Financial Solutions Committee

NOTE: A PDF of this report is attached at the bottom of this page.

Report of the Financial Solutions Committee

September 2015

The Financial Solutions committee proposes that the Folk Project follow general accounting principles more closely than we have in the past with the goal of increasing income and covering our overhead expenses. Since this topic is, by nature, rather complex, we recommend that we take the time to understand the report at the September meeting, spend the following month digesting the material and forming opinions, and wait until the October meeting to make formal motions and take a vote.

Background

The purpose of accounting is to provide the information needed for sound decision making.

Keeping accounts cannot: Tell us how to run our organization Solve any financial issues we may be facing

The best it can do is give us accurate and fair methods of making decisions about our organization.

To be successful we must go beyond finances

We want to emphasize that our financial picture is only one part of the measure of the Folk Project’s health and vitality. There are other measures of success that do not involve finances, but are nonetheless essential to a healthy organization. The Board should be mindful of these goals as well. They include:

Attendance – Keeping track of attendance and ensuring that we are keeping a healthy size crowd at all of our events.

Volunteers – Paying attention to recruiting new volunteers, retaining the ones we have, and making sure our volunteers feel appreciated.

Member performers – Providing opportunities for member musicians and dancers to perform. Member shows provide an excellent platform in this regard. They promote membership by adding value to the membership of the performers, and also increase attendance at other events. Their effect on financial and program health goes beyond the individual events.

We recommend that the Board consider ways to improve how we achieve these kinds of goals.

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September 2015

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Applying financial principles to our current situation

The best practices for managing finances dictate that costs should be covered as closely as possible by the activity for which the cost was incurred. For example, we already directly allocate expenses such as rent and performer fees to the corresponding committee. We also need to find a way to cover the expenses that are not incurred directly by a committee, such as subscriptions to QuickBooks and Constant Contact, tax preparation, and membership dues for outside organizations. In the past we have also considered our insurance premiums to be an expense not directly allocated to a particular committee.

In accounting parlance, these unallocated expenses are known as General and Administrative expenses or G&A for short. Up until several years ago we covered these G&A expenses by dividing them among our venues and adding an additional expense to each venue’s bottom line. This additional expense for G&A was 10% of the venue’s expenses. The Festival was exempt from adding this additional expense to their total.

Allocating a G&A expense to each of our venues is simply a tool, intended to remind our committee chairs that there are additional expenses to consider when they make decisions regarding their budget. G&A does not generate income and it cannot prevent us from losing money.

Asking the venues to consider G&A guidelines worked well for us in the past, as long as we enforced the guidelines. Some years ago, we stopped enforcing these guidelines with the result that our financial results are now a hit or miss proposition, varying widely from year to year. Some years we do well; others we lose money.

Rather than simply recommend that we revert to our former policy of assessing the venues 10% of their expenses (Getaway excluded), we decided to take a fresh look at defining and achieving our financial goals.

Income

First we looked at the income that is not directly attributable to a specific venue. For 2016 we anticipate $9.7K in income of this type, about 10% of our total revenue. This revenue will come from:

$8.5K from membership dues $1.2K from member shows (estimated)

By “member shows”, we mean concerts where our members are the performers -- the Birthday show, Valentine’s show, Halloween show and Summer Songs. By estimating that we will receive $1.2K from these shows we are recommending that the producer of each show make it their goal to generate at least an average of $300 per show over and above expenses (including insurance and G&A).

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September 2015

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Another potential source of income of this type is money we might receive from a grant from Morris Arts. This usually amounts to about $2000 per year. Since we did not apply for a grant in 2016 it is not part of the financial picture we are painting in this report. We recommend that the Board actively seek someone to write our grant proposals in the future. In addition, we should add the date that the grant proposal is due and any other milestones involved in obtaining the grant to our key dates so that we do not lose sight of them.

Expenses

We have about $16.5K in expenses that are not allocated to a particular venue and this represents about 12% of our total expenses. These include:

$7.5K in membership related expenses including:

o Printing and mailing the newsletter

o July 4 picnic

o Annual meeting

o Volunteer appreciation activity

$5K in insurance for 2015 which includes:

o $2660 for liability insurance

o $2250 for work comp insurance

$4K additional overhead including:

o Software, i.e. QuickBooks, Constant Contact

o NERFA stipends

o Tax preparation

o Sound equipment, maintenance and repair

o Memberships in other organizations, such as membership dues for the Folk Alliance, and donations to outside groups such as the Pro Bono Attorneys

Recommendations for what should be included in these expenditures

Volunteers are the lifeblood of our organization and we need to invest in our volunteers so that we can encourage them to continue to volunteer and let them know that their efforts are appreciated and. Toward that end, we recommend that we invest in such activities as an annual volunteer appreciation activity, such as the volunteer dinner held in 2014, and the July 4 picnic.

We also recommend that we provide scholarships to attend NERFA to some of our Board members. We feel that this is a good investment in that it provides attendees with an opportunity to learn ways to increase the success of our organization. It also provides a way for Board members who book events to connect with performers. We propose

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allocating $1000 per year for NERFA scholarships. The Board should consider each year who will receive this subsidy. We may find that we want to rotate the scholarships, so that more people are exposed to NERFA. We may also want to adjust the allocation from time to time based on our needs and how well we’ve been doing financially.

