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Financial Management 27 November 2013
The development and use of budgets, proper costing and pricing strategies, standard accounting practices, and asset and cash flow management to achieve the financial goals of the event enterprise.
After reading this article you should understand how to
Money is a resource critical to event projects and event organizations; without it events would not take place. It comes in from those who host, support, sponsor, or attend an event, and it goes out to pay for all the goods, services, and staffing needed to make it happen. Whether an event project is a small private social event or a large public community event, it is almost always someone else’s money that is being spent. This means that the money must be spent wisely. It also means that specific records must be kept to verify how the money was spent and why.
Financial management is the handling of the money related to the event project, and the strategies to maximize the acquisition and use of that money. Effective financial management relies on an interrelated system of acquiring, allocating, and accounting for the financial resources of an event project. Each facet–accounting, budgeting, pricing, cash handling, and reporting–influences and is shaped by every other facet.
Financial management can be very intimidating – dealing with vast sums of money, other people’s money, lots of numbers, lots of calculations, lots of paperwork, and lots of pressure to meet “bottom line” expectations. That bottom line, the figure at the bottom of a financial statement that shows whether or not the event project made or lost money, can cause anxiety for even the most experienced event organizer.
Effective budgeting, proper accounting and pricing practices, plus sensible cash management procedures allows you to anticipate income and expenses correctly, allocate financial resources properly, and maintain the appropriate financial records. Without understanding this integrated system practical budgets cannot be established or implemented effectively, accurate pricing cannot be ascertained, records cannot be properly prepared, and reasonable control of the event project’s monetary assets will be next to impossible.
Accounting Accounting is a system for “counting” and “accounting for” the monies associated with an event project or organization. The financial data about a project or business must be recorded, categorized, summarized, interpreted, and communicated. You must be familiar with the basic practices and terminology associated with accounting and bookkeeping in order to be an effective contributor to the financial decisions surrounding your event endeavors.
Understand the terminology You must be conversant with the terminology of financial management so you can communicate and work effectively with the various stakeholders involved in the event project. These stakeholders can range from vendors and members, executive committees or clients, public officials to taxation authorities, or perhaps even the media. When money is involved, people want to know how it was used. You need to be able to “talk the talk” in order to “walk the walk.”
Understanding the terminology and how these tools and techniques work will help you recognize and incorporate cost-saving strategies throughout the event project. These standard accounting tools are used throughout your financial management endeavors, including making and managing budgets, calculating pricing, managing cash flow, and fulfilling reporting obligations.
Understand the system Accounting is the design and maintenance of the system for the recording and counting of sums of money, those paid and those received and the value of property, and the records and reports associated with these sums. The accounting system provides the measurement of assets and liabilities and earnings, the assignment of costs to revenue, and the determination of net income or net loss.
Bookkeeping is the systematic recording of day-to-day financial transactions (revenues and expenditures) in the accounting system. This includes the preparation and collection of the underlying documents, the chronological journalizing of transactions with their explanation and account code, and the posting of these transactions into their appropriate categories in a ledger.
Good bookkeeping practices will be the foundation of the financial records and reports that facilitate good financial decisions, as well as ensuring the event organization is in compliance with regulatory and fiduciary requirements.
Collaborate with financial personnel to maintain the system Collaborating with financial personnel such as accountants and/or bookkeepers will be necessary to maintain the accounting system. Although accountancy functions are usually handled by financial professionals such as certified public or chartered accountants and/or the organization’s financial officer(s), the event organizer is often involved in the bookkeeping process and must confirm with the appropriate authority the format to be used and the supporting documentation required. Synchronize the event project’s bookkeeping system with the organization’s system to ensure efficiency and accuracy.
The bookkeeping system typically organizes financial data into categories, a list known as a chart of accounts, organized in such a way that facilitates wise decision-making based on reliable financial information. Each category will have sequentially numbered account codes for the components or items that make up income or expenses, and a budget will likely be organized according to these categories.
Setting up the account codes will likely be a function of the accounting system, often a computer bookkeeping or spreadsheet software program, so that the code categories will be parallel to and compatible with the financial reports and statements that are to be generated. However, the extent of the account codes for bookkeeping might be more complex than the standard accounting codes in order to accommodate the varied income and expense categories associated with a specific event project. The types of revenues possible and expenses required will depend on the type and scope of the event project.
