secret to successful financial management tnsna

The Secret to SuccessfulSchool Nutrition Financial ManagementVenkat Koripalli, SNS

Venkat Koripalli, SNS

President, PrimeroEdge

School Nutrition Software for 14 years

Over 25 years in software development

Bachelor’s degree in Computer Science & Engineering

Increasing Complexity

Higher cost food

Rising labor costs

Decreasing participation

Accounting Overview

What is Accounting?

Quantitative: numbers

Financial: money

Useful: practical, not theoretical

Decisions: use the past to change the future

Flavors of Accounting

Bookkeeping: routine gathering of information

Financial accounting: reporting for outsiders

Management accounting: analytical information for insiders

Financial Accounting

Apply for a loan

Verify income

Verify assets and debts

Personal financial statements

Income statements – W2 Assets – Bank statements, 401K, etc. Loans, Credit Card Debt - Credit Report


Income Statement

How much money did your department make or lose?

Balance Sheet

List of resources (assets) and obligations (liabilities)

Statement of Cash Flows

How much cash came in, how much went out

Balance Sheet

The Accounting Equation

Assets = Liabilities + Fund Balance (Resources) (Source of financing)

7,000 = 5,000 + 2,000 (Cash in bank) (borrowing) (capital contribution)

Cash in bank

Kitchen equipment

Cafeteria furniture

Accounts receivable

Inventory

“Resources, either owned or controlled by you that will likely provide future benefit”

Assets

Accounts payable

Wages payable

Student account deposits (deferred revenue)

Borrowing

“Obligations that require sacrifice of future benefit – transferring assets or providing services”

Liabilities

Shareholder Equity - ownership interest in the assets

Paid-In Capital (Capital Contributions)

Retained Earnings

“The amount the district originally or subsequently invested plus income left in the organization”

Fund Balance

Balance Sheet Accounts

Asset Accounts

Liability Accounts

Fund Balance Accounts

Income Statement Accounts

Revenue Accounts

Expense Accounts

“A record that provides an efficient way to categorize similar transactions”

Account

Net Income = Revenues – Expenses

“Overall measure of economic performance”

Income Statement

Meal Sales

Reimbursements

USDA Foods

“Amount of assets created from the sale of goods and services”

Revenues

Food used

Wages and benefits

Utilities

Equipment maintenance

“Amount of assets consumed in generating revenues”

Expenses

Financial Statements

Balance Sheet

As of right now: What do you have? How much do you owe?

As of a Point in time (Snapshot)

Income Statement

How much did you make? This week This month This year

For a Period of Time

Bookkeeping

Bookkeeping

“the activity of keeping systematic records of financial transactions”

Bookkeeping

Coca-Cola: 650 billion servings sold a year

Walmart: 10 billion customer visits a year

Houston Independent School District: 44,000,000 meals a year

What If…

All novels disappeared?

All bookkeeping records disappeared?

Bookkeeping

Journal: Record transactions

General Ledger: Summary by account

G/L Accounts categories

Assets, Liabilities, Fund Balance, Revenue, Expense

Debits = Credits



Assets Liabilities Shareholder Equity

Apple 290 171 119

Facebook 40 4 36

Google 131 27 104

Microsoft 176 96 80

Transaction 1

District invests $50,000 into the School Nutrition Department

Fund Balance(Transferred Funds)

$50,000

Assets(Cash)

$50,000

Assets Liabilities Fund Balance

1 Fund Transfer-In 50,000 0 50,000

Total 50,000 0 50,000

Transaction 2

Students make $25,000 prepayments

Liabilities(Deferred Revenue)

$25,000

Assets(Cash)

$25,000



2 Prepayments 25,000 25,000 0

Total 75,000 25,000 50,000

Transaction 3

Purchase $10,000 of food on credit

Liabilities(Accounts Payable)

$10,000

Assets(Inventory)

$10,000



2 Prepayments 25,000 25,000 0

3 Food Purchase (credit) 10,000 10,000 0

Total 85,000 35,000 50,000

Transaction 4

Purchase $500 of supplies with cash

Assets(Inventory)

$500

Assets(Cash)$500





2 Prepayments 25,000 25,000 0

3 Food Purchase (credit) 10,000 10,000 0

4 Supplies Purchase (cash)

+500-500

0 0

Total 85,000 35,000 50,000

Language of Accounting

Asset accounts usually have debit balances

Liability and Fund Balance accounts usually have credit balances

At least one debit and one credit

Debits = Credits

Assets = Liabilities + Fund Balance

DR(+)

CR(-)

DR(-)

CR(+)

DR(-)

CR(+)



1 Fund Transfer-In DR (+) Cash CR (+)Transferred Funds

2 Prepayments DR (+) Cash CR (+)Deferred Revenue

3 Food Purchase (credit) DR (+) Inventory CR (+)Accounts Payable

4 Supplies Purchase (cash) DR (+) InventoryCR (-) Cash


Net Income = Revenues – Expenses

Retained Earnings (Net Income) major part of Fund Balance

Revenues increase Fund Balance

Expenses decrease Fund Balance


DR(+)

CR(-)

DR(-)

CR(+)

DR(-)

CR(+)



DR(+)

CR(-)

DR(-)

CR(+)

DR(-)

CR(+)

Revenues

DR(-)

CR(+)

Expenses

DR(+)

CR(-)

Transaction 5

School makes $200 in cash sales

Meal Sales(Revenues)

$200

Cash(Assets)

$200

Debit Credit

Transaction 6

School makes $200 in sales from prepaid accounts

Meal Sales(Revenues)

$200

Deferred Revenue(Liabilities)