In order to capitalize in our investment in NERFA scholarships, we suggest that those who receive these scholarships submit a written report to the President for the January meeting, summarizing what they learned at the conference and how that investment has paid off.

Since having a good sound system is integral to our events, we also recommend that we set aside $500 each year toward sound equipment, covering such expenses as new purchases, replacement purchases, maintenance and repair. We consulted with Mike Del Vecchio, our Sound Reinforcement chair, to help us determine this estimate for yearly sound expenditures.

Covering our overhead

Membership brings in about $8.5K per year. The e-newsletter saves us a lot of money on printing and postage, and therefore frees up about $3.5K of our membership income to help us cover our overhead.

After we subtract the portion of the overhead covered by membership, the shortfall between the anticipated income and expenses outlined above is about $6.8K. In the past we would simply have allocated this amount among Swingin’ Tern, the Minstrel, and Special Concerts, based on their total expenses. Festival was exempt from participating in G&A. But in scrutinizing the figures we have arrived at a method that we feel is more in line with our current revenues and expenses and more equitable.

Although in the past we considered insurance as an expense that is not directly attributable to any venue, it is actually quite easy to allocate the cost of our insurance to the venue based on their contribution to our premium costs. Our liability insurance is based on attendance figures and our Workers’ Comp insurance is based on our performer fees.

Allocating our insurance costs to the venues proportional to their attendance numbers and performer fees leaves about $2K not accounted for. This $2K includes such expenses as software, such as QuickBooks and Constant Contact; tax preparation; sound equipment; membership in other organizations, etc.

The following table shows what the figures look like if we allocate insurance to each venue as indicated above. It also includes an allocation of a portion of the $2000 in overhead expenses that are not otherwise covered. The $2000 was allocated on a pro rata basis using 2.5% of the expenses of each venue. Because the Getaway has a

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disproportionately large amount of expenses, for the Getaway we are taking 2.5% of the expenses minus the camp fee.

Allocation Minstrel Swingin’Tern Getaway Special Concerts Member Concerts Insurance $1950 $1250 $850 $600 $300 Overhead (* ) (based on 2.5% of expenses) $ 740 $ 435 $470 $370 $ 95 Total $2690 $1685 $1320 $970 $395

The table above represents a total allocation to the venues of $7060, sufficient to cover the $6800 shortfall.

Getaway Exemption

Thirty years ago, when the Board first instituted G&A, the decision was made to exempt the Festival from having to account for overhead. Some of the reasons for exempting the Festival all those years ago are lost in the mists of time. But some of the elders recall that back then it was an immense struggle for the Festival to break even, let alone cover G&A. The Festival regularly lost money. Many of the Board members felt that the Festival was “the party we throw for ourselves” and that meant it was worthy of special dispensation. Finally, given the enormous expense the Festival incurs through fees to the camp, we couldn’t determine a fair way to allocate the G&A and include Festival. Figuring G&A based on Festival expenses minus the camp fee, as we are recommending here, did not occur to the Board at the time.

If we exempt the Getaway from paying their portion of the insurance and overhead, the $2850 is the amount of overhead that must be divided among the other venues. We are allocating this $2850 based on 4.5% of the expenses for each venue.

The resulting picture looks like this:

Allocation Minstrel Swingin’ Tern Special Concerts Member Concerts Insurance $1950 $1250 $600 $300 Overhead (*) (based on 4.5% of expenses) $1330 $ 785 $660 $170 Total $3280 $2035 $1260 $470 *The overhead in both tables represents expenditures such as software, tax preparation and sound equipment, some of which is covered by membership. But the $2K remaining must be covered.

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The table above represents a total allocation to the venues of $7045, sufficient to cover the $6800 shortfall.

Because there is a previous motion that exempts the Getaway from G&A allocation, the Board will have to decide which of the two allocation possibilities to support.

Insurance issues

We are currently carrying Work Comp insurance and therefore we have included the premiums in our calculations. Although our committee and others have looked into the question of whether or not we need to carry this insurance, a full investigation into this

matter is beyond the scope of this committee. We do suggest that the Board investigate this question next year and come to a decision.

Several people have suggested that we ought to be carrying Directors and Officers insurance. This question is also beyond the scope of this committee, but we do recommend that the Board look into the question next year.

Figuring out G&A each year

We suggest that Board appoint someone to “own” the G&A budget, which is substantial, representing 12% of our total budget. This person will help the treasurer determine what the G&A allocation should be for each of our venues and help keep us on track so that we can stay financially solvent in years to come.

New expenditures

We recommend that when people bring a proposal to the Board to allocate a new expenditure they should indicate where they expect the money to come from. This might be our savings, profits from a particular venue, or some other source. But it would be helpful to consider the source of the funds in our consideration of the proposal.

Respectfully submitted,

Lori Falco, chairperson

Allan Kugel

Barbara Moo