It is important to assign all income and expenses to the proper account codes so that financial information is properly captured, tracked, and analyzed. Becoming familiar with the account codes and noting them on individual underlying documents and in the checkbook register should be a standard practice. Diligence and attention to detail is as important in bookkeeping as it is in any other facet of event management.
Budget Management A budget is a detailed cash plan that defines the acquisition, allocation, and disbursement of the financial resources for an event according to the priorities and necessities of the event project’s operations. A budget must be prepared based on sound fiscal information and monitored closely to ensure the desired economic performance.
The budget is an integral part of the event project business plan and helps shape and control the decisions surrounding the event project. The sources of income must be properly defined and the expenses must be carefully calculated in order for the profit expectations to be realized.
Determine profit objectives The bottom line requirements for a budget (the net profit or loss) will be dictated by the profit objectives of the event project’s host, producer, or sponsoring organization, which could be to make a profit, break even, or operate at a deficit (a hosted event). Although hosted events might not have revenue categories other than the host’s investment reflected in the budget, they will have limits on the financial resources that can be allocated to the event project.
Various techniques can be used to analyze the financial feasibility of an event project, determine the product/service choices to be made, and estimate the potential success of the endeavor based on the profit motives of the sponsoring organization. The two typical tools are the break-even analysis and bottom-up analysis.
The draft budget should be prepared in great detail and include the calculations used to arrive at the line item estimates so the budget-to-actual performance can be compared efficiently and the budget adjusted as needed based on any variances. This is easier when done in a spreadsheet software program, which allows quick “what if” calculations and modifications.
Previous event budgets, income statements, and cash flow statements are typically used to prepare a draft budget, but if no historical records exist, a zero-based budget (starting from “zero”) should be drafted using cost estimates and comparable budgets from other events.
When the event is required to break even or make a profit, you must make reasonable predictions of income expectations and prepare cost-cutting strategies should the budgeted revenues fall below expectations. Once the budget has been prepared, acquire approval or consensus from the proper financial authority governing the event project (client, host, financial officer, board, committee, management, etc.).
Forecast costs and revenues Preparing a budget involves visualizing the entire event in financial terms; identifying all potential sources of income and expenditures. These are then organized into functional groups, typically according to the categories specified in the chart of accounts (or by each aspect of the event itself such as registration, exhibit, social functions, etc.). These categories vary depending on the type and scope of the event.
Cost estimates must be comprehensive, identifying all the potential expenditures that must be made relative to the event project, including the contribution required to cover overhead and other amortized costs as well as the value of in-kind donations. Revenue estimates must be conservative, particularly if there are no historical records to indicate previous income or growth trends. Overly optimistic revenue projections have caused the downfall of many event projects.
Identifying Expenses Virtually everything included in an event project and its operations have costs attached. There will be fixed costs, variable costs, time costs, overhead costs, opportunity costs (the cost to take advantage of an opportunity, extending credit, etc.), selling costs, collection costs (discounts for early payment, pursuing past due accounts, etc.), and potentially hidden costs. There are varying levels of quality and product/service solutions to achieve the goals and objectives of an event project, and the budget is where these priorities and choices will likely be made.
Fixed and variable expenses are established in accordance with the size, type, and scope of the event project and the prioritized needs of each component as well as its audience. Fixed expenses are those that will likely not change if there are 200 or 250 guests or attendees, such as the venue rental or a speaker’s fee. Other fixed costs include operating costs or overhead – the indirect costs that must be covered by the income, or a portion thereof, generated by the event.
Variable expenses are those that will fluctuate depending on the attendance volume (such as food and beverage, motor coaches for transfers, chair covers and linens, etc.), which might include some typically fixed costs if the attendance goes beyond a certain point (for example, renting a larger space or hiring additional personnel). Event project updates must be scanned regularly to integrate budget updates in response to scope changes.
Even the costs of servicing a sponsorship must be included on the expense side of the budget, including the per-person variable expenses of those given complimentary or reduced-fee registrations or tickets (e.g., speakers, committee or board members, officials, etc.). In addition, the value of an in-kind donation should be included on the expense side of the budget in order to calculate the costs should that donation not be secured, as well as commissions received (such as hotel commissions on rooms booked) that will go to reducing the final bill must be listed as both income and expenses – what the final bill would have been, to accurately reflect the true bottom line of revenues over expenditures.
