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Financial Management

Aishalton Workshop: Jan 8-10, 2013 Shulinab Workshop: Jan 14-16, 2013 Facilitators: Andrea Liew, Cuso International volunteer (liew.andrea@gmail.com) Samson Esudu, Cuso International volunteer (samsonesudu@gmail.com) Made possible by Cuso International

Facilitated by South Central Peoples Development Association scpdagy@gmail.com www.facebook.com/scpda

Objectives:
By the end of the workshop, you will be able to: 1. Understand the importance of good record-keeping 2. Write and maintain receipts 3. Understand the meaning of financial terms and figures/numbers 4. Set-up and maintain bookkeeping records 5. Set up a simple budget

THE BASICS
Supplies You Need:
Notebooks Pencils & Erasers Pens & Whiteout Receipt book Envelopes Tape Calculator Ruler Lock box Computer (optional)

Treasurers
What a Treasurer Does Keeps proper financial records relating to the organization and reviews them Keeps and issues receipts related to all transactions Keeps funds in a safe and secure place Reports to the board, council, and public Is RESPONSIBLE Treasurers should not: hold another role in the same organization E.g. you cannot be the Chairperson AND the Treasurer Should not be paying themselves E.g. if you are a Treasurer and have a salary to collect, another executive member must sign off on the pay out Should not be the sole signature for large amounts E.g. a purchase of $100,000 should be approved by at least 2 executive members (and they should sign for it)

Financial Terms
Assets - Anything of value that you own or control (Cash, Tools, Equipment, Inventory, Stock) Liabilities - Anything of value that you owe (Loans you need to pay back, wages you need to pay) Suppliers - People who provide goods or services to you Income - Money received for goods/services you provided (Also known as Sales, Revenue) Expense - Money paid for goods/services you purchased/used (Can also be known as Cost) Loan - Borrowed money Creditor Any person/organization you owe money to Grant - Interest-free funds you dont have to pay back

RECORD KEEPING
Purpose: To organize business documents and receipts so they are: In good condition Easy to find by everyone Secure Records to Keep Receipts Invoices Revenues Expenses

Loans MoUs/Agreements Contracts Amendments/changes

Why You Should Keep Good Records To keep track of your money How much do you spend? How much do you make? How much money do you have left? To budget and plan for the future To be accountable to stakeholders E.g. funders, NGOs, the community

What If You Dont Keep Good Records? You could spend more money than you have You wont have enough money for Big purchases Unexpected or emergency situations Loss of trust & respect Accused of stealing Seen as irresponsible

RECEIPTS
Proof of payment Help you avoid disagreements and arguments It is not enough to say that you paid someone Used for incomes, expenses, loans

What Do You Need Receipts For? Purchases for the organization (e.g. Office supplies) Transportation (e.g. Gas, Driver) Wages for employees (e.g. Handyman, Cook, Store clerk) Loans What is on a Receipt? Receipt # Date Name of person/org money is given to Name of person/org money is from Amount Written, e.g. Thirty thousand one hundred dollars Numerical, e.g. $30,100 Details Reason why cash was exchanged, e.g. transportation from Lethem to Shulinab Signature of person receiving payment Receipt Tips & Reminders Separate receipts (Use envelopes or folders) Incomes what you receive E.g. you get paid for providing meals Expenses what you spent E.g. you buy ingredients for meals Loans Loans you owe Loans you need to collect Sort by date Month Year Always ask for a receipt for purchases and expenses Give receipts for sales made and incomes received Walk with a receipt book in case people do not have one Keep receipts in envelopes or folders Keep copies of issued receipts Write 2 receipts if you do not have a receipt book that has carbon sheets for copies

BOOKKEEPING
Keep track of how much money you earn, spend, borrow, lend, and have Organize business incomes and expenses so they are Readable/understandable Accurate Secure records must be kept safe, but accessible Why is it Important? To have control over incomes and expenses To calculate profits To show transparency To the community

To fellow members and partners To external parties (government, donors, etc.) To understand challenges and opportunities Keep Track Of Bank deposits Sales Donations Loans received Bank withdrawals Purchases Expenses Loans given out

