financial management. terms budget ◦ financial plan that outlines and forecasts the revenues and...
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Financial Management
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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
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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
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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
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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
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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
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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
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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
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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
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Compulsory IncomeIncome taxes
◦Municipal, state & federal levels IL 2011 = 5% flat tax… $50,000 = $2,500 IL 1990-10 – 3%... $50,000 = $1,500
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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
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Gratuitous IncomeReceived without expectation of
return◦Grants
NIH
◦Bequests Life insurance, wills
◦Sponsorships & donations $$, land, stocks, bonds…
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Earned IncomeCash resources generated from
fees & charges◦Entrance fees, admissions◦License & permit fees◦Rental fees◦User fees◦Sale of goods
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Investment Income
Invest unneeded revenue
◦Stocks, mutual funds, money
marketsChicago Metro YMCA
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Contractual ReceiptsRevenue generated from
contractual agreements◦Home health care contracts◦Concessions◦Pro shop
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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
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Operating ExpendituresRegularly occurring costs
◦Personnel Usually the largest expenditure
◦Supplies◦Equipment◦Utilities◦Services
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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
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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
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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
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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
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KNR Golf Outing Activity
Determine revenues & expenditures
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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
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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
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Break Even CostsBreak even
◦Revenues = expenditures…no profit
Subsidy◦Expenditures > revenues…lose
money
Profit◦Revenues > expenditures…profit
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Break evenExpenditures / # of participants
= cost per person
Cost per person x # of participants = revenue
$5220/72 people = $72.50/person
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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%
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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
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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…..
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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
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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
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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)
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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
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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
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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
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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
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Zero Based BudgetingStart with no previous budgetExamine effectiveness & value
◦ Objectives◦ Outcomes
Develop & rank budget packagesTop x # of programs fundedUsed more in the commercial sector
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Open Ended Budget
No restrictions on spendingSubmit budget for optimum
programmingLater adjust the budget to meet funding
capabilities of agencySeeing less of this
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Alternative Budgets
Prepare a basic budget & then alternatives to it◦Alternatives not shared with board or
public
Time consuming!
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Historic Analysis
Historical analysis◦Looks at past to predict future
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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?