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Multi-Year Financial Planning

Multi-Year Financial Planning. Financial Management and Human Resources Forum. Atlanta, GA October 7-9, 2013. Agenda. What is multi-year financial planning? Benefits of multi-year financial planning. Major elements of a multi-year financial plan. Creating a multi-year financial plan.

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Multi-Year Financial Planning

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  1. Multi-Year Financial Planning Financial Management and Human Resources Forum Atlanta, GA October 7-9, 2013

  2. Agenda • What is multi-year financial planning? • Benefits of multi-year financial planning. • Major elements of a multi-year financial plan. • Creating a multi-year financial plan. • Revenue and expense projections. • Example – United Way of Greater Philadelphia and Southern New Jersey. • Example – Valley of the Sun United Way. • Questions??? October 3, 2013

  3. What is Multi-Year Financial Planning • Projects revenue and expenses for several years into the future. • NOT the same as a multi-year budget. • Illustrates financial implications of a given set of assumptions. • Helps to assess revenue and expense trends, as well as financial risks. • Principles can be applied at large and small organizations. October 3, 2013

  4. Benefits of a Multi-Year Financial Plan • Gives you a guide to your financial health. • Reduces risk in decision making. • Sets revenue and expense goals. • Provides financial direction. • Identifies financial risk areas. • Helps plan available program funding. • Helps build organizational accountability. October 3, 2013

  5. Major Elements of a Multi-Year Financial Plan • Revenue projections • Expense projections • Annual surpluses and deficits • Operating reserves October 3, 2013

  6. Creating a Multi-Year Financial Plan • Before you start, senior management has to decide the following: • Where does your United Way want to be in 3-5 years? • What do you want to accomplish? • What challenges could get in the way? October 3, 2013

  7. Creating a Multi-Year Financial Plan • Gather data on results for the last few years • Decide on your timeframe. • Determine the model you want to use. • Determine your assumptions on revenue and expenses. • Project revenue and expenses. • Get Board, Senior Management, and organizational buy in. • Revisit your plan at least annually. October 3, 2013

  8. Revenue Projections • Get Resource Development input. • Identify your key funding sources and the risks associated with each. • Identify potential new funding sources. • Determine what resources you will need to meet your goals. • Use historical data as a baseline. • Use plan as a working model, update with current data as gathered. October 3, 2013

  9. Expense Projections • Get the organization involved. • Determine staff and infrastructure needs. • Identify costs associated with new programs or services. • Identify expense trends. • Determine areas of expense risk. • Use plan as a working model, update with current data as gathered. October 3, 2013

  10. Revenue and Expense Projections • Qualitative • “Gut instinct”. • More of an “art” than a “science”. • Quantitative • Relies on data and trends. • A combination of qualitative and quantitative • Use one method to support the other, and vice versa. October 3, 2013

  11. Annual Surplus/Deficit • Determine when it is okay to have a deficit or a surplus. • Understand grant revenue recognition timing. • Understand multi-year expenses. October 3, 2013

  12. Operating Reserves • Operating reserves vs. net assets. • Permanently restricted vs. temporarily restricted vs. operating reserves. • Establish what will be included in “operating reserves”. October 3, 2013

  13. Multi-Year Financial PlanningExample: United Way of Greater Philadelphia and Southern New Jersey Implemented by: Karen Cleary, SVP – Finance and Operations

  14. Multi-Year Financial Planning at UWGPSNJ • Implemented long range planning in connection with our strategic plan two years ago • Strategy was to develop a multi-year financial plan that enables us to manage our business model • Key purposes of the plan are: • Minimize risk associated with annual Campaign fluctuation • Aid in setting fundraising goals • Aid in resource allocation • Provide a clear financial direction beyond annual budgeting October 3, 2013

  15. Multi-Year Plan - Example October 3, 2013

  16. Multi-Year Plan - Example October 3, 2013

  17. Multi-Year Planning Process • Determine overarching considerations – “where do we want to be in five years?” • Focused on two key areas – • Calculated cost recovery/administrative fee rate • Funds available for Community Impact grant making • Develop annual targets in each area • Considerations and annual targets required senior management and Board of Directors buy-in October 3, 2013

  18. Multi-Year Planning Process • Determine the methodology to use based upon goals • Administrative fee calculation • Resource Table calculation • Decide on the scenarios you want to see • “Pie in the sky” versus “Reality” • Estimate your key inputs • Expenses • Campaign revenue • Uncollectibles • Investment income • Other revenue October 3, 2013

  19. Multi-Year Planning Process • Did not do a line by line projection for expenses • Applied trends to key expense categories • Resource Development drove Campaign revenue projections • Used trend analysis, prospect analysis, forecasted by type of giving • Estimated investment income based upon trends and projected new endowment gifts • Estimated other revenue sources (i.e. rental income, grant overhead reimbursement) based upon historical trends October 3, 2013

  20. Multi-Year Plan - Example October 3, 2013

  21. Multi-Year Plan - Example October 3, 2013

  22. Lessons Learned • Identified challenge years early • Made financial constraints and considerations very clear to senior management and the Board • Helped us determine whether our overarching goals were realistic • Informed future budget and expense planning • Enabled multi year planning for agency grants • Identified need to grow endowment (or other source of revenue) to support operations October 3, 2013