Income vs. Profits


Income = what you receive for goods/services price of product * quantity sold Profit (or loss) = Incomes Expenses Example: You sell 5 bags of popcorn for $100 each. It cost you $200 to purchase the kernels for these 5 bags. Your income amount is $100 x 5 = $500. Your expenses are $200. Your profit is $500-$200 = $300. Example: You sell 5 bags of popcorn for $100 each. It cost you $600 to purchase the kernels for these 5 bags. Your income amount is 5 * $100 = $500. Your expenses are $600. Your loss is $100 ($500-$600) What Kind of Books to Keep Separate books can be used for Cash Sales & Expenses/Purchases Bank Deposits, Withdrawals, Bank Fees Loans Lending: who owes you money? Borrowing: who do you owe money to? Assets Master List: Items you own and available for use Lending: items on loan

Remember: Keep records for each month separate


CASH BOOK
Used to keep track of cash coming in and out of the organization. Template: Date Description Cash In Cash Out Balance

Example: The cash book balance at December 31, 2012 was $20,000. You are doing bookkeeping for the month of January 2013. On January 5, 2013, you buy 5 lbs of guava costing $80/lbs with cash. o Calculation: 5 lbs * $80/lbs = $400 o Entry: Write $400 in the Cash Out column On Jan 11 2013, you sell 2 jars of guava jam for $350 each in cash. o Calculation: 2 jars * $350 = $700 o Entry: Write $700 in the Cash In column

Date Jan 1, 2013 Jan 5, 2013 Jan 11, 2013

Description Dec 31, 2012 balance carried forward Purchase 5 lbs guava Sold 2 jars of guava jam

Cash In

Cash Out

Balance $20,000

$400 $700

$19,600 $20,300

Cash Book Exercise: Jan 1: Your balance from Dec 31, 2012 is $55,000. Jan 6: You sell 5 bottles of cassareep for $1000 each in cash. Jan 12: You buy ingredients for chicken foot and it costs $800 total. You pay in cash. Jan 20: You pay off a $3000 loan you borrowed last month from the Village Council

Cash Book Exercise Solution: Date Jan 1, 2013 Jan 6, 2013 Description Dec 31, 2012 balance carried forward Sold 5 bottles of cassareep ($1000 x 5) $5,000 Cash In Cash Out Balance $55,000 $60,000

Jan 12, 2013 Jan 20, 2013

Purchase ingredients Paid loan from Village Council

$800 $3,000

$59,200 $56,200

BANK BOOK
Used to keep track of money going into and coming out of the bank account. Template: Date Description Money In Money Out Balance

Example: Date Dec 15, 2012 Dec 31, 2012 On December 15, 2012, you deposit $60,000 into the bank. The money came from Christmas Fair sales. You had no previous balance. On December 31, 2012, you took out $20,000 and brought the cash back to the village. Description Deposited Christmas Fair sales Withdrawal Money In $60,000 $20,000 Money Out Balance $60,000 $40,000

Bank Book Exercise: On January 3, 2013, you receive a $400,000 grant from USAID. On January 16, 2013, you take $225,000 out of the bank account. On January 22, 2013, you deposit a $75,000 cheque/check from VSO into the bank account. On January 31, a bank fee of $200 is charged to your bank account.

Bank Book Exercise Solution: Date Jan 3, 2013 Jan 16, 2013 Jan 22, 2013 Jan 31, 2013 Description Grant deposited into account from USAID Withdrawal Cheque from VSO deposited Bank fee charged $75,000 $200 Money In $400,000 $225,000 Money Out Balance $400,000 $175,000 $250,000 $249,800

LOANS BOOK
Tips Make sure people sign for their loans Do not loan money you cannot afford to lose Do not borrow money you will have difficulty paying back Do not loan money to people who have not paid their previous loans Always issue and ask for receipts for loans EVERY TIME

Loans Book - Lending Template Used to keep track of money that youve lent out Date Name of Borrower Signature Money Lent Money Paid Back Balance Due Date

Loans Book Lending Exercise On December 1, 2012, Samson borrowed $6,000 from you. He says he will pay you back by January 15, 2013. On December 17, 2012, Samson paid back $2,000. On December 28, 2012, Samson paid back $3,000.