You must also incorporate the cost of time into many calculations, from calculating your hours that are billable to this event project, to evaluating the cost-effectiveness of outsourcing, to controlling the schedule to avoid last minute or rush order charges. Also consider hidden or unexpected expenses, such as those shown below. Collect comprehensive estimates and carefully compare costs; anticipate ALL the costs associated with the event project; and financially plan for surprises with a line item for contingencies (typically 1 to 2 percent of the entire expense budget).
Typical hidden or unanticipated costs
Identifying Revenues Identifying and forecasting revenue is often more difficult than for costs, especially for new or one-time events. You must carefully control the stability and success of the event’s typical revenue sources as well as find numerous creative opportunities for possible revenue streams, many of which are untapped or under-tapped.
Revenues can come into an event organization through many different portals, not simply at the ticket window or registration desk. From program advertising and souvenir merchandise sales at sports events, to contest entry fees and special event ticket sales for awards programs, to hotel commissions and session audiotape sales at conferences, there are countless ways to generate revenues for an event.
Encourage event customers to spend even more money. For example, the order form for tickets to the awards banquet and logo wear merchandise might be included in the registration form for a sailing regatta, or a multi-day entry pass or preferred parking area passes (and even the opportunity to pre-purchase performers’ tapes) might be offered at a music festival.
Also consider the profit margin (the ratio of profit) that different event elements contribute to the event revenues, as well as which of these contribute the most to the bottom line. If the luncheon program at the annual conference returns a better profit margin than the final night gala, promote the ticket sales for that function at least as prominently as you do for the gala tickets. If the food concessions provide a healthy profit margin at the sport event, promote them heavily during the event. Know where the best profit margins are generated and promote them (and replicate them).
Avoid the “we’ve always done it this way” syndrome; instead, conduct creative brainstorming sessions to uncover new and improved revenue streams for products, services and event features that could provide much needed income for the event organization.
Allocate financial resources according to priorities The event organizer is responsible for the direction, allocation, and control of the resources surrounding an event project through a sound business plan. A significant part of that plan is the allocation of financial resources based on priority and necessity. Sound financial management practices must be employed to ensure these monetary resources are used effectively.
Priorities are based on the goals and objectives of the event established by the host or hosting organization, as well as the practical and regulatory requirements associated with the event’s production. These priorities include needs, must-haves, wants, and nice-to-haves. Needs are those budget items required for the event to take place and the must-haves are those items that ensure the objectives of the event can be achieved. The wants and nice-to-haves are those budget items that will enhance the event experience or please certain stakeholders.
There is no such thing as an “unlimited” budget. Financial resources are always finite. You must know the priorities associated with the integrity of the event project, especially when cost-cutting decisions must be made. First include the needs and must-haves in the budget, which are the first priority, then incorporate the wants, and finally the nice-to-haves. When budget cuts must be made the nice-to-haves will be eliminated first, followed by the wants.
Track budget performance No matter the type of profit philosophy – profit, break-even, or hosted – you must analyze and track the income and costs of an event project carefully. Review revenues and expenses regularly, including monthly, weekly, and even daily depending on the scope of the event project or the intensity of the financial activity. By comparing the actual budget performance to its projected performance, it will be possible to respond to variances by making adjustments and taking corrective actions as necessary.
Integrate the budget into the timeline to ensure financial decisions can be made in a timely and cost-effective manner. A budget is a flexible document that should include pre-determined cost-cutting methods, which will be guided by the prioritized goals and objectives, with the critical decision points identified within the timeline. · If you don’t have sufficient attendance, do you move the reception from the off-premise location back into the hotel? · If you don’t sell a specific sponsorship package, do you eliminate that event element or do you scale it back? · At what point do you decide to send out another conference registration brochure to potential attendees? · At what point do you decide to cancel the elaborate centerpieces? The golf tournament? The pyrotechnics? · At what point do you decide that the event is simply not going to generate the revenues required and you must cancel the whole thing? In the worst-case scenario, losing a little money is better than losing a lot of money.
From the headline entertainment act to the humble postage stamp there are hundreds and thousands of large and small expenditures to keep track of and control. The more comprehensive the budget worksheets and calculations, the more likely you will be able to contain and cut costs in a manner that will still achieve the goals and objectives of an event project.
