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Financial Management

Financial Management. Terms. Budget 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. Fiscal Year 2011.

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Financial Management

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  1. Financial Management

  2. Terms • Budget • 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

  3. Budget Cycle Fiscal Year 2011 Fiscal Year 2012 Fiscal Year 2013 • Budget preparation – 6-9 months • Budget in progress – fiscal year • Budget close out – 2-3 months

  4. Compulsory Income • Collected 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

  5. Compulsory Income • Real 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

  6. Compulsory Income • Personal 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

  7. Compulsory Income • Sales 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

  8. Town of Normal Eg • The 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

  9. Compulsory Income • Excise 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

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

  11. Compulsory Income • Local 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

  12. Gratuitous Income • Received without expectation of return • Grants • NIH • Bequests • Life insurance, wills • Sponsorships & donations • $$, land, stocks, bonds…

  13. Earned Income • Cash resources generated from fees & charges • Entrance fees, admissions • License & permit fees • Rental fees • User fees • Sale of goods

  14. Investment Income • Invest unneeded revenue • Stocks, mutual funds, money markets Chicago Metro YMCA

  15. Contractual Receipts • Revenue generated from contractual agreements • Home health care contracts • Concessions • Pro shop

  16. Overview by Sector

  17. Operating Expenditures • Regularly occurring costs • Personnel • Usually the largest expenditure • Supplies • Equipment • Utilities • Services

  18. Capital Expenditures • Used 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

  19. Capital Improvement Plan Land acquisition 1,000,000 Outpatient facility construction 25,000,000 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

  20. Line Item Budgets • Item • 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

  21. KNR Golf Outing Activity Determine revenues & expenditures

  22. KNR Golf Outing • Revenues • Player fees • Naming sponsor • Gold • Silver • Bronze • Meals • Cart sponsor • Mulligans • Expenditures • Golf & cart fees • Dinner • Beverages • Goodie bag • Volunteer shirts • Signage

  23. Determining Exp/Rev • List all revenues • List all expenditures • Set up grid • Fill in information

  24. Break Even Costs • Break even • Revenues = expenditures…no profit • Subsidy • Expenditures > revenues…lose money • Profit • Revenues > expenditures…profit

  25. Break even • Expenditures / # of participants = cost per person • Cost per person x # of participants = revenue • $5220/72 people = $72.50/person

  26. Step 3: Determine Subsidy Rate User Group Subsidy rate Price/hr Youth lessons 35% Rink rental 0% Open skating 100% Youth speed skating 10% Roller derby -25%

  27. Step 3: Determine Subsidy Rate • Youth Lessons • $45/hour X 35% subsidy = • $15.75 per hour subsidy • $45- $15.75 = $29.25 charge per hour Agency absorbs Individual absorbs

  28. Step 3: Determine Subsidy Rate • Roller Derby • $45/hour X 25% profit (-25% subsidy) = • $11.25 per hour profit • $45+$11.25 = $56.25 charge per hour • Another way…..

  29. 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

  30. 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

  31. Step 3: Determine Subsidy Rate User Group Subsidy Price/hr Formula 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)

  32. OCB • Most 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

  33. Example Classification Expenditure Classification by Object 2000: Services: Contractual 2100 Communication & Transportation 2110 Postage 2120 Telephone 2300 Printing, Binding, Advertising 2350 Advertising & Publication Notice Classifications Sub classifications Objects

  34. Zero Based Budgeting • Start with no previous budget • Examine effectiveness & value • Objectives • Outcomes • Develop & rank budget packages • Top x # of programs funded • Used more in the commercial sector

  35. Open Ended Budget • No restrictions on spending • Submit budget for optimum programming • Later adjust the budget to meet funding capabilities of agency • Seeing less of this

  36. Alternative Budgets • Prepare a basic budget & then alternatives to it • Alternatives not shared with board or public • Time consuming!

  37. Historic Analysis • Historical analysis • Looks at past to predict future

  38. Fixed Ceiling Budget • Limits growth of expenditures • Doesn’t see changing needs of organization • Ie.1% growth, no growth budget • Expenditures = 155,000 v 1% = $156,550 • Can you just turn in last year’s budget?

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