Secret to Successful Financial Management TASN
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Transcript of Secret to Successful Financial Management TASN
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The Secret to SuccessfulSchool Nutrition Financial ManagementVenkat Koripalli, SNS
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Venkat Koripalli, SNS
President, PrimeroEdge
School Nutrition Software for 14 years
Over 25 years in software development
Bachelor’s degree in Computer Science & Engineering
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Increasing Complexity
Higher cost food
Rising labor costs
Decreasing participation
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Accounting Overview
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What is Accounting?
Quantitative: numbers
Financial: money
Useful: practical, not theoretical
Decisions: use the past to change the future
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Flavors of Accounting
Bookkeeping: routine gathering of information
Financial accounting: reporting for outsiders
Management accounting: analytical information for insiders
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Financial Accounting
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Apply for a loan
Verify income
Verify assets and debts
Personal financial statements
Income statements – W2 Assets – Bank statements, 401K, etc. Loans, Credit Card Debt - Credit Report
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Financial Accounting
Income Statement
How much money did your department make or lose?
Balance Sheet
List of resources (assets) and obligations (liabilities)
Statement of Cash Flows
How much cash came in, how much went out
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Balance Sheet
The Accounting Equation
Assets = Liabilities + Fund Balance (Resources) (Source of financing)
7,000 = 5,000 + 2,000 (Cash in bank) (borrowing) (capital contribution)
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Cash in bank
Kitchen equipment
Cafeteria furniture
Accounts receivable
Inventory
“Resources, either owned or controlled by you that will likely provide future benefit”
Assets
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Accounts payable
Wages payable
Student account deposits (deferred revenue)
Borrowing
“Obligations that require sacrifice of future benefit – transferring assets or providing services”
Liabilities
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Shareholder Equity - ownership interest in the assets
Paid-In Capital (Capital Contributions)
Retained Earnings
“The amount the district originally or subsequently invested plus income left in the organization”
Fund Balance
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Balance Sheet Accounts
Asset Accounts
Liability Accounts
Fund Balance Accounts
Income Statement Accounts
Revenue Accounts
Expense Accounts
“A record that provides an efficient way to categorize similar transactions”
Account
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Net Income = Revenues – Expenses
“Overall measure of economic performance”
Income Statement
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Meal Sales
Reimbursements
USDA Foods
“Amount of assets created from the sale of goods and services”
Revenues
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Food used
Wages and benefits
Utilities
Equipment maintenance
“Amount of assets consumed in generating revenues”
Expenses
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Financial Statements
Balance Sheet
As of right now: What do you have? How much do you owe?
As of a Point in time (Snapshot)
Income Statement
How much did you make? This week This month This year
For a Period of Time
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Bookkeeping
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Bookkeeping
“the activity of keeping systematic records of financial transactions”
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Bookkeeping
Coca-Cola: 650 billion servings sold a year
Walmart: 10 billion customer visits a year
Houston Independent School District: 44,000,000 meals a year
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What If…
All novels disappeared?
All bookkeeping records disappeared?
