Financial Management - Domain D - 16 Questions Flashcards
Financial Goals & Objectives
For Profit?
A loss?
Break-Even (Self-Sustaining, Revenue Neutral) = profit = loss
Subsidized - spending money, but won’t make a profit this year - GOAL is to make profit in the future
Event Income Sources
Sponsors = mutual benefit, they give $ to org., and usually gets some sort of promotion in return, also helps to maintain relationships to those suppliers/partners that provide products/services to event attendees
- Customizable Sponsors
- Tiered Sponsors (Bronze, Silver, Gold)
- In-Kind Sponsors - gives services instead of $, or items
Donors = gives $ with nothing in return
Grants = money, services, facilities use, products given by an org., such as a government or corporation for a purpose!
Subvention = CVB/DMO offers to underwrite some of the costs to help bring spotlight to the region
Registration
Exhibit Sales
Advertising
Merchandise Sales
Manage Sponsorship and Donor Process
Sponsorships = involves a meaningful exchange of value (money, goods, services) for marketing benefits to the sponsor
Begin with an understanding of the value your event offers potential sponsors (ROI)
Donations = involve less direct benefits, may have tax benefits
Identifying and Securing Sponsors
- Previous Sponsors (should be your first call!)
- Current Suppliers or Exhibitors
- Stakeholders
- Research
- Referrals
Sponsor Prospectus = sponsor benefit package, contains info to assist the PROSPECTIVE sponsor in making a decision
(overview and history of event, ROI, letter of proposal,
audience demographics, sponsorship benefits and
limitations, terms and conditions, draft of program)
Types of Sponsorships
- Title/Main Sponsor - will underwrite the majority of the event, and name will be associated with the event. Likely to be involved in the design, planning and execution of event.
- Tiered Model of Sponsorship - ex. bronze, silver, gold with predetermined benefits for each - can also be adapted to sponsor certain activities of event (breakfast, reception etc.)
- Credit (Customizable) Model of Sponsorship - customized model, a hybrid of customized and tiered models with pre-set benefits - sponsors and partners can choose from a list of benefits that are assigned credit values.
- In-Kind Sponsors - sponsor that provides goods or services at no cost to the event
Manage Grant Funding Process
Grants = typically money, but can be services, facilities use, or products given by an organization for a particular purpose
- many grant agencies have specific eligibility to apply
Subvention (used where competition is high to attract large congresses or events) = CVB/DMO offers to underwrite some of the costs to help bring spotlight to region! Financial support provided by the host destination or government as an incentive to event organizers - common practice in the international meetings market
Submit grant application - research criteria before submitting!
Manage Registration Process
- Create form with ALL necessary info - easy to navigate
- Identify all information needed from attendees to track them
ASPs = Application Service Providers - on-line registration companies that offer customizable forms, secure sites, credit card processing, automated confirmations
- Does the ASP have a Secure Digital Certificate?!
Full-Service Registration Companies - can also handle financial transactions, attendee communication, on-site staffing, housing arrangements
Manage Exhibit Sales Process
Hosting an exhibition results in significant financial support to the org - booth sales, sponsorships, ads, registration fees
1st Step - determine feasibility of holding event, and what marketplace best suits your requirements (ANALYSIS!)
Competition - are there competing exhibitions in the area??
Develop Operating Plan and Budget - Exhibitions
- exhibition budget will be a subset of overall event budget
- high start-up costs (attendee marketing), many exhibitions do not produce a profit for the first 2-3 years
- when pricing, consider:
- past and comparable exhibitions
- types of available booths (standard, premium, corner,
island) - how to price - by unit, area etc.
- market response
- event costs
- what is included in booth area that would cost extra?
- ALSO, consider expenses (hall rental, service
contractors, freight etc.) AND revenue! - exhibition fees,
registration fees, advertising, sponsorship etc.
Hosted Buyer = program that offers complimentary travel, accommodation, registration for prequalified buyers to attend exhibit (MUST BE INCLUDED IN BUDGET)
Exhibitor Prospectus = outline of all the benefits for the exhibitors an info. about the show - primary promotional material for an exhibit
- Should incorporate an exhibitor application and contract which can allow for denial of any exhibitor who may not be appropriate for the exhibition
Miscellaneous Funding Sources
- Advertising - websites, apps, digital signage
- Merchandise Sales
- Commissions - accommodation sales, tours etc.
- Royalties - sales of published works
Manage/Develop Budget
( an estimate of anticipated income and expenses - provides financial control and accountability)
- Understand goals and objectives of organization
- Profile of attendees
- Event’s history
Developing Budget:
1. Identify revenues and expenses
2. Estimate quantities of each budget item
3. Research costs for each budget item
4. Set prices to meet financial goals
What is the financial objective?
