSub-category

total Category Total

1000: Personnel Services $802,100.00

1100 Salaries, Regular (Full Time) $600,000.00

(12) Fitness center $160,000.00

(13) Marketing $80,000.00

(14) Nutrition & wellness $120,000.00

(15) Corporate fitness mgt $240,000.00

1200 Salaries, Temporary (Part time) $190,300.00

(12) Fitness center $50,000.00

(13) Marketing $45,000.00

(14) Nutrition & wellness $72,300.00

(15) Corporate fitness mgt $23,000.00

1300 Wages, Regular (Hourly, FT) $11,800.00

(12) Fitness center $1,200.00

(13) Marketing $2,400.00

(14) Nutrition & wellness $3,200.00

(15) Corporate fitness mgt $5,000.00

Zero Based BudgetingStart with no previous budgetExamine effectiveness & value

◦ Objectives◦ Outcomes

Develop & rank budget packagesTop x # of programs fundedUsed more in the commercial sector

Open Ended Budget

No restrictions on spendingSubmit budget for optimum

programmingLater adjust the budget to meet funding

capabilities of agencySeeing less of this

Alternative Budgets

Prepare a basic budget & then alternatives to it◦Alternatives not shared with board or

public

Time consuming!

Historic Analysis

Historical analysis◦Looks at past to predict future

Fixed Ceiling Budget

Limits growth of expendituresDoesn’t see changing needs of

organizationIe.1% growth, no growth budget

◦Expenditures = 155,000 v 1% = $156,550

Can you just turn in last year’s budget?