Pricing Price is always part of the decision-making process. What you charge and they must pay (or what they charge and what you must pay) factors into the purchase decision for both the buyer and seller. From setting registration fees or ticket prices to preparing bid quotations and negotiating rates, establishing the best price depends on fully understanding the costs, profit requirements, and market value for any purchase – yours and your customer’s.
Determining the right price is not always a clear cut endeavor. It isn’t quite as simple as costs + profit = price, although that certainly is the foundation because if there are insufficient profits, the seller of the product or service (or event) will no longer be in business and the product, service, or event will no longer be available. And events are a business! Proper pricing is a fundamental component of the financial success of that business.
How do you know if you have the right price? The simple answer is: if the buyer is willing to buy at that price and the seller is able to make money selling at that price. Buyers typically want the lowest price possible and sellers want the highest price possible; the balance rests on meeting the needs of each. Uncovering these requirements can include some creative detective work and almost always involves careful calculations.
However, knowing the numbers – ALL the numbers – will help you determine the fair value of the products and services the event project will purchase and those it has to sell. These numbers are located throughout the event project’s administration, design, marketing, operations, and risk management, with many reflected in the event project’s budget.
Calculate direct and indirect costs Calculating the costs that must be factored into pricing includes determining the direct costs – those expenses that are directly related to the event project or its individual components, and the indirect costs – those expenses that are tangential to the event project and support the overall operating needs of the event business.
Direct costs will include all the goods and services that must be purchased for the event project, known as the cost of goods, as well as the costs directly related to selling the products and services of the event project, known as cost of sales. It is important to identify which costs are fixed expenses that don't vary according to amounts) and which are variable (expenses that do vary with the number of attendees, amount of service provided or volume of goods produced).
Indirect costs will include all the goods and services needed for the general administrative operations of the event organization, known as overhead. Overhead should be amortized over the duration of the event organization’s operations, usually a monthly contribution disbursed within an annual cycle, as well as the amortized contribution costs of any capital or long-term expenditures or reserves, such as for equipment purchase or replacement.
For example, an association might hold its annual convention as just one of many different activities, and a portion of the overall operating budget, including the staff and other resources, must be charged against the profits of that convention. Or an independent event organizer or production firm will produce dozens of event projects for different clients throughout the year, and the operating costs of the business must be amortized over all these pieces of business. The ratio or proportion of the operating budget or overhead that must be charged to a specific event project will depend on the number of events or impact of the event on the organization’s other activities and resources.
When you add the indirect costs to direct costs, the total costs of the event project emerge, which will be the basis for determining pricing once the profit requirements have been established. However, don’t forget to seek out the hidden costs that can potentially destroy any and all profit margins. Make absolutely certain the bids you get, and those you offer, include ALL the charges.
Also pay attention to the penalties and liabilities associated with change. Per-unit prices could go up if numbers decrease (or if the numbers don’t increase enough to amortize increased costs, e.g., too many people for three busses but not enough to fill four busses), fees might be charged if guaranteed minimums are not met (e.g., attrition charges), or there could be costs for accommodating changes after certain deadlines.
Determine profit requirements Event organizations, event production businesses, and the businesses that provide the goods and services to events must make a profit to stay in business. What is critical for both event projects and event businesses is the definition of profit expectations – the amount or level of profit required, which is unique to each enterprise and based on its short- and long-term goals and its responsibilities to its shareholders or stakeholders.
Event projects have one of three possible profit motives: to make a profit, to break even, or to operate at a deficit as a hosted event. Typically social events (e.g., weddings and reunions) and many corporate events (e.g., training programs and retail events) are hosted events that do not expect a direct financial return, although the return might be measured indirectly. Many conferences or recreation events have break-even expectations, with the revenues covering all the expenses incurred. Most other events have an expectation of revenues exceeding expenses. In some organizations these profits are referred to as retained earnings, but the bottom line objective is the same – money left over.
Profit requirements might be expressed as specific dollar amounts or as a percentage, known as a profit margin, which is calculated by dividing the net revenue (after expenses have been deducted) by the total revenue (before expenses have been deducted). Profit margins are often used to establish the mark-up that will be added by sellers when preparing price quotations. Profit margins, however, do not necessarily need to be consistently applied to all aspects of the event or the products and services sold. You can make a little money on certain items or areas, break even on others, even lose a little money on some, and sometimes make a lot of money on others, and still achieve the bottom line requirements.
