financial management course1 financial management a course for school food service directors

Financial Management Course 1

Financial Management

A Course for School FoodService Directors


Pretest


Chapter One: Communicating the Importance of Effective

Financial ManagementObjective• Recognize the importance of effective

communication regarding financial management of the school nutrition program(SNP)


Chapter One: Discussion Topics

Good publicrelations

Financial goalsand

objectives

Lines of communication

Effectivefinancial

management

Communicatingthe importance of

FM


Question for Discussion

• Why do you think financial integrity is important?


Financial Management Overview

• Program administrator’s responsibility for financial management of the SNP.



• Based on your experiences, what is your definition of financial management?



• Financial Management:-the financial goals and program

objectives for the school nutrition program, and

-attaining those goals through the effective use of resources



• What are some ways school food service directors can demonstrate financial accountability?


School Environment

COMMUNICATIONSbetween

Manager Principals School Boards Adm in istrators

Food Serv ice D irector



• What do we mean by environment in a school setting?



• Why is communication important?


Communication

Speech

Signals

Writing

Behavior


Key Concepts• Financial goals of the school board

– School nutrition program self-supporting– Efficient accounting system– Accurate, timely financial management– Adherence to submitted food service budget


Key Concepts

• Financial objectives of the school nutrition program

• Basic financial management practices– Customer satisfaction– Well managed resources for cost containment– Interpreting financial information for decision-

making



• What are examples of financial goals/objectives for a school nutrition program?


Food Service Director to Administrators/Board

• Financial status of SNP• Chain of command• Accessibility to school board

members• Avenues of communication


Food Service Director to School Business Officials

• Business manager• Secretaries• Bookkeepers• Accounting Clerks • City/county business officials


Food Service Director to Principals

• School activities affect participation

• Student increases/decreases in free/reduced price numbers

• Merchandising activities


Food Service Director to Manager

• Policies and Procedures• Menus• Price changes• Budget• Explain yearly projections of revenues and

expenditures• Reporting forms• Maintenance request procedures• Special promotions


Manager to Food Service Director

• Market and grocery orders• Monthly inventory• Meal costs• Meals per labor hour• Daily meal counts• Daily cash reconciliation


Manager to Food Service Director

• Product evaluation• Guests to the program• Power outages• Equipment repair needs• Accidents• Special events• Banking problems• Clarification on policies/procedures


A Communication Review

Principals Managers School Board Mem bers Adm in istrators

Food Serv ice D irector


Chapter Two: Revenue Sources by Category

Objective Identify school nutrition program revenue

sources by category• Local • State• Federal


Chapter Two: Discussion Topics

Revenueloss

Maximizingrevenue

Revenueclassification

Revenue sources bycategory



• What do you consider your main source of revenue in your school nutrition program?


Local Sources

• Local Government Aid• Local Grants• Contributions


Student Meal Sales

• Full-Paid Meals• Reduced-Price Meals• Prepaid Meals• Meal Charges• Afterschool Care Program Snacks



• What are other sources of local revenue?


Other Local Sources of Revenue

• Adult payments• Contract meal sales• A la carte income• Catering• Interest • Miscellaneous


State Sources

• Cash payment from the state• Matching funds• Special milk reimbursement• Grant money



• Do any of you receive state funds for other purposes?


Federal Sources

• Payment for breakfast and lunch meals• Federal cash reimbursement for snacks• Value of donated commodities• Grant money awarded to school districts• Funds for other federal nutrition programs


Revenue Generation

• Identifying areas where revenue is being lost.


Students who choose not to eat school meals result in lost revenue to the

program. Discuss how schools should go about setting participation goals

and then follow-up with plans to increase participation.

Scenario for Discussion



Some parents do not complete application forms for their children to receive meal benefits although the

children are eligible. Suggest ways that the school districts might approach these parents and their children to encourage

them to participate.



More and more school districts are reporting student theft of food

displayed on the serving line. Suggest ways the school district can eliminate

theft of food items.


Scenarios for Discussion

• Have program costs been analyzed according to categories of expenditure?

• How do program costs in the school’s food service operation compare to other school programs or to industry standards?

• Have school food service staffs been included in the financial management of the operation?


Scenarios for Discussion

• Do staff have an understanding of the importance of cost controls to the success of the operation?

