Break-even Analysis

The break-even analysis uses information from the statement of activities and cash flow statements to compute how much sales or revenue must be accomplished in order to pay for all of your fixed or variable expenses. Fixed expenses are expenses that you’d have regardless of the level of sales of products or services (e.g., sales, rent, insurance, maintenance, etc.). Variable expenses are incurred according to the level of sales of products or services (e.g., sales commissions, sales tax, freight to ship products, etc.). Break-even analysis can help you when deciding how much to charge for a service, how much to ask for from donors, etc.

Financial Reporting

The types and frequency of reports depend on the nature of the nonprofit and its situation. Banks might want reports to verify financial strength to pay back loans. Foundations, individuals, or other donors may want reports to verify that donations are being spent as expected by the foundation or donor. The Internal Revenue Service will want certain reports when filing early tax forms.

Тема 19. Управление персоналом.

Text A. Human Resources Management

The Human Resources Management (HRM) function includes a variety of activities, and key among them is deciding what staffing needs you have and whether to use independent contractors or hire employees to fill these needs, recruiting and training the best employees, ensuring they are high performers, dealing with performance issues, and ensuring your personnel and management practices conform to various regulations. Activities also include managing your approach to employee benefits and compensation, employee records and personnel policies. Usually small businesses have to carry out these activities themselves because they can't afford part- or full-time help. However, they should always ensure that employees have – and are aware of – personnel policies which conform to current regulations. These policies are often in the form of employee manuals, which all employees have.

Note that some people distinguish a difference between HRM (a major management activity) and HRD (Human Resource Development, a profession). Those people might include HRM in HRD, explaining that HRD includes the broader range of activities to develop personnel inside of organizations, including, e.g., career development, training, organization development, etc.

The HRM function and HRD profession have undergone tremendous change over the past 20-30 years. Many years ago, large organizations looked to the “Personnel Department”, mostly to manage the paperwork around hiring and paying people. More recently, organizations consider the HR department as playing a major role in staffing, training and helping to manage people so that people and the organization are performing at maximum capability in a highly fulfilling manner.

Text B. Caveat Investor

When IBM announced an overhaul of its pension plan for employees in America last week, it joined a parade of employers that are shifting more responsibility for saving for retirement on to workers. For many Americans, of course, this is nothing new: millions of them have been managing their retirement assets in individual accounts for years. Nevertheless, in both America and Britain the closure of paternalistic corporate “defined benefit” programmes, in which pensions depend on earnings and years of service, is accelerating – even at healthy companies such as IBM.

To the extent that this creates and encourages individual choice and responsibility, it is something to welcome rather than to fear. Many other countries, facing huge state-pension obligations, would also like to see their citizens assume a bigger role in providing for their own retirement. Even so, the trend raises an important question: how much do people due to take on these new responsibilities know about basic financial concepts?

The answer seems to be: not much, and less than they think they do. Studies show that many people overestimate their knowledge of everything from inflation to risk diversification and compound interest. One survey in Australia found that 37% of people who owned investments did not know they could fluctuate in value. In America 31% did not know that the finance charge on a credit-card statement is what they pay to use credit. Britain’s Financial Services Authority will release the results of its own survey on financial literacy in the next month or two.

Even educated professionals may know the basics but see no need to keep up to date – having no idea of the interest rates on their credit cards, the fees on their mutual funds or how their investments are doing. But in both America and Britain low personal saving rates and record numbers of personal bankruptcies do not bode well. If people are to take charge of their pensions, shouldn’t they know a little more?

In the end, ignorance could rebound on governments: if people save too little for old age, the state may have to provide for them willy-nilly. “Governments are taking this very seriously,” says Barbara Smith of the Organization for Economic Co-operation and Development, which recently produced a report on global financial literacy. Just this week the British government launched an online debt calculator for overstretched consumers and a money-management course in schools across the country later this year. New Zealand is another country trying to catch its people young: one official financial-information website there includes an online game on “Money Island”.

The potential economic benefits of financial literacy extend beyond government budgets. More informed consumers – not just investors – would increase the efficiency of markets and help keep unscrupulous sellers at bay. If financial illiteracy leads to greater debt, then increased consumption today will be at the expense of less later, as interest payments weigh on household budgets.

Once people make financial decisions, they tend to stick to them even if a change might make more sense. Watson Wyatt, a consultancy, says that about half of Britons in defined-contribution pension plans (in which retirement benefits depend on investments’ performance) never change the allocation of assets. One-third have not even reviewed them for several years. There is evidence that such inertia is a feature of other financial markets, including the one for mortgages.

