- FINANCIAL IMPROVEMENTS TO PREVENT INSOLVENCY. The last financial report provided by the AESF officers and staff was dated January 31, 2006. This document is stated to be “Draft, Revised Version, and Un-audited”. Despite prior published statements, by the officers, monthly reports have not been provided. Repeated requests, as of the date of this writing, May 20, 2006 have resulted in obtaining additional operating statements for February and March, 2006. These statements show continuing operating losses between $40,000 and $60,000 per month. Further, balance sheets for these months were not supplied.
- ANALYSIS OF THE JANUARY 31, 2006 REPORT IS SHOWN IN TABLE 1. It shows that in the January report, a loss (decrease in net assets) of $39,859. This magnitude of loss is intolerable and, if continued can lead to insolvency and eventual bankruptcy. Further it shows that the cost of Government Relations of $40,000 per month is closely equivalent to the total loss of monthly operations.
- “AESF FOR THE FUTURE” GROUP FORECAST. The second column on Table 1 is a forecast of the actions required and recommended to convert the monthly losses to a profit. They are:
- Eliminate Government Relations (GR) as a fixed expense and replace it with a contribution to be made when AESF is operating at a profit. The forecast utilizes a 10% contribution of $2,400 rather than an expense of $40,000.
- Management and administration should be performed by direct employees rather than an association management company. Current expenses for management are much too high for the work performed. It has been estimated that a directly employed executive director plus three direct employees could perform the necessary functions at a reduction from $33,700 per month to $12,500 per month.
- Profit center analysis should be performed to determine which functions of AESF are operating profitably. If there are losses being experienced they should be reviewed and determined if they are justified.
- Miscellaneous income should be detailed. The source of this income is of importance and might be expanded.
- SOLVENCY TEST – ACID RATIO. The Jan 31 Balance Sheet (Statement of Financial Condition) shows Cash and Cash equivalents of $388,991 plus Accounts Receivable of $95,045. for a total of $484,036
ACID RATIO |
= (Cash + Receivables)/Payables |
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= ($388,991 + $95,045)/ Current Liabilities |
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= $484,036 / $405,193 |
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= 1.19/1 |
“Current Liabilities” were used as “Payables” since payment schedules and contingent liabilities were not described or defined. In addition, all “contingencies” are assumed to be required for payment.
An Acid Ratio of less than 1.0/1 means that the organization is insolvent [unable to pay its bills]. Consequently, unless income starts to exceed expenses, AESF will not be able to pay its bills in the near future (prox 8 months) .
4.2.6 PREVENTING INSOLVENCY. To prevent insolvency, immediate action should be taken to reduce nonessential expenses such as Government Relations. In addition, expense for administration costs should be reduced as shown in the second column of Table 1, Forecast by “AESF for the Future” Group.
Further, revenues should be increased by increasing membership, increasing advertising in P&SF, and implementing other sales marketing efforts as outlined below.
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