• If there is a need to reduce costs, are the reductions being made in activities that have less value to the customers?


Chapter Three: Expenditure Sources by Category

ObjectiveIdentify SNP expenditure sources by category• Labor (Salaries and Wages)• Employee Benefits• Purchased Professional Services• Purchased Property Services• Purchased Food & Donated Commodities• Other Purchased Services• Supplies• Property• Miscellaneous• Fund Transfers Out


Chapter Three: Discussion Topics

Indirect costs

Recording andreporting

Types ofexpenditures

ExpenditureSources byCategory


Labor Expenditure

• Salaries and Wages• Fringe Benefits• Unemployment Insurance


Food Expenditure

• Food cost• Purchased• Donated• Food Production Supplies


Supply Costs

General Supplies


OVERHEAD



• What are other overhead costs that the school nutrition program pays for in your school district?


Capital Equipment and Furniture


Indirect Costs


Chapter Four: Accountability in Financial Reporting

Objectives• Define the essential financial reports

used in the school nutrition program.

• Recognize the importance of ethical standards in developing school nutrition program financial reports.


Chapter Four: Discussion Topics

Ethical Standards

Statement ofRevenue andExpenditures

(P & L)

Balance Sheet

Accounts

AccountabilityIn FinancialReporting


Financial Reports

• Balance Sheet• Statement of Revenues and

Expenditures


The Balance Sheet

The Statement of Financial Position



• How many of you use your balance sheet to monitor your financial status each month?


The Balance Sheet• Assets include: cash on deposit; sales tax

collected; investments; accounts receivable; funds from other sources; inventories; and other assets.

• Liabilities include: accounts payable; accrued salaries; wages, and benefits; amounts due to other school district funds; deferred income; and taxes.


The Balance Sheet

• Fund Balance: Funds reserved for encumbrances, inventory, capital equipment, undesignated or

unreserved funds.


Statement of Revenues and Expenditures


Statement of Revenues and Expenditures

• Total revenue available to the program by source

• Total expenditure by category• Net profit (gain) or loss (deficit) to

the program


Who is responsible for acting ethically?



• Do any of you have examples of unethical procedures or practices related to preparation of school nutrition program finance reports?


Three “R’s” of Business Ethics

• Respect• Responsibility• Result


Chapter Five: Using Financial Reports to Analyze Program

EfficiencyObjectives• Interpret basic financial management

reports

• Analyze financial data based on performance measures

• Recognize methods to increase revenue and decrease expenditures


Chapter Five: Discussion TopicsSession 1

Food and labor costpercentages

Singleinventory

Calculating the cost ofpurchased food

Pricing meals anda la carte foods

Evaluation ofrevenue and

expenditures

Financial Management report

analysis

Analyze programefficiency



Calculating ADP

Assigninglabor hours

Meals per labor hour

Cost ofproducing a

meal

Averagerevenue earned

per ME

Meal Equivalents (ME)



Financial Management Analysis

• Analysis is important to ensure that the school district: – Manages expenditures within the revenues

received– Operates without a need for transfers from

the general fund– Has sufficient funds to reimburse the school

district for costs



• Why is analysis of financial data useful?



• Financial data– Helps to determine the efficiency of a school

food service operation– Provides information about program

profitability– Promotes basic financial management

decisions– Generates performance benchmarks – Identifies areas for improvement– Staffing decisions



• Evaluating and maximizing revenue• Evaluating and controlling costs• Evaluating program efficiency


Financial Management Analysis: Tools

• Financial Reports– Revenue Detail– Expenditure Detail – Financial Analysis

Report

• Performance Measures– Meal Equivalents– Per Meal Costs– Percentage Ratios– Productivity Rates– Meal Participation

Reports


Evaluating Revenue

• Identify revenue sources by category• Calculate average revenue per meal• Identify sources for increasing revenue• Establish appropriate prices for meals

and non-reimbursable food items


Setting Meal Prices

• Revenue from meals served to students and adults provide the bulk of revenue to the school nutrition program.

– Paid student meal prices – program costs less federal reimbursement and value of USDA commodities (lunch only)

– Adult meal prices - total program costs


Questions to ask when considering a meal price

change1) How long has it been since lunch

prices have increased in your school district?

