Finance standards explained

#GetToKnowYourFACI

Raed Belaidi
F B TL Co n trolling &
G
Systems
e d b e la id i@aiesec.net
ra
5
+ 21 6 2 7 1 7 24 8
SUMMAR
Y
1 Finance Processes
2 Sustainability Standard
3 Why Product Sustainability
4 How to Improve
5Q&A
Why Standards
Why Finance Standards?

● Align quality among different realities

“To Ensure we ● Easier education and collecting data
(AIESEC) are 100% ● Ensure legality, protect organization and customer
● Consolidate data
legal and sustainable in ● Set expectations, ensure that minimum of operations is
our operations at all happening
● Ensure financial and legal sustainability of our
levels.” organization

Legality Accounting Reporting Budgeting Auditing Sustainability

 Why Finance Standards
are IMPORTANT?
Auditing

Auditing

Auditing
The dashed line
represent your annual Sustainability
Budgeting audits.
Accounting The green line is
Legality sustainability, not a
Reporting Budgeting one year period
The whole first part is Budgeting
Legality. You can’t do Only if Budgeting, Accounting thing.
much unless you are Accounting, Reporting is
Accounting So yes, you can say
legal.
Reporting that your job
well done, will we Reporting
manage our financial transcends your one-
info properly and take year term.
better decisions #ProudFinancer

Year 1 Year 2 Year 3 Year 4

Standards Simplified
Finance Health Indices
FINANCIAL PROCESS
INDEX [FPI]
Systems,
Index that evaluates the compliance of financial Administration &
processes of an entity. Work Routine
This is measured by calculating the Legality,
Accounting, Reporting, Budgeting and Auditing
Standards

FINANCIAL SUSTAINABILITY OVERALL FINANCE

INDEX [FSI] STANDARDS %

Index that evaluates the growth and structure of

Financial
sustainability of an entity. Performance,
This is solely focused on Sustainability Standard with Pipeline &
emphasis in measuring its subcategories - (Entity, Stability
Product, HR, Other Fin. Indicators and Risk)
Finance Health Indices

FSI Financial
Performance,
Pipeline & ENTITY 3
Stability
ENTITY 1

Growth Aspect Systems, ENTITY 2

Administration &
Work Routine

Foundation Aspect FPI

Finance Health Dashboard
Financial Processes
Finance Health Indices

FSI Financial
Performance,
Pipeline & ENTITY 3
Stability
ENTITY 1

Growth Aspect Systems, ENTITY 2

Administration &
Work Routine

Foundation Aspect FPI

Financial processes

Legality Accounting Reporting Budgeting Auditing

Financial processes-Legality

Legality is compliance to the law

National law (Country) Global and national

compendium

Décret-loi n° 2011-88 NCT 45

APIP & AEPP
Financial processes-Accounting

Accounting allows you to consolidate information

Accounting
Event Transaction software

It reveals profit or loss for a given period, and the value and nature of an
organization's assets, liabilities and equity.

Why? It shows overall wealth, profitability and liquidity (cash-flow).

It shows the resources available, how those resources are financed and the results
achieved through using them.
Financial processes-Reporting

Reporting is generating financial documents that describe your

current performance

Income Cashflow
Balance sheet
statement statement
Answers the question of Answers the question of
what are my resources Answers the question of
what where the incomes how much money or
and my engagements as and expenses of my LC?
an LC? liquidity does my LC
have?
Financial processes-Reporting
There are some legal restrictions for reporting but you can always get creative
Financial processes-Budgeting
Budgeting is making a plan of your spending for a time
period

Exchange goals
Financial processes-Budgeting
Budgeting is making a plan of your spending for a time
period

Costs Budget
Financial processes-Budgeting
Budgeting is making a plan of your spending for a time
period

Revenues Budget
Financial processes-Auditing

Auditing is reviewing historical data to very it’s accuracy to evaluate

them against a set of criteria

Internal auditing External auditing

Internal verification of
compliance, performance 3rd Party confirmation of
and financial documents the accuracy of your
financial processes

Feed-back External Auditor

Internal auditor Organisation Verification Audit opinion

Information
Financial Audit report
statements
Sustainability Standard
Where is Sustainability?

