Why is my budget different from my cashflow?

A budget captures revenues and expenses that “belong” to a certain year. A cashflow shows money flowing into and out of your bank account.

Most revenues are received, and most expenses are spent, during the year to which they belong. However, in the early days of this year, you might still be collecting some of last year’s money (e.g. grant holdbacks and other receivables), and paying some of last year’s bills. In the later days of this year, you might start to receive or spend money in preparation for next season. And you’ll probably find that some of this year’s transactions just can’t be settled till the early days of next year.

Besides these timing issues, cashflow involves tax transactions that are not part of your revenues and expenses. For instance, everywhere in Canada we pay GST or HST (depending on your province) on the purchase of goods and services. Cash flows out to pay the sales tax – but for most organizations it’s partly or fully recoverable. Only the non-recoverable part is an expense.

The budget document doesn’t care about the timing of cash payments: it is based on the idea of accrual accounting, where revenues and expenses are “accrued” to the year where they belong, and the actual exchange of money might happen either earlier or later.

The cashflow document is all about the timing of cash, without respect to which year various things belong.

Do I have to issue a tax receipt?

A tax receipt is actually not obligatory. A charity may choose not to issue receipts because of the administrative burden, or it may elect to set a threshold policy dictating that only donations above a certain cash value will be issued a tax receipt. While it is not the law that charities must issue tax receipts, remember that donors can only claim their charitable tax credit if an official tax receipt is issued. So consider your donors when setting this policy – weigh the administrative burden against the value they place on their tax credit.

Visit this page on the Canada Revenue Agency website for more information.

Creative Trust Gives the Young Associates Website a Stamp of Approval

Staff Post
by Anna Mathew

Creative Trust is a collaborative capacity building organization that helps Toronto’s mid-size and small performing arts companies develop skills and achieve financial health and balance. We’ve enjoyed working with them for a while now – Heather Young, Principal, is their Finance Manager.

These folks are leaders in the Toronto arts management scene. They have seen it all! That’s why we are absolutely thrilled here at Young Associates that Creative Trust featured us in a blog post titled Finances matter, cheering “the launch of a made-in-Canada website on financial matters and management in the arts” and daring anyone “to try to find anything as useful and interesting on the topic from anywhere else in the world.”

We’re blushing!

Thanks to Jini and the folks at Creative Trust for their stamp of approval. The Young Associates website is a work in progress and we could not be more excited about it. We promise we are working hard to get more content ready. Stay tuned for answers to FAQs, more tip sheets, more curated news, and a library of useful and relevant articles from around the Web. Join us on Twitter, LinkedIn and Google Plus if you would like to help spread the word about our free resources.

Heather Young to speak at Feb. 29 Workshop in Toronto: Building a Strong Bottom Line

Staff Post
by Anna Mathew

Our Principal, Heather Young, is one of three speakers slated for a February 29, 2012 workshop entitled Financial Management: Building a Strong Bottom Line. Along with consultant Jessa Agilo-Copeland and General Manager Kendra Fry, Heather will help participants from the arts sector increase their financial literacy, with tips for understanding finances, hands on techniques for dealing with private and earned revenue, donor cultivation, deficit reduction, recovery from financial collapse and balancing artistic choices vs. management choices. Using real case studies, the speakers will walk participants through financial statements and assist them in analysing the financial health of an organization so that they walk away from the workshop with practical tools to implement in their daily work.

This professional development workshop is part 2 of a 4 part series generously funded by the Ontario Arts Council, and offered by the Canadian Dance Assembly (CDA) in partnership with the Dancer Transition Resource Centre (DTRC), the Dance Umbrella of Ontario (DUO) and the Professional Association of Canadian Theatres (PACT) – with the support of, Creative Trust and CCI – Ontario Presenting Network.

Visit this page on the CDA website for more information on the series and how to register.

CADAC is looking out for you

Staff Post 
by Jerry Smith

A new riff on an old thought:  Big Brother is, how shall I put it, . . . looking out for you, especially when it is in the shape of CADAC, a web based application dedicated to the collection, dissemination and analysis of financial and statistical information about Canadian arts organizations, and in essence a centre of expertise to help monitor the health of the arts sector across Canada.

Young Associates recently hosted representatives from CADAC in order to stay ahead of the curve and assist clients in taking the stress and confusion out of filing their financial and statistical data with CADAC.

Launched in December 2008, CADAC’s objectives include attempt to lighten the burden for arts organizations, improve the accountability and transparency of Canadian arts organizations, as well as developing a significantly enhanced database for research, planning and policy development. Young Associates’ work with clients during the initial ‘CADAC years’ has made us aware of the challenges around changing an organization’s financial data practices to meet CADAC requirements. But as we have all gotten more accustomed to the new CADAC environment, it has become apparent that storing financial data with CADAC has some great information benefits, including comparative analysis with other organizations in the sector.  Our session with CADAC revealed that pulling meaningful comparative reports from the system is becoming much easier.

As part of our ongoing leadership in developing resources to assist clients, Young Associates was particularly pleased to explore the key elements of CADAC’s reconciliation process and how it could apply to clients.  While no-one wants to be categorized as non-compliant and have their CADAC account red flagged to a funder, it most often simply means there is some data missing, and the staff at CADAC would like to assist you in getting back up to speed.

When in doubt, ask; here it is better to ask for permission than forgiveness!

Employee or Self-Employed? HR story highlights hazards

Staff Post
By Heather Young

From time to time I will share stories from the field – names and details obscured!

One company went through a nerve-wracking time when a former worker – who had been hired on a fee-for-service contract as a freelance consultant – tried to claim EI and insisted to the folks at HRSDC that s/he had been an employee.

The government responded by notifying the company that they were responsible for remitting both the employer and the employee portions of EI and CPP for the duration of the contract. It was up to the company to appeal this decision, and prove that the worker had been properly treated as a freelancer.

To help the organization prepare its appeal, the government provided a lengthy questionnaire, much of it based on concepts you can read about in the CRA publication Employee or Self-employed?, published online.

The company also did some research, including checking the former worker’s social networking activities, where the individual clearly self-identified as a consultant for hire. It’s unclear whether that influenced the happy ending – but I can tell you that in at least one comparable case the defendant’s Facebook page did him in.

After many hours of work and months of waiting, the company finally received the happy news that their appeal was successful.

The CRA ruling made a strong effort to be balanced, stating that “the parties did not share a common intention as to the worker’s employment status” – although the company feels the status was always clear.  It outlined all the terms of employment in some detail, noting that the level of “control”, or supervision, of the employee and ownership of tools and equipment were neutral factors – they could have been interpreted to either party’s benefit. The fact that the worker was providing services personally and was not able to subcontract assigned work was deemed  consistent with the worker’s contention that s/he was an employee, but  the fact that the worker was free to take on other projects for personal profit, and promoted him/herself as a freelance communication consultant suggested to the CRA that s/he was “embarking on a business enterprise on his/her own account.”  Weighing all factors, the CRA ruled in the company’s favour: but in reading the written ruling, it looks like it was a close call.

Arts organizations and charities secure all sorts of services on part-time, part-year contracts. It’s worth the effort to research how a particular position should be treated (employee or self-employed?), and to be crystal-clear with the worker both verbally and in a written contract.