Monitoring SFGA performance
The main objective of most SFGAs is to deliver high quality services to its member groups. However, to do that well, the SFGA needs to constantly monitor its performance. It needs to know whether its members are satisfied with the quality of the services delivered and, if not, how the services could be improved. It also needs to know how much it is spending to deliver the services, and whether it is generating enough revenue to cover its costs*.
When we look into our pocket and discover that we have less money today than yesterday, we are "monitoring our economic performance". This is quite easy to do as individuals, when the transactions are few and only one person is involved. But a growing SFGA conducts many transactions, and needs to know how much its member groups have invested, how much it owes to others, who still has to be paid and how many individuals are involved. It can get quite complicated.
* For additional information on group and inter-group record keeping see: Part 3 of the Group Enterprise Resource Book.
In order to provide effective guidance to the SFGA management, Board members should be kept fully informed on topics discussed and decisions reached by the Management Team. They should also be aware of the activities and needs of all the member groups. One of the most important roles of the SFGA Secretary is to ensure that the Board is kept informed. To do this, it is essential that he or she maintain written records of the main topics discussed and decisions reached in each SFGA meeting.
Here are some ideas for promoting systematic and open reporting:
At the beginning of every SFGA Board meeting, the Secretary should read out the minutes of the previous meeting. Reporting is useful for reminding members of topics discussed, decisions reached and matters pending. It helps minimize misinterpretations and misunderstandings, and contributes to smoother and more productive meetings.
The five simple procedures listed do a lot to ensure much smoother running of the SFGA.
THIS SFGA IS MAKING PROGRESS - AND IT SHOWS
In an SFGA, income-earning resources (such as a meeting place, furniture, supplies, cash on hand, and bank deposits) are jointly owned by the base membership. The base membership, in turn, elects an SFGA Board and Management Team to manage its resources.
A financial record system is an important tool that helps the Management Team and Board members manage these collective resources more profitably and efficiently. It is also used to provide base members periodically with information on the SFGA's economic results. It provides SFGA members, SFGA Board members and the Management Team with information on two important items:
By knowing exactly what resources are being used, and where they come from, the SFGA can find better ways to manage its services. By knowing what has been spent and earned, SFGA leaders and members are able to ensure that the income generated by the SFGA is enough to cover its costs. In short, financial records make it easy to see whether the business is doing well or badly.
Keeping records also helps the SFGA leaders and members remember who paid for what, where the money has been used, who has received what amounts and what has to be repaid. Without written records, it is easy to forget these details, and this can cause arguments. Records of what everything costs or is worth, how it was used and what income was produced are also useful in planning future growth.
Newly formed SFGAs normally do not have the money to hire their own accountant. Therefore, record-keeping is usually done by the SFGA Treasurer, sometimes with the help of some other experienced member or the IGP. In an SFGA just getting started, there will be few transactions, but as the SFGA grows and adds more services, there will be more transactions, and the job will become more difficult and may require a person paid part-time.
The record keeper should be orderly and good at arithmetic. Since it is easy to make mistakes in adding and subtracting, a battery-powered calculator will certainly help. But a manual, crank-operated adding machine with a printing tape is probably more reliable.
In managing the SFGA business, the Management Team needs to have answers to three basic questions:
Let's look at these questions more closely.
The Management Team needs to periodically monitor the resources that the SFGA owns and can use for delivering member services and generating enough income to cover its operating costs. They do this by recording and reviewing periodically the purchase value of all the SFGA's income-producing resources at a particular moment in time.
These income-generating resources are called Assets and include all the items that the SFGA uses to deliver member services and generate income: cash, promises-to-pay the SFGA (e.g., loans to member groups, often called "Accounts Receivable"), land, buildings, equipment, supplies, etc.
The Management Team also needs to know how much the SFGA owes to members or to others. That is important because if the SFGA doesn't pay its debts on time, it will earn a bad reputation and may run into problems with the law. These obligations are called Liabilities and include such things as a bank loan to the SFGA that must be repaid, and unpaid bills that the SFGA owes to suppliers or to members for goods or services received.