$200

Debit Credit

Transaction 7

Reimbursement Claim $50,000 submitted

Reimbursement(Revenues)

$50,000

Debit Credit

Accounts Receivable(Assets)$50,000

Transaction 8

Reimbursement Claim $50,000 received

Cash(Assets)$50,000

Credit Debit

Accounts Receivable(Assets)$50,000

Transaction 3

Purchase $10,000 of food on credit

Accounts Payable(Liabilities)

$10,000

Inventory(Assets)$10,000

Debit Credit

Transaction 9

School uses $3,000 of food in production

Food Used(Expenses)

$3,000

Inventory(Assets)$3,000

Credit Debit

Transaction 10

District processes $5,000 payroll

Salaries(Expenses)

$5,000

Cash(Assets)$5,000

Credit Debit

Transaction date

Description

Affected accounts

Amounts

“A chronological record of all transactions”

Journal

Summary by account

G/L Accounts categories

Assets, Liabilities, Fund Balance, Revenues, Expenses

Assets & Expenses have debit balances

Liabilities, Fund Balance & Revenues have credit balances

Revenue and Expense balances are zeroed for the beginning of the year

“A record of all transactions categorized by account”

General Ledger

Management Accounting


Restaurant 1

Very traditional

Pay bills on time

Pay salaries

Restaurant 2

Tracks detailed data

Item-by-item costs

Sales by time of day

Customer demographics

Popular combinations


Internal Use

Detailed data

Secret Information

Short-term and long-term planning

Daily decision making

Information

By school

Lunch, breakfast participation

Day of week

Season

Theme Lines

Specific items

Student demographics – girls/boys, race, income levels

Decision Making

Product costing – recipe cost, menu cost

Performance evaluation – Participation, Food costs, Labor costs, Overheads

To CEP or not to CEP

Investing in long-term projects

Replacing old equipment

Adding lines, kiosks

Decision Making

Breakfast in classroom?

More ala carte sales?

Some catering?

More/fewer employee hours?

Components

Budgeting

Break-even analysis

Meal Prices

Performance evaluation

Budgeting

Purpose of Budgeting

A plan to meet a specified goal

Comparison between actual results and the plan

Helps Decisions

Employees

Scheduling

Pricing

Cost Control

Behavioral factors

Motivate staff to achieve budget goals

Deviations from the budget

Not find fault, assign blame

Loss of motivation, defensive attitude

Budgetary slack

Provide help

Sales budget

Projecting accurate sales is difficult

Uncontrollable external factors

USDA and state regulation changes

Demographics

Changes to economy

Customer tastes

Weather patterns

Unexpected events – hurricanes, water supply

Sales budget

Student enrollment projection from District office

Participation projection

Previous years sales

Revenues

Sales revenue

Reimbursement revenue

Other revenue

Expenses

Food Costs

Labor Costs

Benefits and other costs

Overheads

Break even Analysis

Types of Expenses

Fixed costs

Costs that do not vary with the quantity of production

Variable costs

Costs that vary in proportion with the quantity of production

Break even analysis

Contribution Margin = 100% – Variable Cost %

Break even point = Fixed Cost $Contribution Margin

Performance Monitoring

Meal Equivalents

1 lunch = 1 meal equivalent

3 breakfasts = 2 meal equivalents (2/3 = .67)

3 snacks = 1 meal equivalent (1/3 = .33)

1 supper = 1 meal equivalent

Non-program food sales = revenue from non-program sales

(free lunch reimbursement + USDA Foods value per lunch)

Meals Per Labor Hour

# of Meal Equivalents# of Paid Productive Labor Hours

20,0001,200

= 16.67 MPLH

Revenue Analysis

Calculate average revenue per meal equivalent

Guidelines for pricing non-program food items

Compare revenue per meal with cost per meal

Average Revenue Per Meal Equivalent

Total RevenueTotal Meal Equivalents

Revenue Per Student Lunch

Local Income + Reimbursement + USDA Food per Meal

Price Reimbursement USDA Foods Total

Paid 2.75 0.37 0.2375 3.3575

Reduced Price 0.40 2.75 0.2375 3.3875

Free 0.00 3.15 0.2375 3.3875

Increase Revenue

Increase Participation

Take advantage of Special Provisions

Increase paid meal prices

Add approved non-Federal revenue

Adult meals

Student second meals

A la carte

Contract meals

Catered food or meals

“Foods and beverages sold in a participating school, other than reimbursable meals, and purchased using funds from the nonprofit foodservice account.”

Non-program Foods

Non program Foods

Total Non-Program Foods RevenueTotal Revenue

Total Non-Program Food CostsTotal Food Costs>

Expense Analysis

Total costs to produce a meal

Meal costs per expenditure category

Percentages of operational costs to total revenue (operating ratios)

Costs to produce a meal compared with the average revenue generated per meal

Expense Categories

Food Costs

Labor Costs

Overheads

Total Expenses = Food Costs + Labor Costs + Overheads

Cost Percentages

Category CostsTotal Revenue

Food Cost % = Food Costs

Total Revenue

20,00050,000

= 40%

Calculate Food Cost

Cost Food Used = Beginning Inventory Value + Food Purchased – Ending Inventory Value

Annual Month

Beginning Inventory 8,000 9,000

Food Purchased 300,000 25,000

Ending Inventory 7,000 7,000

Cost of Food Used 301,000 27,000


Balance Sheet

Accounting Equation

Accounts & G/L Account Categories

Income Statement

Bookkeeping

Journal

General Ledger



Budgeting

Break even Analysis

Meal Pricing

Performance Monitoring

…

Next Steps

Continue the Learning

ICN (formerly NFSMI)

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