  23. Multi-Year Financial PlanningExample: Valley of the Sun United Way, Phoenix, Arizona Implemented by: Tanya Muñiz, CFO

  24. Multi-Year Planning at VSUW • Implemented FYE 2011 as a long range planning tool. • Multi-Year community impact strategies required VSUW to look beyond 1 year cycles. • New community impact strategies required multi-year revenue strategies • Use as a tool for planning at the staff, management, senior staff, and board level. October 3, 2013

  25. Board Level Reporting • Board uses as a tool to understand the future of VSUW; where we are and where are we going? • Aligns strategic plan objectives and resources • Gives the board the information necessary to ensure VSUW’s financial stability • Gives a clear picture of net asset needs October 3, 2013

  26. DATA IS FOR EXAMPLE ONLY October 3, 2013

  27. DATA IS FOR EXAMPLE ONLY October 3, 2013

  28. DATA IS FOR EXAMPLE ONLY October 3, 2013

  29. DATA IS FOR EXAMPLE ONLY October 3, 2013

  30. Senior Staff level reporting • Senior staff reviews at an “operating” level • Negotiates the revenue projections versus expenses • Uses as a tool to prioritize • Uses as a tool for timing of strategy implementation • Provides the necessary information to understand and minimize risk • Uses as the platform for strategic planning October 3, 2013

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  33. DATA IS FOR EXAMPLE ONLY October 3, 2013

  34. Staff, Management and Finance Committee Level Reporting - REVENUE • Includes strategy level detail ( Ex: Non-campaign revenue, Endowment Gifts, Includes pledge revenue and “usable for operations”) • Departments provide growth needs by strategy, by company • Investment revenue and Endowment Revenue has a detailed schedule that feeds into the model • Includes assumption for rates of increase based on economic factors and known community/company changes • Use each year as the basis for budget planning but DOES NOT replace the budget process October 3, 2013

  35. DATA IS FOR EXAMPLE ONLY October 3, 2013

  36. Staff, Management and Finance Committee Level Reporting - EXPENSES • Includes strategy level detail ( Ex: Children and Youth –Community Objective, Children – Sub-category, Read On, Strategy) • Departments provide growth needs for “discretionary” expenses in detail. • Departments provide detail of FTE needs in detail by position • Detail for each FTE is kept and feeds to model • Detail for each strategy is kept and feeds to model • Includes assumption for rates of increase based on economic factors and FTE growth for expenses considered to be “undiscretionary” (ex. Occupancy, Supplies, Benefits) • Use each year as the basis for budget planning but DOES NOT replace the budget process October 3, 2013

  37. DATA IS FOR EXAMPLE ONLY October 3, 2013

  38. Staff Feedback: • “It assist the conversation between finance and CI and planning and implementation. Since it is developed collaboratively there's greater understanding of all parties.” Michelle Gayles, Vice President, Community Impact • “I didn’t have to worry about the budget prior to becoming a VP, which was around the same time as when the financial forecasts went into place. What I like about the forecasts are they allow me to plan ahead for future needs/resources.” Charlie Boyce,VicePresident, Community Impact • “As a marketer, I find the multi-year economic model EXTREMELY valuable because it enables me to create multi-year plans and project the resources needed to achieve those plans.  Too often, marketers are expected to focus on the year in front of them, which requires us to treat resources like a faucet that turns off at the beginning of a fiscal year, then on the next day when a new one begins.  With multi-year models, I can see into the future, giving me confidence to make resource decisions today.” Tamera Skroven, Senior VP Marketing October 3, 2013

  39. Staff Feedback: • “Multi-year economic models show the good and the bad.  As a marketer, I can partner with Resources Develop to look at the tougher years and plan ahead for communications / calls to action that could shore up and smooth out the potential dips.  If the model shows the end of a major revenue source, we can plan ahead to acquire a new source.  There is planning and action, not surprises and reaction.” Tamera Skroven, Senior VP Marketing • “For me, it has provided a stronger management and planning tool. It has helped to put all departments on the same path toward common goals. I think it is increased teamwork, understanding and accountability. It can be a painstaking process but I think it has a great return on our time investment. It also requires discipline and that makes us a stronger organization.” Amy Schwabenlender, Vice President, Community Impact October 3, 2013

  40. Staff Feedback: • “The model has been especially good for predictive budgeting purposes; especially for the short run years.  It makes the budgeting process easier, although I believe it essential to recheck assumptions and underlying numbers annually to validate and reassess.” Nancy Dean, Senior VP Resource Development • “I have all the confidence that I need (The board, Sr. Team, Finance, RD, CI) I need to move toward Community Impact and have the confidence in the organizational commitment. The first  months of modeling, sucked! It was hard, took a lot of organizational learning and it led to greater discipline and understanding.” Brian Spicker, Senior VP Community Impact October 3, 2013

  41. QUESTIONS??? October 3, 2013

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