2) What are some of the reasons for the increase this year?


Questions to ask when considering a meal price

change3) How do school meal prices in

your school district compare with other nearby school districts?

4) Is my child receiving the nutrient he/she needs from school meals?


Meal Price Calculation

$2.32 Cost of Lunch

- .21 Paid Reimbursement

- .1725 Value of USDA Commodities=

$1.9375 ($1.94 Rounded)


Revenue Generation

• Increasing meal prices• Determining non-reimbursable meal

prices


Responses for Discussion• If meal prices are increased, will the

benefits offset the possible decrease in participation?

• Can catering activities be added to the school nutrition program operation in lieu of raising prices?


Responses for Discussion

• What about implementing a marketing plan to increase participation?

• If the school does not have a breakfast program, would it be feasible to start one?


Responses for Discussion

• How about surveying the customers? Are they satisfied with the program?

• What changes would they make?


Revenue Generation

• Determining nonreimbursable food prices or a la carte


Influencing Factors

• Demand• Perception of value• Prices charged in nearby school districts• Prices charged in vending machines• Relationship between sales prices and

volume• Total costs to prepare item• Nutrition value


Establishing the Base Price

1. Determine the raw food cost of the item offered for sale.

2. Identify the desired food cost percentage for the operation.

3. Calculate a base selling price by dividing the item’s raw food cost by the desired food cost percent.


Nonreimbursable Meal Price Calculation

Raw Food Cost $0.52Desired Food Cost % 0.38= $1.37 (Base Selling Price)


Evaluating Expenditures

• Identify sources for expenditures by category

• Analyze Program Costs– Cost of food used– Cost per meal/meal equivalent served


Performance Measures

• Cost of food used• Cost percentages to total revenue• Total meal cost• Meal cost per category• Productivity ratios


Cost of Purchased Food Used– Determine whether costs are within

guidelines.– Ascertain if there is sufficient money

to cover expenditures.– Establish the plate cost for each meal

served.– Prevent waste and theft of food items

through careful monitoring of food used.


Cost of Purchased Food Used

Beginning Purchased Food Inventory+ Food Purchases= Total Purchased Food Available– Ending Purchased Food Inventory= Cost of Purchased Food Used


Cost of Purchased Food Used

Example Annually MonthlyBeginning food inventory $ 8,000 $8,000

Food purchases 300,000 25,000

Food available 308,000 33,000

Less: Ending food inventory

7,000

7,000

Cost of purchased food used $301,000 $26,000


Streamlined Commodity Inventory

USDA Single Inventory Guidance• Inventories of donated foods are no longer

separate from inventories of other foods• Most commodities are packed with

commercial labels instead of USDA labels.• Procedures differ from state to state.


Cost Percentages: Performance Measures

Cost percentages relate expenses to revenues.

Two of the most critical percentages are:– Food cost percentage– Labor cost percentage


Food Cost Percentage

Food Cost Percentage = Cost of Food Total Revenue

$16,500 (Food Cost) $30,000 (Total Revenue) = .55 or 55%



• Can you think of examples that would result in higher food costs than normal for a given month?


Labor Costs

• Salaries and wages• Benefits• Professional development• Educational hours


Labor Cost Percentage

Labor Cost Percentage = Total Labor (Salaries and Benefits) Total Revenue

$400,000 (Total Annual Labor) $800,000 (Total Revenue) = .50 or 50%



• What does the 50% labor cost percentage tell the school food service directors?


Case Study #1: Part I



CalculatingADP

Assigninglabor hours

Meals per labor hour

Cost ofproducing a

meal

Averagerevenue earned

per ME

Meal Equivalents (ME)



Meal Equivalents: Analysis Tool• Meal equivalents - a statistical tool

used to allocate costs based on a unit of production

• Meal Units– Lunch– Breakfast– Afterschool snacks– Nonreimbursable food sales


Calculating Meal EquivalentsThe NFSMI Financial Management Information

System uses the following ratio to determine a meal equivalent.

– 3 breakfast = 2 lunches – 3 snacks = 1 lunch– Dollar amount in sales of nonreimbursable food

Free lunch reimbursement + Commodity Value


Converting nonreimburseable food sales into meal equivalents formula.