Loans Book Lending Exercise Solution Date Name of Borrower Signature Money Lent Money Paid Back Balance Due Date

Dec 1, 2012 Dec 17, 2012 Dec 28, 2012

Samson Esudu Samson Esudu Samson Esudu

Samson Esudu Samson Esudu Samson Esudu

$6,000 $2,000 $3,000

$6,000 $4,000 $1,000

Jan 15, 2013 Jan 15, 2013 Jan 15, 2013

Loans Book Borrowing Template Used to keep track of money that youve borrowed or that you owe Date Money Owed to Reason Amount Owed Amount Paid Back Balance Due Date

Loans Book Borrowing Exercise On January 8, 2013, you borrow $8,000 from the Village Council. Payback is due Feb 1, 2013 On January 20, 2013, you pay back $5,000 to the Village Council On January 27, 2013, you buy 2 kgs of farine for $600 on credit from the Food Shop. On January 31, 2013, you pay back $600 to the Food Shop.

Loans Book Borrowing Exercise Solution Date Money Owed to Village Council Reason Amount Owed $8,000 Amount Paid Back Balance Due Date

Jan 8, 2013

Loan

$8,000

Feb 1, 2013 Feb 1, 2013 ASAP

Jan 20, 2013 Jan 27, 2013 Jan 31, 2013

Village Council

Loan

$5,000

$3,000

Food Shop

Purchase of farine on credit

$600

$600

Food Shop

$600

$0

Record Keeping Tips for Loans Keep borrowers and lenders separate in your books Leave space to record payback amounts for each borrower/lender Make a new page for borrowers and lenders every month

ASSETS BOOK
Master List Template: Used to keep track of equipment and tools you have Asset Name Quantity Cost Date Acquired Disposal Date Condition Date Checked

Assets Book Master List Exercise On November 15 2012, the womens group disposed of their old generator, a X2, which was broken. It was originally bought on July 1, 2011 for $40,000. On November 20, 2012, the womens group purchased a X4 generator for $60,000.

Assets Book Master List Solution Asset Name Quantity Cost Date Acquired Disposal Date Condition Date Checked

Generator X2

$40,000

July 1, 2011

Nov 15, 2012

Good Good Good Not working Good

Jul 1, 2011 Dec 1, 2011 Jul 1, 2012 Oct 1, 2012 Nov 20, 2012

Generator X4

$60,000

November 20, 2012

Assets Book Lending Template Used to keep track of equipment and tools you lend Asset Name Quantity Borrowed by Signature Date Lent & Condition Date Received back & Condition

Assets Book Lending Exercise On December 3, 2012, the village council lent 3 saddles in good condition to Mrs. Melanie McTurk. On December 8, 2012, Mrs. Melanie McTurk returned the 3 saddles back one was missing a stirrup. On December 10, 2012, the village council lent 5 cutlasses to Mr. Rene Edwards. 1 of them had a broken tip.

Assets Book Lending Exercise Solution Asset Name Saddles Quantity Borrowed by Signature Date Lent & Condition Date Received back & Condition Dec 8, 2012 One stirrup missing

Melanie McTurk Rene Edwards

Melanie McTurk Rene Edwards

Dec 3, 2012 Good condition Dec 10, 2012 One machete has missing tip

Cutlass

Assets Lending Tips Make sure people who are borrowing sign for the items they are borrowing Make sure both you and the borrower agree on the condition of the items being lent Do not lend to people who have not returned items before

MONTHLY REPORTS
At the end of every monthYou should look at all your books to review them: Double-check all your recorded amounts (re-calculate and re-count!) Find ways of saving money E.g. if you bought butter from 3 different shops, you can see which shop sells butter for cheaper when you are looking at your books Find ways of making money E.g. if you sell-out of popcorn every week, maybe you should stock up on more popcorn to sell more

Cash Book
Date How much did you earn? How did you earn it? How much you spend and on what? Total up your Cash In and Cash Out columns for the month to fill in the following template: Beginning Balance for the month $20,000 Total Cash In for the month $50,000 Total Cash Out for the month $40,000 Total Cash on Hand for the month $30,000 Treasurer Notes

For the month of

Feb 4, 2012

January

Low cash due to loans given out that are not paid back yet

February March

$30,000

Note: The amount in the Total Cash on Hand for the month column is your ending balance for that month. It is also the beginning balance for the next month and should be put in the Beginning Balance for the month column.

