February 2014 Newsletter
Joyous Spreadsheets – It’s been thumbs up for CCA spreadsheets so far.
2014 Workshops – The rundown.
Know Your Costs – Larger groups need to pay attention to how to account for their different activities.
Our Spreadsheets Make People Smile!
Even though still in the ‘beta’ phase, a few select organisations have been introduced to our new accounting spreadsheets, version 3.0. Some of the groups have been using our spreadsheets for a while, but it was the newbies who really beamed as though Santa Claus had made another appearance.
Grant tracking is something our sheets do really well, and it was this aspect that had been causing those particular groups so much headaches and unproductive time. Compared to commercial accounting software (which, of course, can also do it if you know how) spreadsheets retain information in a visual and logical format – you can see where things go, don’t need a ‘report’ to find something, and you feel more in control. The lack of ‘closeness’ to the data is a key reason why organisations often hang on to sometimes quite complex spreadsheets they may have created themselves.
The CCA spreadsheets need only one table for all transaction data, and they use codes rather than a separate column for each category of spending or income. Expenditure gets allocated to grants in the same line and projects can also be tracked. In our latest version, income/expenditure reports, budget and project reports and – new – grant reports happen at the click of a button, readily formatted. Its ability to maintain an accurate balance sheet (and journal entry feature) makes our spreadsheets much better auditable than homemade ones.
The new versions of the spreadsheets will be posted on our website in the next couple of weeks.
2014 CCA Workshops
There is little change in our workshop line-up from last year; however we have dropped a few due to increasing constraints on our time. One of the workshops dropped has been Management Accounting, which is about the art of costing and tracking activities (see article below). We are still planning to have a workshop later in the year targeted specifically at managers of slightly larger groups which will include this area.
New additions are a workshop about compliance with the new accounting standards (in association with Community Law Centre) and, our lead-in, creating financial statements. Financial Statements are about presenting your organisation’s financial activities to the outside, and it is worth putting in some thought how to do this. This workshop also covers the Notes, i.e. what should be in there and how to use them to explain some things others should know when looking at your financial data. Some of the material of the now dropped accrual/journal workshop will also be in there.
List of workshops and registration, see here.
Know Your Costs
Accounting is pretty straightforward for a single-activity organisation. But once you start adding new projects, activities or offices in other locations things becomes more difficult if you need to know how each activity is doing.
Many of the organisations we work with are mightily confused about the difference between tracking of funding and tracking an activity. In the attempt to track their activities by tracking the funding for them they sometimes create exceptionally complex and confusing spreadsheets or tracking reports from accounting software. These two things are separate, and must be kept separate.
Activity tracking tells you all of your income and expenditure for a given activity. Some of this income might be from funders, some might be from other sources. It is not important for activity tracking where the money comes from, only how much it is and how you are spending it. Activity tracking allows:
– Making better budgets for future activities, because you know what past ones have cost.
– Analysis of which activities generate net income and which are being subsidised by other parts of the operation.
– Decision-making about allocation of the organisation’s funds to different activities.
Funding tracking is about external accountability. It is done for the sole reason of making sure you spend funds exclusively for the purpose they were given, but gives you no useful financial information for decision-making.
The point when an organisation grows from a single-activity group to a multi-activity group is the point when some form of activity-based costing (ABC) system is needed, and an organisation should start to think more consciously about its financial information needs. Otherwise, your financial reports only tell you how the organisation is doing as a whole, but not which parts are doing what, and you are prone to quite bad decision-making as a result.
Most not-for-profits are service providers, and the cost of labour is often the only really significant cost. The problem is that the same people are often working on different activities, and that some roles (such as coordinators or managers) usually have a service delivery component to them as well. The only way to track the cost of each activity in such circumstances is by having timesheets for staff members where they allocate their time to activities. This then allows their wages or salaries to be broken down by activity and you get a much more reliable activity cost figure.
Costs that vary directly with the demand for your service are called variable costs. Costs that vary little, or not at all, are fixed costs. In the latter category fall the rent for your office, the time staff spend on administration or management, bank fees etc. There’s different schools of thought in accounting about how to treat those fixed costs.
Organisation-wide fixed costs should be ignored when comparing activities. Although counting only variable cost will not give you the whole cost of an activity, it gives you a better idea how well – or badly – that particular activity is doing in purely financial terms, and whether the organisation subsidises it from other activities. But when reporting activities, for example in your Financial Statements, fixed costs should be allocated across activities in the most sensible way.
For multi-activity organisations, financial statements should reflect those activities rather than just list organisation-wide numbers for staffing, overheads etc. To the reader of the Financial Statements of a charity it is not as important how much the organisation has paid on their phone bill or in bank fees as on what activity the funds have been spent on. The details, if important, should be relegated to the Notes.