Calculation

3002.24+.1725(2.4125) = 124 meal equivalents


Determining the Average Revenue Earned Per Meal Equivalent

• Forecast revenue from all sources.• Total the forecasted revenue amounts.• Determine meal equivalents.• Divide revenue generated by total meal

equivalents.

Financial Management Course100

Per Meal Cost Calculation

Example

Costs of purchased food used Total lunches + meal equivalents

Per meal cost = Total expenditures Total lunches + meal

equivalents


Questions for Discussion

• Why is it important to calculate the food cost and labor cost percentages?

• Why is the cost of producing a meal a critical piece of information for school food service directors?


Measuring Productivity

• Meals per labor hour• Participation rates

– Average daily participation– Participation rate per category of

meal eligibility


Meals Per Labor Hour

• Meals per labor hour =Number meals/meal equivalentsNumber of paid labor hours

338 meals/meal equivalents24 paid labor hours = 14.08 or 14

meals per labor hour


Meals Per Labor Hour:

• Staffing Guideline in Policies and Procedures

• Meals Per Labor Hour Table


Participation• Lunch

– Actual (# lunches/# days)– Percent of attendance (ADP/Enrollment or

ADA)

• Breakfast– Actual – Percent of attendance


Participation is determined separately for breakfast and

lunch.

The formula for calculating ADP:

Number of meals served (month)Number of operating days (month)


Case Study #1: Part II


Chapter Six: Monitoring Operational Revenue and Expenditures; studying

trends that will impact both

Objectives• Recognize the importance of developing

a budget based on forecasted operational revenues and expenditures.

• Recall the value of identifying industry trends in developing a budget.


Chapter Six: Discussion Topics

Mind Mapping?

Budget building:A case study

Factors influencing the

budget

Methods usedfor budgetplanning

Forecastingrevenue and

expenditure needs

Budgeting: Monitoring revenue andexpenditures


Forecasting the Future

• Customer satisfaction• Internal organization• Financial aspects• Innovation



• Customer Satisfaction • Environment• Sensory• Interpersonal• Procedural• Deliverable• Informational• Financial



• Internal organization– People– Machinery– Systems


Questions for Discussion• How well does the SNP serve the

internal customers, specifically other departments in the school/school district?

• How well does the SNP director listen to or understand their concerns?


Questions for Discussion• How well is the SNP director solving

problems/supporting other entities to help the organization succeed?

• How well does SNP value not only its own employees but also employees in other departments?

• For example, how well does the catering department work with custodial staff in a school or school district?



• Financial aspects– Revenue– Expenditures



• Innovation– Future trends


Budget Planners

Food Service Administrator Superintendent

Manager and Food Service Assistant Business Official

Student(Customers) School Board



• Who is involved in the budget planning process in your school nutrition program operation?


Methods Used in Budget Planning

• Baseline budgeting• Zero-based budgeting• Combination baseline and zero-based budgeting



• Baseline or incremental budgeting


Advantages of Baseline Budgeting

• Less time consuming • Best method for budgeting basic

cost items.


Disadvantagesof Baseline Budgeting

• Existing budget errors may not be corrected

• Less planning may go into the budget process

• May not take into account changing program needs



• Zero-based budgeting


Advantages of Zero-based Budgeting

• Better equips management to make decisions

• Gives a better estimate of revenue projections

• Creates a model for spending by breaking the habit of budgeting nonessential costs


Disadvantages of Zero-based Budgeting

• Time consuming• Some categories in budget are

difficult to calculate from zero



• Combination baseline and zero-based budgeting


Some items in the budget should be based on need without preconceived estimates based on the previous year.

For other items, the budget need only be adjusted to accommodate price changes.


Bonus of a Budget

• Establish specific future goals• Forecast revenue• Predict expenditures• Compare actual over-projected revenues

and expenditures• Identify potential problems• Calculate what is available at the end of a

budget period


Factors to Consider

• Historical trends• Participation rates• Federal and state reimbursements• Operational and/or program changes• Increased or decreased program costs• Changes in meal prices


Discuss Historical Trends• Look at the number of reimbursable meals sold

over the past two to three years. Is there a trend emerging?