Bank Book
Date How much money went into the bank? How much money was taken out of the bank? Total up the Money In and Money Out columns for the month to fill in the following template: Beginning Balance for the month $200,000 Total Money In for the month $80,000 Total Money Out for the month $30,000 Bank Balance for the month Treasurer Notes

For the month of

Feb 4, 2012

January

$250,000

Money in includes $20,000 loan to be paid back in Feb

February March

$250,000

Note: The amount in the Bank Balance for the month column is your ending balance for that month. It is also the beginning balance for the next month and should be put in the Beginning Balance for the month column.

Loans Book
How much did you lend out and to who? Who still owes you money? How much do you owe and to who?

At the end of every month: Make a new page Bring forward the names of people who owe you and who you owe the amounts they owe and the amounts you owe At the end of every month, you should review outstanding amounts Is there someone who doesnt pay back when they say they will? How will you pay off your debts?

Assets Book
How many new items do you have? How are the conditions of the items you have? How many things do you have to replace?

Should be updated when you dispose of something Sell something Throw something out Buy or receive something Purchase something Are given something At the end of every month, you should review what you have and what you need/want

ANALYZING THE NUMBERS


When you are looking at numbers, there are many things to consider A negative number isnt always bad A loss in one month can be offset by a gain in another month Analyzing the Numbers Example Jan: I bought 20 toys for $10,000 to sell. ($500 each) I only sold 2 toys at $1,000 each ($2,000 total). Feb: I sold 14 toys for $1,000 each ($14,000) Month-by-Month Analysis: Jan: I have a loss of $8,000 ($10,000 - $2,000) Feb: I made a income of $14,000 and did not have to buy any toys to stock. Analysis for January & February: Total cost of toys: $10,000 Total incomes: Jan $2,000 + Feb $14,000 = $16,000 Profit so far = $16,000 - $10,000 = $6,000 Toys left to sell: 4

20 toys 2 toys sold in Jan 14 toys sold in Feb 20 toys 16 toys sold = 4 Expected future income: $4,000 Assuming all 4 toys will be sold

Dos & Donts DO: Carry a receipt book And envelope or folder to keep them in Review books at every month-end Check & count cash often (daily, weekly, monthly)

DONT: Keep personal cash & business cash together Abuse your power! Just because you have access to money does not mean you can use it for personal gain Delay to record down amounts Do it as they happen Avoid the Ill do it later trap

BUDGETING
What is a Budget? An estimate of expected incomes expected expenses over a period of time Why Do We Budget? To plan for the future Know how much you need for the future Know how much you can afford See how you spend your money vs. what you planned To limit spending & increase savings (save money) For big purchases in the future (e.g. motorcycle, tractor) Rainy Day Fund for unexpected expenses/situations

Things You Can Budget Meals, Snacks, Drinks Clothing Gasoline School supplies Travel

Tools & equipment Gifts Communication (e.g. phone cards, top-ups)

Entertainment (e.g. parties, DVDs) Expected income

When Should I Budget? If you have a limited and known amount of money available to use E.g. you have $300,000 available for training 30 people If you want to limit your spending so you can save E.g. I earn $30,000 a month and I want to save $5,000 every month. I have $25,000 left to spend. What can I buy? What can I do without?