Make a Profit
Revenue Neutral
Financial Loss
Break-Even Formulas
Break Even Price/Registration:
Registration Price = Fixed/# of Attendees + Variable Cost
Break Even Attendees:
Attendees = Fixed Cost/(Reg. Price - Variable Cost)
example: what would you charge to break even?
- Fixed Costs - (does NOT change)
- Variable Costs (per person cost)
- Registration Fee
- # of Attendees
Fixed Costs/Variable Costs T-Chart! - helpful to see costs in an organized way
Fixed Costs = incurred regardless of # of attendees - room rentals, marketing, insurance, signs, AV, etc.
Variable Costs = costs that vary according to # of attendees - F&B, printed materials
Indirect Costs = organization’s expenses that are not directly related to event - staff salaries and wages (overhead), equipment repair
** NOT including these indirect costs in your budget can result in inaccurate assessment of profitability of event
- Great way to organize budget!
Incremental Budgeting
example: take last year’s budget and increase by a certain $ amount or %, could go to a certain line item or the entire budget
- use past history (preferably 3 years), and compare projected and actual figures from previous budgets
- review post-event report
- any changes in the events goals and objectives?
- update revenue and expense items with all current costs
- be aware of any factors that could impact attendance
Zero-based Budgeting
example: start at ZERO, go line item by line item, then add it up!
- when event has never been held before, therefore there is no financial history and budget is created only using estimates
- research of host environment is needed!
Exchange Rates
- represents a financial risk for events if income is earned in one currency and expenses incurred in another
- the rate of which one’s currency may be exchanged for another
- lower exchange rate risk if currencies are fixed (at least in the short term)
- if prices for attendees and event costs are in different currencies, any shift in exchange rate will lower or raise the net of the event!!
- if prices for attendees are FIXED in the host currency, shifts in the exchange rate will change the real price that attendees pay in their home currency
Hedging Currency Risk
- “Buy Forward” = this establishes a fixed exchange rate to accurately budget all fixed and variable costs in the home currency
- a contract to exchange a certain amount of money on a specified date at a specified exchange rate
- OR a bank account may be designated in a foreign currency to deposit funds and make payments
Before making a choice, advise on the risk strategy that aligns best with company culture
Value Added Tax (VAT) and Sales Tax
*something to keep in mind when planning - will organizers and/or attendees be liable to pay local tax in the host country?
EU = VAT
USA = local sales tax and hotel/motel taxes
VAT = point-of-sale tax that is levied by various countries (mostly in EU) at different rates for different commodities (F&B, accommodations)
* impact of VAT is felt directly on the event budget
* very volatile, subject to changes without warning, can range from 6% to 21%, depending on country
- companies are entitled to reclaim VAT, but individuals are NOT
- VAT registration ID# - helps authorities track income and expenses, start process 6-12 months in advance
Cash Flow Plan
Must be able to pay suppliers in advance, if required!
Monitor Budget Performance
KPIs for revenue targets include volume and pace of sales - use these against past events, if possible, and you can get a good indication if you need to adjust your marketing practices to meet target
Expenses - budget control guidelines needed
Styles of Accounting
- Cash Accounting
- Accrual Accounting
- Cash Accounting - counts income and expenses as they are actually received and paid
* like writing a checkbook!- does not recognize “promises to pay” (aka Accounts Payable or expectations of revenue aka Accounts Receivable)
- does not recognize non-cash expenses such as depreciation
- INCOME & EXPENSES ARE RECORDED AT THE TIME OF EACH TRANSACTION
- Accrual Accounting - counts income and expenses when they are earned or incurred
* P.O.’s - in anticipation, it is committed, just “on paper” - Finance Dept. will include these “committed” payments in statement so that you can’t overspend!!- records items as they relate to net worth (ASSETS - LIABILITIES) when they are incurred, REGARDLESS of whether cash has changed hands
- more accurate representation of the ebb and flow of an org.’s finances
- publicly traded companies MUST use accrual accounting
Budgeting and Forecasting
3 tools to help:
- Income Statements = a statement of revenues and expenses over a period of time (also called a profit and loss statement)
- Balance Sheets = provides the bottom line - the total amount of assets, liabilities, and net worth at a particular point in time
= Income - Expenses - Cash Flow Statements = does NOT include the amount of future incoming and outgoing cash that has been recorded on credit. Determined by three methods by which cash enters and leaves a company:
- Core Operations
- Investing
- Financing
Establish Cash-Handling Procedures
Cashiers
Monitor Cash-Handling Procedures
work with trusted staff members
Cash Floats = amount of cash provided to make change for cash transactions