• Apply that same process to the percentage of a la carte sales or extra sales to total sales. Is there and increase/decrease in that percentage?

• Consider the status of catering services and special functions in your school district. Is there a tendency for those services to increase/decrease or remain the same?


Discuss Participation Rates

• Look at changes in the economy of the area. Have there been layoffs/plants shut down? Have the demographics changed from young families with children to retirees? Are new school openings on an upward spiral?


Discuss Federal and State Reimbursements

• Speculate what the Federal reimbursement rates will be for the upcoming school year. Will there be an increase or decrease in those figures? If there is a state reimbursement, will it continue and how much will it be? Question whether the commodity delivery charge will increase or remain the same.


Discuss Operational and/or Program Changes

• Since Federal program regulations frequently are being revised, consider that implementation of the final changes may be at an additional cost to the SNP.


Discuss Increased or Decreased Program Costs

Examples of increased costs to the SNP are:• Salary raises and a more costly health

insurance plan.• Flood and storm damage to citrus crops in

Florida could substantially increase the price of oranges to the SNP.

• Other examples


Discuss Changes in Meal Prices

• Consider the possibility that student/adult participation in SNP will decrease if meal prices are raised.


Budget Building Case Study #2

Budget Building Case Study #2


Chapter Seven: Tools to Analyze the Financial Status

Objective• Identify appropriate tools to

analyze the school nutrition program’s financial status.


Chapter Seven: Discussion Topics

NFSMIeducational

CD-ROM

NFSMIFUNDamentals

Microsoft ExcelSpreadsheets

Pie charts

Tools to analyze the financial

status of SNPs


Analysis of Financial Data

• Financial management software– Microsoft Excel – NFSMI FUNDamentals– Financial Management for FSDs



•Microsoft Excel XX



• NFSMI FUNDamentals– Financial– Understanding

for– Necessary– Decision making



• What categories are included in the “other” category in this pie chart?

Answers:Miscellaneous (.25%)Purchased Technical Services (.41%)

NFSMI FUNDamentals Budget Pie Chart-Expenditures Sample Elementary



• If the user sets the cutoff value at 5%, what category will disappear from the pie chart and be included in the “other” category?

Answer:Property Operation, Maintenance, Energy

(4.16%)




• What percent of the total will the “other” component represent if the cutoff value is set at 5%?

Answer:4.82% (4.16+.25+.41)




• What category did the school district anticipate would provide the greatest percent of revenue for Sample Elementary?

Answer:Federal

NFSMI FUNDamentals Budget Pie Chart-Revenues Sample Elementary



• What categories are included in the “other” slice of the pie chart for Sample Elementary?

Answers:Fund Transfer-In Miscellaneous OtherInterest State Source Revenue




• If the cutoff value is set at 5%, what category will disappear from the pie chart and be included in the “other” category?

Answer:Other Food Sales (3.54%)




• In which category is the largest number of students served?

Answer:Paid

NFSMI FUNDamentals Budget Pie Chart-Meals Served-Student Lunch



• If the cutoff value was set at 5%, what category would disappear from the pie chart and be included in the “other” category?

Answer:Adult (4.20%)

NFSMI FUNDamentals Budget Pie Chart-Meals Served-Student Lunch


Questions for Discussion

• What is the total YTD average cost per meal for this district?

Answer:$2.2582

• How much revenue has been generated YTD on a per meal basis?

Answer:$2.4072

NFSMI FUNDamentals Consolidated NSLP and NSBP Cost Allocation and Analysis Report



Financial Management for Food Service Directors

A Year in the Life of a Food Service Director


Chapter Eight: Evaluation

Participants will achieve four objectives.


Objective 1

• Relate the importance of why the NFSMI Financial Management Information System and this training manual were developed.


Objective 2

• Relate the importance of accounting procedures that are consistent with the U.S. Department of Education and uniform across the school nutrition profession.


Objective 3

• Describe ethical and effective financial management practices to use in School Nutrition Programs.


Objective 4

• Establish implementation goals for using principles from the NFSMI Financial Management Instructor Guide in School Nutrition Programs.


Posttest



Action PlansAction Plans

financial management course1 financial management a course for school food service directors

Documents

financial information

financial accountability

financial integrity

food service budget

school setting

principals school activities

program objectives

discussion topics