Establish pricing structure Setting prices is a combination of mathematics and marketing. You must know the costs, profit needs, and the customer’s perception of value. Competition and the ratio of supply and demand will influence what can be charged. Profit margins can be adjusted and discounts might be offered based on the volumes sold. The financial demographics of the target market can limit or increase price points.
Pricing is typically either cost-based or value-based. Cost-based pricing uses a simple formula of cost plus (e.g., time plus materials, cost plus service fee, or cost plus profit margin mark-up). Value-based pricing adds what the product or service being sold is worth to the buyer into the equation, which might include such value perceptions as quality, convenience, mystique, exclusivity, prestige, or other subjective judgments. Value-based pricing also considers what the sale is worth to the seller and could indicate charging lower prices to capture a new market, increase market share, improve seasonal cash flow, or cultivate strategic business benefits.
Many events offer different price points for different classes of attendees or purchase deadlines (members, non-members, accompanying persons, early registration discounts, etc.) that are designed to sculpt purchase behavior and/or encourage additional investment (such as paying the membership dues to get the member price). Other events offer higher-priced premium benefits or services such as exclusive parking, seating, and lounge areas, or special access to certain participants, performers, and hospitality functions.
Any pricing strategy, however, relies on first calculating the break-even point – the point where revenues equals expenses. This can be used to determine a break-even price or the break-even number of units. To illustrate this, as shown below, assume the total fixed costs (indirect and direct costs) for a recreation event equals $55,000 and the variable costs add up to $150 per person. In each case, there are assumptions made about either the number of attendees expected or the pre-determined price to be paid. In one case the per-person registration fee is higher than the other, but that registration fee can be lowered if more attendees could reasonably be projected. You must recognize the impact of the price ceiling – the maximum tolerable price the attendee is willing to pay.
When a specific profit amount is required, this profit figure would be added to the total fixed costs. Including such profit objectives in the expense side of a budget helps keep this requirement in the forefront of the financial planning and pricing process.
When pricing services, such as organizing events, the typical pricing strategies are a consulting fee, a percentage of the expense budget, or a hybrid of the two. Here, again, there are direct and indirect costs and profit margins that must be included. Determining hourly rates follows the same break-even calculation procedure illustrated for the recreation event registration fees. The per-hour price can be based on the number of hours available; the income required divided by number of hours available determines the per-hour price.
When pricing products to be sold or hired out to events, careful attention must be paid to calculating the company’s cost of goods and overhead when determining mark-ups. For example, if a décor company owns a scenic prop that it regularly rents out to event projects, there is the cost to build it (time and materials) that must be amortized over the life of its usefulness; the costs for keeping it in good repair (supplies and labor); the costs for the space in which it is stored (rent and utilities); and money that must be set aside to replace it when it’s no longer suitable to hire out.
These costs are in addition to the labor used to load, unload, move in, install, move out, load, unload, and restock the prop back into its storage place, plus the costs of the truck and fuel to move it to the event site and back again (and the truck’s maintenance, etc.). There are also the general costs of being in business – rent, utilities, payroll, equipment, etc. – that need to be incorporated into its price.
Cash Management The monies that make the event project possible are like the blood circulating through a healthy body; they must flow properly for life to be sustainable. The proper circulation of cash through the event project’s system depends on good contracting, sound purchasing practices, and other cost controls that ensure the way in which money flows in to and out of the system will meet its financial needs.
As shown below money (cash) comes in and goes out from and to various people for various things, at various times, at various locations, for various reasons, and in various forms. This flow of cash is, and must be, managed in a way that benefits the event project and event organization. You must understand all these in and out variables so that you can establish effective cost controls and handling procedures that ensure this money is collected, protected, and disbursed properly.
The facets of cash flow
Establish payment policies and procedures It is vital that policies and procedures to ensure strong internal financial controls are developed and implemented. These should include who is authorized to make expenditures, what will and will not be paid for by the event organization, when and how payments will be made, where financial transactions will be handled, and why these controls are necessary.
Execute written contracts with all clients and vendors that clearly stipulate the financial obligations incurred and the specifications affecting those obligations. Such obligations can include payment schedules, guaranteed numbers or amounts, cancellation and attrition penalties or formulas, and the authorization sequence and documentation procedures prior to and during the event for such things as change orders, scope increases, or other financial transactions.