The Management Team also needs to know what would remain after all debts are repaid. This remaining amount is called Member Ownership and is obtained by subtracting from what the SFGA owes (its Liabilities) from the total of what the SFGA has (is Assets). Member Ownership is a way of describing what the SFGA is worth to members after all its debts are repaid - in other words, what members would take home after paying all outstanding bills.
Successful SFGAs are those that show a high level of Member Ownership and a relatively low level of Liabilities or debts. If Member Ownership increases over time, the SFGA is doing well. If it decreases, it has problems.
Information on what the SFGA has, what it owes, and what it is worth to members at a specific point in time is recorded on a Balance Sheet. Like a set of scales, this sheet records, on one side, the money that has been put into the SFGA business and, on the other side, how that money is being used.
It is called a Balance Sheet because the value of the items in the two lists should balance, i.e. should add-up to the same number. Checking that the two lists balance is a way of making sure that nothing has been forgotten in the calculations.
Increasing Member Ownership is a key to SFGA success and sustainability. So, how do we increase it? Member Ownership can be increased in two ways:
But SFGA members do not just need to know what they have, what they owe and what's left over. They also need to know whether their SFGA is making a profit.
Profits are a good thing. They are a reward for efficiently delivering member services, and can be reinvested in the SFGA to help finance its growth. If the income from delivering member services exceeds the expense of the service to the SFGA, then the SFGA has "net earnings" (or is "making a profit").
Profits affect the Balance Sheet in two ways: by increasing the SFGA's assets (cash flows in), and by increasing Member Ownership of those assets, (meaning that the SFGA is worth more to its members). If expenses are more than income, the SFGA loses money (cash flows out). This reduces its cash (an Asset) as well as the value of Member Ownership.
PROFITS ARE THE REWARD FOR EFFICIENT MANAGEMENT
The Income-Expense Statement is a report that helps SFGA members and leaders determine if income earned from providing member services has exceeded the costs or expense of delivering those services, during a certain period. It looks like this:
Transactions are completed activities that result in an immediate change in the SFGA's balance sheet and/or income-expense statement. They can be measured in money terms. Examples of transactions are: buying or selling a good or service, receiving cash and making cash payments.
Information on transactions is kept in itemized records, called Item Accounts. The accounts contain information on changes in each item found in the Balance Sheet (Assets, Liabilities, and Member's Ownership) and Income-Expense Statement. They are usually kept in a book or loose-leaf notebook, called a Ledger.
The number of item accounts that an SFGA will want to create depends on the size of the SFGA, and the volume and number of its member service operations. In a newly formed SFGA, the number of item accounts needed for monitoring purposes may be quite small. But as the SFGA expands, it will need to add more item accounts to its monitoring system.
Each item account contains all essential information on each item. For example, the item account "Cash" includes information on all cash transactions. The information it contains includes: the date of each cash transaction, and a brief description of the transaction and the amount. Similar records are kept for every other asset and every liability, for member's ownership, and for income and expenses.
Each item account is maintained on an individual sheet of lined paper with vertical columns to separate the information to be entered. In its simplest form, an account has three elements: a title, a debit side on the left, and a credit side on the right. If regular accounting paper is not locally available, you can easily make your own. A school notebook is fine. Put the name of the item account at the top of the page, and then divide the page into four columns as shown below
Accounts have two sides to make it easier for a business to keep track of increases and decreases that have occurred in each item account. Having increases on one side and decreased on the other side also helps in determining the current account balance (the sum of all increases minus decreases). In other words, it shows what remains in the account after all increases and decreases have been factored in. In the example above, the cash balance on 30 November is shown in the Debit column and is equal to $42 ($50 in contributions less $8 in purchases).
Calculating the current balance in a two-column account is easy. Just add up all numbers appearing on the Debit side and subtract from that the sum of all numbers appearing on the Credit side.
Accounting books are the "financial memory" of an SFGA. They help the Management Team, SFGA Board and members keep track of what the SFGA has, who paid how much to whom, and who owes what to whom. An SFGA without some kind of financial record system is asking for trouble. It's like being in a unknown place without a map. You don't know where you are, where you came from or where you are going!
