Cae - Domain 1 - Strategic Management

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Mission

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Defines "what" an organization will do. A statement of the purposes for the association's existence that defines its underlying design and thrust; often expressed in programs, services, values or membership terms

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Liquidity ratio

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Measures the organization's ability to pay its short-term obligations.

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Coverage ratio

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Measures how efficiently the organization is employing its assets.

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Marketing

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A one-way communication process. It motivates publics to purchase goods, services, ideas, based on a quid pro quo exchange with the marketing org (for example, I provide you with a car; you give me money or sign a financial agreement)

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Advertising

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Paid, one-directional communication, based largely on appeals to the emotions. P.R. uses both intellectual and emot. appeals. Advertising is totally controlled: The association selects the media, timing, placement, freq. of repetition, and so forth.

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5 Key Components of a Marketing Plan

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1. Introduction
2. Business Summary
3. Research
4. Marketing strategies and projections
5. Monitoring and evaluation techniques

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Advertising

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Paid, one directional communication, based largely on appeals to emotion.

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Marketing

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One directional communication motivating publics to purchase goods, services, or ideas based on a quid pro quo exchange.

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5 components of a marketing plan

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1.Introduction 2.Business Summary 3.Research 4.Marketing strategies and projections 5.Monitoring and evaluation techniques

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Form 990-EZ

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Associations with gross revenues under $100,000 and total assets under $250,000 can file a form 990-EZ

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Unrelated Business Income Tax

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The income must be: 1. From a trade or business 2. That is regularly carried on and 3. That is not substantially related to the purposes for which the organization was granted tax exemption

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Form 990

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An association that exceeds gross annual income of $25,000 must file.

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Association Reserves

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Net assets minus net liabilities

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Capital Budget

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Expenditures for long-term assets such as land, buildings, or equipment, including depreciation

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Directors and Officers Liability Insurance

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Management or governance errors and omissions coverage that provides resources in the event that a director or officer is accused of mismanagement of the organization

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Annual Rate Change

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Calculates the dues rate every year; often tied to an economic indicator, such as the consumer price index

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Audit

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A series of procedures followed by a CPA to test transactions and internal controls, all with a view of forming an opinion on the fairness of the presentation of the financial statements

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Cash Budget

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Derived from the operating budget to determine when budgeted revenue items will be received and when expenses will be paid

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Management Letter

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A auditors report to association management providing additional guidance and observations about the association’s financial policies and practices

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Net Assets

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Residual value of the association after liabilities have been paid. Contains three classes: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets.

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Statement of Activities

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A statement that shows the organization’s financial activities from the beginning to end of the year. There are two sections: revenue, expenses, and non-expendable additions; and changes in net assets.

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Statement of Financial Position

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A statement that summarizes the financial makeup of the organization at a point in time, where the capital comes from. Shows assets and liabilities and provides a snapshot of the organization.

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Financial Policies

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 Investment  Spending  Operating and Capitalization

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Property and Casualty Insurance

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Covers buildings an the content of buildings as well as accidental bodily injury and personal injury or accidental property damage to another’s property

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Statement of Cash Flows

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A statement that shows where the organization received and spent its cash

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Advertising Income

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A tax-exempt periodical containing advertising is performing both exempt and non-exempt activities. Therefore, a periodical’s advertising net income is taxable to the extent that it exceeds circulation costs.

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Essential Factors for Good Internal Financial Controls

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1. Clear lines of authority 2. Clear definition and acceptance of responsibility 3. Authority commensurate with responsibility 4. Proper training

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Sarbanes Oxley

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Considerations for Associations 1. Cannot destroy a document with the intent to obstruct justice or influence an investigation. 2. Whistle-blower protections make it a crime for anyone to interfere with the lawful employment or livelihood of an individual for providing truthful information to a law enforcement officer relating to actual or potential conduct of a federal offense.

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Current Ratio

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To calculate the ratio, divide total current assets by total current liabilities. This is a prime measure of how solvent a company is.

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Depreciation

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Accounts for the diminishing value of an asset as time goes by

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Indirect Cost

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Cannot be directly attributed to a particular product

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Variable Cost

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Are incurred in relation to sales volume; examples include cost of materials and sales commissions.

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Operating Ratios

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Provides an assessment of a company’s operating efficiency. Examples: 1. Days receivables, 2. Days payables, 3. Current Ratio, 4. Quick Ratio

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Direct Costs

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Costs that are directly attributable to the manufacturer of a product

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Fixed Cost

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Remain constant despite sales volume; they include interest expense, rent, depreciation, and insurance.

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GAAP

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The rules and conventions that accountants follow in recording and summarizing transactions and preparing financial statements.

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Quick Ratio

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Measure of a company’s assets that can be quickly liquidated and used to pay debts. To calculate, divide cash, receivables, and marketable securities by current liabilities

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Working Capital

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A measure of a business’ ability to pay its financial obligations. The difference between a company’s current assets and its current liabilities.

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Four P’s of Marketing

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Product Price Place Promotion

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Accounts payable

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Money which a company owes to vendors for products and services purchased on credit. This item appears on the company's balance sheet as a current liability, since the expectation is that the liability will be fulfilled in less than a year. When accounts payable are paid off, it represents a negative cash flow for the company.

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Accounts receivable

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Money which is owed to a company by a customer for products and services provided on credit. This is treated as a current asset on a balance sheet. A specific sale is generally only treated as an account receivable after the customer is sent an invoice.

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Budget

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Organizations "strategic" financial plan and best estimate operationally of the future performance of programs an services. Most are annual projections (can also be 3,5, or 10 year projections). Prepared by staff with input from cmts and elected leaders and approved by the board BEFORE the fiscal year begins. Consistent with the assn's fiscal year (always 12 months).
BEST PRACTICE: spread revenue and expenses over appropriate time period.
Complete budget contains:
operating budget
capital budget
cash budget

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Program/service that does not support mission or strategic plan and uses assn funding

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should be ended or revamped to align with mission

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Net revenue for next fiscal year

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combined net revenue + expense per program = net revenue for next year

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zero based budget

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assumes a project starts w/o income or expense and every source of revenue and expense is computed in detail.
BEST PRACTICE: new programs should use zero based budgeting, assns look at all programs/services through lense of z-b-b to make sure budgeted expenses are not increased w/o due consideration.

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incremental budgeting

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% increase or decrease to stable programs (e.g. salaries

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certain net revenue

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excess revenue or over expenses; could be considered a contribution to reserves and may be a set dollar amount, certain amount per member, % of expanses or other amount set by board.

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Creating a budget

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• Review year-to-date and prior year performance
• Impact of internal/external trends
• Member needs surveys to determine new programs/continuation of old programs
• operating ratio and salary surveys from ASAE and others
• survey for trends in internal programs over several years
• pubs and info used by chapter members can ID trends affecting them and impact financial contributions to assn
• general financial and environmental trends