Determine exactly who has authority to authorize expenditures and carefully control those who do, making certain unauthorized persons do not purchase items or sign contracts that financially obligate the event project. Purchasing practices such as purchase orders, invoicing procedures, expense reimbursement procedures, and committee spending limits should be clearly defined and communicated. It is advisable to always require invoices, purchase orders, or receipts before approving charges or payments.
Develop procedures and criteria for establishing or extending credit, setting up a master account with the facility at which the event will be held, and refund or billing dispute policies. Establish the banking procedures according to the financial institutions where banking business will be done, such as setting up a local bank account when organizing an event project in another city to facilitate on-site income deposits and payments. It might be necessary or advantageous to establish an escrow account into which the funds collected or deposits paid are placed until they are authorized for use for a specific event.
Define and communicate master account billing instructions. Limit what you will and will not be held accountable for by specifying what charges may be posted to the account and the names of people authorized to sign for expense items. Check the master account periodically, preferably daily, and dispute any charges that have not been authorized. Sub-master accounts might be included so that vendors can have their charges paid by the facility and the amount paid out added to the master account, but the same restrictions on who can order things must be clearly defined.
Develop cost controls In the modern event world budgets are tight and event organizers are expected to do more with less; they are held accountable for delivering sufficient returns on the investment in an event project; and these trends are very likely to continue. There are only two ways to improve a bottom line: sell more or cut costs. Cost cutting should begin with cost control strategies such as those shown below.
Cost management and control strategies
Every event element included in the event project will have a cost and practically every event element will have options at varying levels of quality and price offered by potential vendors. The objective is to select the best products and services available to meet the event goals and objectives within the budget allowed.
Seek bids or proposals from the various vendors available for each product or service needed so you can compare and evaluate which products and services will best meet the event needs at the best price. To ensure the bids are comparable and complete, identify all the bid specifications including the date, quantity, quality, dimensions, features, brand names, or anything else important and critical to the success of the event, plus any restrictions imposed on either the products and services sought or the selection process itself.
Continually seek ways to minimize costs, standardize operations, and economize whenever possible. Avoid unnecessary costs such as overtime and penalties or fines by scheduling your operations appropriately. Avoid waste by finding more cost-effective options, such as limiting speakers at your training conference to a specific menu of audiovisual options and scheduling sessions carefully so you can rent the AV equipment by the week instead of by day or by room.
Take advantage of the economies of scale as they apply to your purchasing practices. For example, by ordering printed materials all at the same time it might be possible to combine all the printing jobs for a celebrity sports clinic together as one. By having materials printed at the location of an offshore event, you might be able to save on both shipping and printing costs. It is the first printed page that is the most expensive; almost all the rest are paper and ink only, so order sufficient quantities of printed materials to avoid the higher costs of reprints.
Control the costs associated with giving or getting “freebies,” those goods or services that are theoretically “free” (but never truly are). You must carefully control the distribution or issuance of complimentary (or reduced-fee) passes, admissions, or registrations (known as comps). While these might seem to be free, there are numerous variable costs associated with them, as well as the reduction of income that results from their issuance.
This is often a problem with association or corporate events where the leadership feels entitled to make decisions about extending benefits to certain members, personnel, or vendors. Get specific guidance regarding comps and perquisites from the event host or sponsor and enlist their assistance in communicating and enforcing such policies. Carefully monitor committee spending limits and entitlements as well.
You must know and use your numbers when negotiating contracts and tracking the performance of your budget. Know your attendance figures so you can accurately specify minimum and maximum guarantees. If the figures show only 78 percent of attendees typically attend a luncheon, only guarantee that 78 percent of the total attendance. Know the value of your business to suppliers so you can negotiate the most favorable terms. Count attendance; verify ticket sales or the banquet checks after each meal function to avoid billing errors; and make adjustments as needed.
Track trends that will influence purchase decisions and negotiations as well. For example, it might be possible to use the overall revenues generated by your attendees, including their hotel outlet usage (restaurant, bars, spa services, and mini-bar consumption), using the total profit picture rather than just the profits on the space-specific functions when negotiating hotel space rental rates. If your group typically waits until the last minute to register for your event, factor that into your negotiations on room block deadlines and cash flow projections.