Here are some of the accounting books the SFGA will need:
This is the main book of entry for recording all SFGA transactions, whether they involve a movement of cash or not. It also serves as a gateway book into other accounts that the SFGA might keep - it provides information on which other item accounts will need to be, or have been, adjusted to properly record the transaction. All SFGAs should maintain at least a general journal or receipt/payment voucher book. It is essential!
This is the simplest type of general journal. It is a small book containing separate, numbered pages for recording information on each transaction (i.e. cash and non-cash receipts and payments). The information should include: a brief description of the transaction, the date, the amount involved, plus the signature of the Treasurer to confirm that the item has been received or paid for. If necessary, the other party to the transaction may also sign to confirm that the transaction took place, i.e. that the money was paid or received.
Some SFGAs prefer to keep two separate books: a receipt book and a payment voucher book, so that information on resource inflows (cash and non-cash receipts) is not confused with information on resource outflows (cash and non-cash payments). It is up to each SFGA to decide which is best.
One of the weaknesses of a general journal or receipt/payment voucher book is that information on transactions is recorded one after the other. It may be difficult, therefore, to classify and summarize. This problem is solved by creating item accounts (for all main Balance Sheet or Income Expense items of importance to the SFGA). The most important item account that the SFGA needs to monitor is the cash account. This is absolutely essential in keeping track of how much money comes into the SFGA and where it comes from, how much goes out and where it goes to, and what is left. This task is the main responsibility of the SFGA Treasurer. Some SFGAs keep a separate cash book to store this important information.
As the SFGA develops, it may decide to keep more accounts to monitor more closely changes in items appearing in its balance sheet (i.e. Asset and Liability items) or income-expense statement (Income-Expense items).
When there are other accounts to maintain as well, it is best to keep all of them, including the cash account, in a single loose-leaf notebook, called a Ledger. Keeping all the item accounts in a single Ledger makes the Treasurer's job a lot easier! Others may prefer to keep their Ledger accounts on large cards - one card per account - which are stored in a box. It's up to you!
An SFGA can have as many as it wants. Having many accounts may provide more details, but this can also create more work for the bookkeeper and increase the probability of mistakes. Therefore we recommend that only the most important accounts be included.
To determine which type of accounts to include, it may be useful to first draw up a "chart of accounts", i.e. a plan of how to record, in a systematic way, financial information on the SFGA's member service activities. The number and categories of accounts will depend on the business requirements of each SFGA and will vary. The table below shows a chart of accounts for an SFGA that provides bulk input purchase and marketing services to its members:
An SFGA may decide to increase or reduce the number of accounts it monitors at any time. SFGA Management should continually ask itself the question: Do the benefits derived from maintaining this more detailed information- in terms of improved business decision-making- outweigh the costs? If so, it's worth maintaining; if not, then eliminate it.
Let us now review the steps that should always be followed in recording a transaction in the accounting system. Assume that the transaction is the monthly payment of a $5.00 membership fee by a member group of the SFGA:
Step 1. The Treasurer records receipt of $5 from the group representative and hands him back a signed receipt
Step 2. The Treasurer then records the same information in the cash book as a receipt, noting the date of the transaction, the purpose and receipt book number.
Step 3. The same information is then transferred to the Ledger under the account "Member monthly dues"
This may also be more easily understood using the flow chart below:
It is advisable to have the SFGA Treasurer or Management Team prepare reports on the financial performance of the SFGA for review at monthly SFGA Board meetings or for presentation to all members at the annual General Assembly of Members meeting.
To prepare a Balance Sheet or Income-Expense Statement, the figures in the separate item accounts have to be periodically added-up and balanced. Decreases in each account are subtracted from increases in the account and the difference left in the item account, called the balance, is noted.
The most important rule to remember in balancing accounts is that the sum of the balances in all the Asset accounts must equal the sum of the balances all of its non-Asset accounts. In other words, the sum of the balances of all its accounts on the Asset side (cash, accounts receivable, equipment, buildings, etc.) must equal the balance of all other accounts on the Liability and Member Ownership side, including accumulated net earnings during the period, i.e. income balances less expenses balances).