Needs vs. Wants


Need: something you require and is necessary for survival or livelihood Want: something you desire, but do not need Need to have vs. Nice to have Needs and Wants can change at any time Your need could be someone elses want. Your want could be someone elses need. Example: I need a bicycle because I travel to far villages to sell my fish and earn a living You want a bicycle to travel to the creek with your friends

Basic needs include: Shelter A roof over your head Repairs to your house Equipment & tools Food & Water Ration A means to cook (gas, firewood, pots & pans) Clean water Security Locks on your doors to keep your family safe

Budgeting for Needs & Wants When budgeting, you must prioritize your NEEDS first, and then your WANTS. Make a list starting with the most important items to the least important

Budget Template & Example for Home Month January January January January January January Category Meals Meals Meals Bedroom Tools Tools Details Flour Sugar Cooking Gas Mosquito Net Garden Hoe Hammer Budget $600 $440 $6,000 $4,000 $10,000 $6,000 Actual Difference

Budget Template & Example for Workshop Category Transportation Transportation Meals Meals Meals Meals Details Motorcycle hire Vehicle hire Breakfast for 2 people Lunch for 3 people Handyman for 1 day 2 cooks for 1 day Budget $23,000 $100,000 $1,600 $2,400 $2,000 $2,500 Actual Difference

Budget vs Actual
Budget: what you plan to spend Actual: what you actually spend The difference tells you whether youve Spent too much Saved some money Accurately budgeted

Budget Actual = Difference


Budget vs. Actual Negative Spending Example Brackets ( ) mean negative numbers Category Travel Meals Accommodation Entertainment Total Budget $16,000 $7,000 $15,000 $10,000 $48,000 Actual $17,000 $9,000 $14,000 $11,500 $51,500 Difference ($1,000) ($2,000) $1,000 ($1,500) ($3,500)

You have overspent your budget by $3,500

Budget vs. Actual Positive Spending Example Brackets ( ) mean negative numbers Category Travel Meals Accommodation Entertainment Total Budget $16,000 $7,000 $15,000 $10,000 $48,000 Actual $15,000 $8,000 $7,500 $8,000 $38,500 Difference $1,000 ($1,000) $7,500 $2,000 $9,500

You have saved some money: $9,500

Expected Profit/Loss
You can try to predict how much you will earn in the future (or how much you can lose) To help determine this, Use previous or known income numbers Use known or approximate expense numbers NOTE: It will not be 100% accurate, but you will have a good idea of what to expect Expected Profit/Loss Example You want to set up a stand at a local Fair. It costs $5,000 for a stand. You want to sell Jam, Bread, Popcorn, and Juice. You know how much you made for each item last time you set up a stand at the Fair. You know how much each item costs to make. Can you afford to set-up a stand? Will you make profit or will you lose money?

Expected Incomes Expected Expenses = Expected Profit/Loss


Expected Profit Example Item Jam Bread Popcorn Juice Stand Fee Total $36,000 Expected Incomes $8,000 $10,000 $7,000 $11,000 Expected Expenses $2.500 $3,500 $4,300 $3,000 $5,000 $18,300 Expected Profit/Loss $5,500 $6,500 $2,700 $8,000 ($5,000) $17,700

Now you can decide if it is worth your time and effort to set up a stand with an expected profit of $17,700

Expected Loss Example You decide you dont want to sell juice anymore because it means you have to fetch water during the Fair The Fair has moved to another village close-by; you need to pay someone to help transport your items The stand fee has increased this year to $10,000 Brackets ( ) mean negative numbers. Item Jam Bread Popcorn Transportation Stand Fee Total $25,000 Expected Incomes $8,000 $10,000 $7,000 Expected Expenses $2.500 $3,500 $4,300 $8,500 $10,000 $28,800 Expected Profit/Loss $5,500 $6,500 $2,700 ($8,500) ($10,000) ($3,800)

You have an expected loss of ($3,800). You can decide to not set up a stand this year, or you can decide to sell something else that makes more money (e.g. juice) instead of popcorn.

Lets do an example selling Juice instead of Popcorn: Item Jam Bread Juice Transportation Stand Fee Total $29,000 Expected Incomes $8,000 $10,000 $11,000 Expected Expenses $2.500 $3,500 $3,000 $8,500 $10,000 $27,500 Expected Profit/Loss $5,500 $6,500 $8,000 ($8,500) ($10,000) $1,500

By selling juice instead of popcorn, you now have a profit of $1,500. But you may decide that this profit is too low for you and you do not want to set up a stand.