Manage cash flow In order to monitor and maintain adequate cash to meet the organization’s disbursement needs, accurate cash flow forecasting and management is necessary. Use the historical cash flow statements to prepare a cash flow or time-phased budget that integrates revenue and expense forecasts with cash flow to dictate where and when income is expected and disbursements must be made to ensure sufficient financial resources are on hand to cover the financial obligations. In lieu of historical records, you would integrate the cost estimates and event schedule to arrive at a spending plan.
Devise an accounts payable and receivable system that ensures the timely and aggressive collection of receivables and an advantageous bill payment schedule. The cash flow budget will allow you to structure your deposit schedules, registration deadlines, accounts payable due dates, and other revenue and expense transactions to your best advantage.
The analysis of cash flow might also affect pricing for you and your vendors, dictating such things as low, shoulder, and peak season pricing and incentives to encourage prompt payment (e.g., 2/10—net 30: two percent discount if paid within ten days, the entire amount due within 30 days). Always remember that there is a time value to money.
Implement cash handling procedures A critical component of financial and budget control is the establishment of cash handling procedures to protect the cash assets of the event organization. This includes procedures for income and disbursements before, during, and after an event. You must also be familiar with the banking procedures for the event organization, including deposits, withdrawals, loans, and credit policies.
Specify procedures for petty cash funds and disbursements. Throughout the event project there will likely be small expenses that do not warrant or cannot accommodate the issuance of a purchase order or even the writing of a check, but these expenses must still be recorded and included in the financial records. Writing and cashing a check for a small amount (typically $20 to $50) creates a petty cash fund, which is kept separate from all other monies. When money is withdrawn for a small purchase or payment, a voucher or receipt is placed in the petty cash box or envelope. These vouchers or receipts should have the account code or line item name written on them so they can be allocated properly in the bookkeeping records.
Establish on-site cash handling procedures for any event where cash transactions take place – such as ticket sales, registration payments or souvenir sales, to eliminate or mitigate the possibilities of error, theft, or loss. These procedures will encompass collections, change-making needs, secure transport and storage of cash, reconciling cash counts, preparing point of sale reports, processing smart card and credit card transactions, and making bank deposits. The type and extent of your cash handling procedures will depend on the size and scope of the event and the volume of transactions expected.
Financial Reporting Financial reports are critical to ensuring the financial information you have is properly recorded, interpreted, and distributed to the appropriate people. These reports are often regulatory requirements, but can also be used for monitoring status and measuring success, and they provide the starting point for your next budget development task. They contain the data that will facilitate good decision making and they should reflect the lessons learned so that this knowledge is transferred to the next event project.
The financial information in your reports can reveal where you can or should economize or dictate where you need to become more efficient. This data can expose opportunities that can and should be exploited, or activities that are no longer worthwhile. It can show where and when operational tactics should be revised, such as changing the deadlines for registration for better cash flow or modifying the advertising plan – more, less, or different timing.
Financial information is derived from and reflects the entire scope of the event project, and has implications that could impact the entire scope of the event project. The reports created using this information should not only fulfill standard record keeping and accounting practice requirements; they should illustrate how and why financial choices were made, and their results, in clear and compelling ways so that stakeholders (and stockholders) understand the full nature of the event project’s financial performance.
Establish reporting system Establish a reporting system that provides clear, accurate, and complete reports for management personnel (e.g., the client or the event organization’s board), event committees, staff, and other stakeholders. Specify the types and timing of reports so that the information is delivered according to the purpose of the report and the needs of its recipients, and that ensures any decisions or actions based on these reports can be made in a timely manner. Prepare reports that “tell your story” when that story needs to be told.
It is important to understand that not everyone needs to know everything about the financial activities of the event project. Certain types of financial information are proprietary and suitable for release only to owners or governing bodies, while other types of information could and should be communicated widely. You might need to keep the standard accounting reports such as the balance sheet and income and cash flow statements exclusive to management personnel, but data from those reports might be used to prepare reports for external publics to illustrate the success of the event and/or its importance as an asset in their communities.
Ensure financial statements are prepared according to regulatory compliance requirements. Work with your financial institution and financial personnel such as bookkeepers, accountants, and auditors to determine the customary and necessary financial statements according to the type of event project, business, or organization. For example, political campaigns and non-profit organizations often have specific income reporting requirements.