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Bookkeeping
Journal: Record transactions
General Ledger: Summary by account
G/L Accounts categories
Assets, Liabilities, Fund Balance, Revenue, Expense
Debits = Credits
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The Accounting Equation
Assets = Liabilities + Fund Balance (Resources) (Source of financing)
Assets Liabilities Shareholder Equity
Apple 290 171 119
Facebook 40 4 36
Google 131 27 104
Microsoft 176 96 80
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Transaction 1
District invests $50,000 into the School Nutrition Department
Fund Balance(Transferred Funds)
$50,000
Assets(Cash)
$50,000
Assets Liabilities Fund Balance
1 Fund Transfer-In 50,000 0 50,000
Total 50,000 0 50,000
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Transaction 2
Students make $25,000 prepayments
Liabilities(Deferred Revenue)
$25,000
Assets(Cash)
$25,000
Assets Liabilities Fund Balance
1 Fund Transfer-In 50,000 0 50,000
2 Prepayments 25,000 25,000 0
Total 75,000 25,000 50,000
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Transaction 3
Purchase $10,000 of food on credit
Liabilities(Accounts Payable)
$10,000
Assets(Inventory)
$10,000
Assets Liabilities Fund Balance
1 Fund Transfer-In 50,000 0 50,000
2 Prepayments 25,000 25,000 0
3 Food Purchase (credit) 10,000 10,000 0
Total 85,000 35,000 50,000
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Transaction 4
Purchase $500 of supplies with cash
Assets(Inventory)
$500
Assets(Cash)$500
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The Accounting Equation
Assets = Liabilities + Fund Balance (Resources) (Source of financing)
Assets Liabilities Fund Balance
1 Fund Transfer-In 50,000 0 50,000
2 Prepayments 25,000 25,000 0
3 Food Purchase (credit) 10,000 10,000 0
4 Supplies Purchase (cash)
+500-500
0 0
Total 85,000 35,000 50,000
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Language of Accounting
Asset accounts usually have debit balances
Liability and Fund Balance accounts usually have credit balances
At least one debit and one credit
Debits = Credits
Assets = Liabilities + Fund Balance
DR(+)
CR(-)
DR(-)
CR(+)
DR(-)
CR(+)
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Language of Accounting
Assets = Liabilities + Fund Balance
1 Fund Transfer-In DR (+) Cash CR (+)Transferred Funds
2 Prepayments DR (+) Cash CR (+)Deferred Revenue
3 Food Purchase (credit) DR (+) Inventory CR (+)Accounts Payable
4 Supplies Purchase (cash) DR (+) InventoryCR (-) Cash
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Language of Accounting
Net Income = Revenues – Expenses
Retained Earnings (Net Income) major part of Fund Balance
Revenues increase Fund Balance
Expenses decrease Fund Balance
Assets = Liabilities + Fund Balance
DR(+)
CR(-)
DR(-)
CR(+)
DR(-)
CR(+)
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Language of Accounting
Assets = Liabilities + Fund Balance
DR(+)
CR(-)
DR(-)
CR(+)
DR(-)
CR(+)
Revenues
DR(-)
CR(+)
Expenses
DR(+)
CR(-)
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Transaction 5
School makes $200 in cash sales
Meal Sales(Revenues)
$200
Cash(Assets)
$200
Debit Credit
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Transaction 6
School makes $200 in sales from prepaid accounts
Meal Sales(Revenues)
$200
Deferred Revenue(Liabilities)
$200
Debit Credit
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Transaction 7
Reimbursement Claim $50,000 submitted
Reimbursement(Revenues)
$50,000
Debit Credit
Accounts Receivable(Assets)$50,000
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Transaction 8
Reimbursement Claim $50,000 received
Cash(Assets)$50,000
Credit Debit
Accounts Receivable(Assets)$50,000
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Transaction 3
Purchase $10,000 of food on credit
Accounts Payable(Liabilities)
$10,000
Inventory(Assets)$10,000
Debit Credit
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Transaction 9
School uses $3,000 of food in production
Food Used(Expenses)
$3,000
Inventory(Assets)$3,000
Credit Debit
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Transaction 10
District processes $5,000 payroll
Salaries(Expenses)
$5,000
Cash(Assets)$5,000
Credit Debit
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Transaction date
Description
Affected accounts
Amounts
“A chronological record of all transactions”
Journal
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Summary by account
G/L Accounts categories
Assets, Liabilities, Fund Balance, Revenues, Expenses
Assets & Expenses have debit balances
Liabilities, Fund Balance & Revenues have credit balances
Revenue and Expense balances are zeroed for the beginning of the year
“A record of all transactions categorized by account”
General Ledger
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Management Accounting
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Management Accounting
Restaurant 1
Very traditional
Pay bills on time
Pay salaries
Restaurant 2
Tracks detailed data
Item-by-item costs
Sales by time of day
Customer demographics
Popular combinations
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Management Accounting
Internal Use
Detailed data
Secret Information
Short-term and long-term planning
Daily decision making
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Information
By school
Lunch, breakfast participation
Day of week
Season
Theme Lines
Specific items
Student demographics – girls/boys, race, income levels
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Decision Making
Product costing – recipe cost, menu cost
Performance evaluation – Participation, Food costs, Labor costs, Overheads
To CEP or not to CEP
Investing in long-term projects
Replacing old equipment
Adding lines, kiosks
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Decision Making
Breakfast in classroom?
