Financial storytelling

North CarolinaTheatre Conference

Financial Storytelling

Presented by Dave OlsonUniversity of North Carolina School of the Arts

July, 2011

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A c c o u n t F U N i n g

A c c o u n t i n g

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Dave’s summer, so far

Seminar - learned two things

1. Engage the audience, right from the top

2. Use simple pictures to tell your story (preferably hand-drawn)

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Next, I thought I’d try regular pictures – last year, Shane included a picture of his dog, so I thought I’d follow suit and try that this year, so…

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Our goal today

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1, 9, 3, 4, 6,5, 7, 8,2,1

Who might want to know our story?

Funders

Bankers

The press

Employees

The community

Management!

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What kinds of stories? Assess the financial/operational

health of an organization

Strong vs. weak financial position?

Long-term viability?

Is the company a good investment?

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What types of information? Put yourself in the

shoes of a foundation grant reviewer who is evaluating your organization

What kinds of questions would they like to know about the company’s financial position?

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Financial storytelling

Can also help to make better management decisions!

In the end, we can put all of these types of questions/observations together to begin to “tell a story”

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Sources of info for stories Stories can be based on all kinds of

different sources of info Budgets Audits Monthly reports 990’s Industry benchmarks

Always make sure that you’re comparing apples-to-apples info however!!

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A quick example

The All-Pippin Dinner Theatre Audit Results - 2001 - 2009

What story does this tell?

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First, we must know the language

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Where the story begins

TERMS (of Endearment)

Balance sheet: ALOE

Income statement: RENI

FASB terminology

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The balance sheet

Shows the accumulated resources of the co. – its financial position At a given point in time (ex:

12/31/11)

The value of the business after paying all its bills

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The balance sheet: ALOE

A = L + OE(or: A – L = OE)

A = Assets (stuff you own)

L = Liabilities (stuff you owe others)

OE = Owner’s equity (net value of the business)

Examples?(c) David L. Olson - 2011 17

The income statement

Shows the results of operations over a period of time

vs. the balance sheet, which is at a single point in time

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The Income Statement

Revenue - Expenses = Net Income

or profit/(loss)

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The story continues – our goals Understand the nature of:

Resources and debts (balance sheet) Operations (Income statement)

Develop tools for interpreting the numbers

Identifying relationships between #’s #’s always mean more when compared

to something else

Asking “why”?

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Summary of key tools %’s Ratios Totals Comparisons and

trends Unusual items Audit info Benchmarking Relationships

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Quick review of percents

% of total

Used for lists or columns of #’s

Ex: a list of expenses

Formula = item/total

% change

Looking for the change between two #’s

Formula = Amt of change/old #

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Percent of total – pie chart

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What’s the story here?

Percent of total example

Salaries $60,000 (60/100=60%)Rent $20,000 (20/100=20%)Insurance $15,000 (15/100=15%)Other $ 5,000 (5/100=5%) Total $100,000 (100/100=100%)

What’s the story here?

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Percent change example

‘10 ‘11 Diff

Ticket price: $100 $150 +$50

What’s the difference?

What’s the old #?

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$50

$100

50/100=.5 or a 50%

Ratios

Just a fancy word for %

“Something” relative to “something else” A relationship

Formula: “something”/”something else”

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Some key ratios Income ratios

Expense ratios

Efficiency ratios

Working capital ($)

Current ratio (%)

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Income ratios

% earned vs. % contributed

Range of 40% - 60% in either direction not unusual

Why important?

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Expense ratios From the income statement (audited)

Program expenses (min. 70%) Management and general expenses

(15%) Fundraising expenses (15%)

Statement of Functional Expenses Lists exp’s by the nature of the

expenditure

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Efficiency ratios How efficient are you at generating

a certain type of revenue

Compare the cost of generating the revenue, to the revenue generated

Can do this for many types of revenue sources

Efficiency ratio formula Expense/revenue

Should give you some % <1 Why?

Gives you “cost to raise (or earn) $1” of revenue

Key ratios: Development, marketing

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Efficiency ratio example

Total development expense: $20,000 Total development income: $100,000

$20,000/$100,000 = 20%

Now, you can compare to other org’s

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Other storytelling tools Comparisons, trends, and

relationships

Unusual items

Audit info

Benchmarking against other organizations

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Items to always check Cash

Pledges

Debt

Net income

Net asset balances What does a negative balance here mean?

Any relationship here?

Deficits – do you know the difference?

Annual deficit

Accumulated deficit

Structural deficit

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Relationship example - cash Key: double entry bookkeeping!

Changes are always caused by something else

Let’s say that cash doubles from yr 1 to yr 2

What are four reasons cash could double from the prior year?

Always ask “why”

Benchmarking (and a caveat!) What’s the goal of benchmarking?

Be aware of context!! Your circumstances may be different

than others in the group

Data collection, reporting and classification

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Industry benchmarking

Theatre Facts www.tcg.org Non-profit professional theatres that

are members of TCG Select “Tools and Research”

Compare their %’s to yours By budget group size

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Theatre Facts (2009)

Part 1: Trend Theatres The same theatres (112) that have

reported over the last 5 years

Part 2: Participating Theatres Theatres that responded to this year’s

survey

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Theatre Facts “group” budgets

Group 1: $10 million +Group 2: $5,000,000 - $9,999,999Group 3: $3,000,000 - $4,999,999Group 4: $1,000,000 - $2,999,999Group 5: $ 500,000 - $ 999,999Group 6: $ 499,999 – $ 999,999

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Let’s take a quick lookTheatreFacts_2009.pdf

Average earned Inc: p. 24, Table 15 (both $ and %)

Key efficiency ratios: p. 26, Table 16

Average expenses: p. 27, Table 17, 18

Average $ gift, by source: p. 29, Table 20

Average contrib’d inc.: p. 30, Table 22

Key operating benchmarks: p. 33, Table 25(c) David L. Olson - 2011 42

Dave, let’s see this stuff in action! Now, let’s really put the FUN in

accountFUNing!

All-Pippin Dinner Theatre Audit.pdf

ArkansasSymphAuditFS.pdf

(Work from the “unrestricted fund” only)

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Contact me

E-mail: dolson2@prodigy.net

Twitter: ArtsMgmtGuy

LinkedIn: Dave Olson (UNCSA)

Cell: 612-799-1490

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