Some event organizations will have monthly or quarterly board meetings at which reports are given by the treasurer that show the financial activity and a balance sheet for the period between meetings. Some event production companies will need these and other financial statements when applying for a line of credit to protect against cash flow vulnerabilities. Some event projects need these financial statements to show solvency to authorities when requesting permits to hold the event.
Integrate these financial statement and report requirements into scheduling, spreadsheet, and bookkeeping programs so that the financial information is easy to compile and incorporate into reports in a variety of ways. And make certain those who are receiving these reports are capable of interpreting them correctly, which might mean providing education along with the information.
Interpret financial information There is a lot of information in financial statements that can assist an event organizer with strategic planning, monitoring budget performance, and controlling costs. Three typical financial statements include the balance sheet, income statement, and cash flow statement. Each has its own specific function, but when combined and viewed as a whole provide a powerful picture of financial conditions and financial performance.
A great deal can be learned and inferred from the balance sheet, income statement, and other financial reports if you know how to interpret them properly. You can evaluate profitability and the impact of economic and budget factors on financial planning, investment policies, and financial performance. You can analyze percentage increases and decreases and recommend strategies for improving financial performance. You can conduct effective cost/benefit analyses to determine profit centers and warning signs. You can forecast cash flow and monitor budget performance.
Using the sample income statement from the small festival above, the figure shown below examines the techniques for interpreting the report and the information it includes. Much of the analysis depends on when this statement is issued within the event project timeline and whether you are measuring or monitoring financial performance.
Prepare financial reports Financial reports need to include the financial figures, but these need to be put into the proper context. As illustrated with the sample income statement for the small festival, a single financial statement does not tell the whole story. In addition, although these standard accounting statements might need to be presented as columns of numbers as a matter of form, they should be supported with plain language explanations, conclusions, and recommendations. Numbers, percentages, and statistics should illustrate a narrative.
Use graphics, percentages, and comparisons to increase the impact and comprehension of the financial information. Graphical depictions such as bar charts and pie charts show the meaning of the raw data provided. Using percentages to express numbers helps to show an accurate representation of what is happening or has happened. For example, an increase of 200 participants could represent a 50% increase if last year’s fun run had 400 participants, but only a 1% increase if last year’s festival sold 20,000 tickets. Comparing the financial reports and budgets over several years can reveal upward and downward trends that must be incorporated into the organization’s financial planning.
Maintain financial records It is important to maintain financial records properly, including fastidious bookkeeping, to ensure financial reports and statements are retained and accessible for tracking and forecasting budget performance and making good financial decisions. This is a legal and fiduciary responsibility. It is also important to have finances independently reviewed and audited on a periodic basis to ensure that the figures, and the decisions made based on them, are accurate and trustworthy, and that they conform to standard accounting principles.
Some records must be kept for a specific time for taxation requirements; others should be kept for research purposes. You will determine what should be kept, and in what form, by consulting with your financial professionals and advisors. As noted before, some records (both physical and digital) contain proprietary information and must be securely stored to prevent loss, tampering, or unauthorized release. Use lockable storage equipment for physical records and password-protected systems for electronic records. Back up electronic data on a regular basis and consider back-up storage sites for physical files.
Summary To review, this article examined the standard accounting practices and terminology, which should prepare you to work with the financial personnel responsible for maintaining the accounting system. The importance of income and expense budgets and the tactics for developing, adhering to, and monitoring them so that profit expectations can be met were discussed. Pricing procedures were explored so that accurate and appropriate prices can be established that will meet profit requirements for the seller and provide value for the buyer. Strategies for managing cash flow were considered, which should help you establish effective payment procedures and cost controls, as well as manage how and when money circulates through the financial system of an event project. Finally, the importance and obligations of financial reports and the opportunities and options their contents can reveal were reviewed, which should enable you to interpret and utilize financial information to benefit the event project and event organization.
Financial management functions will occur throughout the lifecycle of the event project and will be applicable across all aspects of the event components and activities. The entirety of the event project must be viewed in financial terms. Budgets must be developed based on realistic and reasonable projections and monitored closely to ensure spending limits are enforced and expectations are met. Calculating the resources and costs to be included in the budget requires comprehensive and sometimes creative detective work. Revenue streams must be identified and exploited to their fullest potential and expenses must be carefully computed and closely tracked so cost-cutting measures can be employed in a timely and fiscally responsible manner. Remember: Nothing happens without money!
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