America has had a variety of financial-education programmes for some time, generally relying on the private sector. Most large companies and many smaller ones put on investment seminars for their employees, run by outside experts. Many of those who attend these seminars later increase their saving for retirement.

However, there is a fine line between education and advice. Although education and sales are meant to be strictly separated, many of those giving seminars work for firms that sell financial products. Some employers have been hesitant to sponsor financial seminars for fear being sued, notes Lynn Dudley of the American Benefits Council, a lobby group. Two bills now before Congress attempt to deal with this question. Meanwhile, a growing number of pension schemes offer “life-style” or “life-cycle” funds that skirt the question of advice by automatically shifting the mix of investments away from equalities and towards bonds and cash as retirement nears.

Despite all these activity, experts caution against putting too much faith in financial education. “This is not the silver bullet that some people think it is,” says Ms Smith. No campaign can hope to reach everyone. In addition, although those with more knowledge of finance tend to save more and make higher returns on their long-term investments, the strength of the effect is not clear.

Annamaria Lusardi, an economist at Dartmouth College, and Olivia Mitchell, of the University of Pennsylvania’s Wharton School, have found that few employees attend financial seminars even when they are offered in the workplace. Skepticism about hidden sales pitches and slanted advice abounds, particularly in the wake of recent mutual-fund scandals. “Workers are entitled to believe this is not an objective voice,” says Ms Lusardi. Many who attend do not absorb what they hear, for want of understanding or interest.

In Europe they seem to be just as skeptical. In a report published last week, Forrester Research, a consulting firm, said that only one-third of Europeans trusted financial institutions to treat them fairly, and less than half trust the advice they get from their main bank. Only 20% think the information in promotional material will help them to improve their financial decision-making.

Well-aimed information can make a difference, though. In Sweden, which started a new pension system in 1999, a mixture of financial education and a media campaign prompted more people to choose their mix of investment funds for themselves. The effect faded when the information programme was discontinued.

Some dismiss worries about financial literacy. “Complaints that people are too stupid to manage their own money are dead wrong,” wrote James Glassman, a fellow at the American Enterprise Institute, recently. He points, for example, to America’s record levels of home-ownership.

There is good reason to believe that people will learn if they want to and if they must. It is not so long since the go-go 1990s, when millions started investing for the first time. Many then learned painful lessons about the risks of overenthusiasm for equities. Perhaps a strong message is needed to get people saving now for retirement a few decades away. Ms Lusardi offers a suggestion: “Tell them, ‘you are going to be poor, it’s going to be tough’. The mutual-fund companies show pictures of cruises. You’ve got to show a nursing home and they’ll give it some thought. Tell them poverty at retirement is hell”.

Text C. Join the Queue

The sale of its personal-computer business to the Chinese was more striking, but not much. IBM’s decision last week to restructure its American pension plans will have been noted by chief financial officers everywhere. A giant known for the generosity of its benefits said it will halt its defined-benefit pension plan and will set up a new 401(k) scheme putting employees in control of their own retirement savings.

Americans have become accustomed to stricken airlines and steel companies giving up on their pension plans. But like Big Blue are freezing their traditional pension schemes and shifting risks and more of the financial burden on to workers. Motorola and Verizon have made similar decisions.

The Employee Benefit Research Institute, a group supported by unions and corporations, reports that defined-benefit plans peaked in the 1970s but fell sharply over the next two decades. Meanwhile, defined-contribution schemes have risen steadily, covering 62% of workers by 2004.

In Britain, where companies are also finding defined-benefit schemes burdensome, there has been a similar trend. A 2005 study by Watson Wyatt, a consultancy, showed that 78 of the country’s 100 largest public companies offer defined-contribution plans. Some also have defined-benefit schemes, though increasing numbers of these are closed to new members. Only 21 offer defined benefits alone. The shift has occurred over a decade, as companies have tried to rein in pension costs. Gary Smith, of Watson Wyatt, recalls “the domino effect” that rolled through industries, including drugmakers and retail banks.

After a pause, the past couple of years have seen a new wave of defined-contribution plans. Mr Smith says this has been the product largely of changes in the regulatory environment and accounting standards, prompting companies to review their pension schemes.

This week the union representing British Airways’ pilots said its members might strike over proposed changes to pensions. And last month Rentokil, a services conglomerate, became the first member of the FTSE 100 index to say it wanted to close its defined-benefits plan to further accruals from members. More changes-and rows- are expected.

(The Economist)