More ala carte sales?
Some catering?
More/fewer employee hours?
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Components
Budgeting
Break-even analysis
Meal Prices
Performance evaluation
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Budgeting
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Purpose of Budgeting
A plan to meet a specified goal
Comparison between actual results and the plan
Helps Decisions
Employees
Scheduling
Pricing
Cost Control
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Behavioral factors
Motivate staff to achieve budget goals
Deviations from the budget
Not find fault, assign blame
Loss of motivation, defensive attitude
Budgetary slack
Provide help
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Sales budget
Projecting accurate sales is difficult
Uncontrollable external factors
USDA and state regulation changes
Demographics
Changes to economy
Customer tastes
Weather patterns
Unexpected events – hurricanes, water supply
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Sales budget
Student enrollment projection from District office
Participation projection
Previous years sales
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Revenues
Sales revenue
Reimbursement revenue
Other revenue
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Expenses
Food Costs
Labor Costs
Benefits and other costs
Overheads
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Break even Analysis
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Types of Expenses
Fixed costs
Costs that do not vary with the quantity of production
Variable costs
Costs that vary in proportion with the quantity of production
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Break even analysis
Contribution Margin = 100% – Variable Cost %
Break even point = Fixed Cost $Contribution Margin
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Performance Monitoring
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Meal Equivalents
1 lunch = 1 meal equivalent
3 breakfasts = 2 meal equivalents (2/3 = .67)
3 snacks = 1 meal equivalent (1/3 = .33)
1 supper = 1 meal equivalent
Non-program food sales = revenue from non-program sales
(free lunch reimbursement + USDA Foods value per lunch)
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Meals Per Labor Hour
# of Meal Equivalents# of Paid Productive Labor Hours
20,0001,200
= 16.67 MPLH
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Revenue Analysis
Calculate average revenue per meal equivalent
Guidelines for pricing non-program food items
Compare revenue per meal with cost per meal
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Average Revenue Per Meal Equivalent
Total RevenueTotal Meal Equivalents
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Revenue Per Student Lunch
Local Income + Reimbursement + USDA Food per Meal
Price Reimbursement USDA Foods Total
Paid 2.75 0.37 0.2375 3.3575
Reduced Price 0.40 2.75 0.2375 3.3875
Free 0.00 3.15 0.2375 3.3875
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Increase Revenue
Increase Participation
Take advantage of Special Provisions
Increase paid meal prices
Add approved non-Federal revenue
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Adult meals
Student second meals
A la carte
Contract meals
Catered food or meals
“Foods and beverages sold in a participating school, other than reimbursable meals, and purchased using funds from the nonprofit foodservice account.”
Non-program Foods
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Non program Foods
Total Non-Program Foods RevenueTotal Revenue
Total Non-Program Food CostsTotal Food Costs>
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Expense Analysis
Total costs to produce a meal
Meal costs per expenditure category
Percentages of operational costs to total revenue (operating ratios)
Costs to produce a meal compared with the average revenue generated per meal
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Expense Categories
Food Costs
Labor Costs
Overheads
Total Expenses = Food Costs + Labor Costs + Overheads
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Cost Percentages
Category CostsTotal Revenue
Food Cost % = Food Costs
Total Revenue
20,00050,000
= 40%
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Calculate Food Cost
Cost Food Used = Beginning Inventory Value + Food Purchased – Ending Inventory Value
Annual Month
Beginning Inventory 8,000 9,000
Food Purchased 300,000 25,000
Ending Inventory 7,000 7,000
Cost of Food Used 301,000 27,000
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Q&A
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Financial Accounting
Balance Sheet
Accounting Equation
Accounts & G/L Account Categories
Income Statement
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Bookkeeping
Journal
General Ledger
Language of Accounting
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Management Accounting
Budgeting
Break even Analysis
Meal Pricing
Performance Monitoring
…
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Next Steps
Continue the Learning
ICN (formerly NFSMI)
Webinar Series
E-book
Put it into Practice