FSI Financial
Performance,
Pipeline & ENTITY 3
Stability
ENTITY 1

Growth Aspect Systems, ENTITY 2

Administration &
Work Routine

Foundation Aspect FPI

Sustainability

Risk Management
HR Sustainability
Sustainability

Other Financial
Entity Product
Sustainability
Sustainability Sustainability
Indicators
HR Sustainability
Ensure Pipeline & Team Standards
● There is a MCVP Finance in the entity that does not share other roles
● There are LCVP Finance that do not share other roles
● There are Finance Managers in expansions
● All LCVPs Finance fulfill the team standards with their teams.
● If MCVP Finance has a team (for instance NSTs), then MCVP also fulfill team standards
with them

Education cycles for LCVPs

● There is a Manual of Functions for LCVPs Finance.
● There is an education timeline for LCVPs Finance (that includes Team Standards and
Finance Standards) performed in conferences and in virtual channels.
● There is coaching for LCVPFs (either by MC Finance or NSTs.
● There are visits or audits performed when needed
Risk Management
Sustainability

Risk assessment and management

There is a Framework/tool where risks (integrity and security, finance, legal, reputation, future
operations) are identified
● There is a matrix (Probability vs. impact)
● There are action steps (act, mitigate, avoid, transfer, ignore)
● There is a log on risks that have occurred and how they have been mitigated for future
reference.
Entity Sustainability
LC Sustainability level 2
Level 0: Exchange costs not covered by exchange revenues
Level 1: Exchange revenues > Exchange costs
Level 2: Exchange revenues > total direct + indirect costs

MC Sustainability level 2
Level 0: MC in loss
Level 1: Total revenues > Total costs
Level 2: Total exchange revenues + LC fees > 70% costs

Entity Sustainability level 2

Level 0: Entity is in loss
Level 1: Consolidated the entity (MC+LC) has a surplus
Level 2: MC Sustainability Level 2 and LC Sustainability Level 2
Product Sustainability

Product Sustainability level 2 [same formula for any products]

Level 0: Product in loss
Level 1: Direct revenues > Direct costs
Level 2: Direct revenues > (Direct costs + Indirect Exchange Costs)
Other Financial Indicators
Months of Financial Reserves (MoFR)
Evaluate your financial sustainability according following formula:
● MoFR <=0 - Critical financial situation
● 0 < MoFR < 3 - Dangerous situation
● 3 < MoFR < 6 - High risk
● 6 = MoFR - Optimal situation
● 6 < MoFR - Unnecessary reserves when it does not have a purpose
when: Months of Finance reserves = Current equity/Average costs of 12 previous months.

All Conferences are Sustainable

● Your national and local conferences don't generate a loss.
● Conferences revenues don't depend on sales (unless their target is external).
● Have conference guidelines and reports for knowledge management and transition.
Other Financial Indicators

Liquidity
Every quarter check your liquidity, the optimal values are mentioned below:
● Cash (bank account + petty cash) / Short term liabilities =>1
● Current assets/Current liabilities = between 1.5 and 3

Debt Ratio
As then most of the organization’s assets are financed through equity rather than through debt:
● Total Liabilities/Total assets =< 0.5
Other Financial Indicators
Core Performance
As exchange is our core product, we need to make sure that our main income derives from this:
● Core Performance for LCs:
○ Direct Revenues/Total Revenues =>70%
● Core Performance for MC:
○ (Direct Revenues+Entity Affiliation Fees Rs)/Total Revenues =>70%
● Core Performance for Entity:
○ Direct Revenues/Total Revenues =>70%

Direct Costs/Total Costs

In order to scale up our operations, we need to invest our financial resources into this. Right
now there is not yet an ideal ratio for this, however the industry benchmark is 65%.
Why Product Sustainability
Finance Health Indices
Index Standard FPI FSI Overall
Weights Weights FS %

FPI Legality 50% 25%

FPI Accounting 10% 5%

FPI Reporting 10% 5%

FPI Budgeting 20% 10%

FPI Auditing 10% 5%

FSI Sustainability - Entity 30% 15%

FSI Sustainability - Product 30% 15%

FSI Sustainability - HR 10% 5%

FSI Sustainability - Other 24% 12%

FSI Sustainability - Risk 6% 3%

Why?
If your product is unsustainable, that means that every
amount being invested into the product goes to a loss.

If your product is growing disruptively and remains

unsustainable, this “growth” would lead to losing money
disruptively

If your product will stay unsustainable, and keep growing,

this could lead to bankruptcy.
 General Idea of Sustainability

Cost incurred for

Operating the Products and
Maintaining the Business Value for Sustainable Product
is Well Funded by Core Organization
Revenue

Value for Value for

Members Market
Manpower for Functioning Price of the Product is
and Delivering the Services Worth it to the Customers
is Efficient & Satisfactory and Willing to Spend for it
 Something Bad Happens...

Cost incurred for

Operating the Products and
DIRECT COSTS
Maintaining the>Business
PRICE Value for Sustainable Product
⇨Well
is Negative Margin
Funded by Core
Revenue
Organization

Value for Value for

Members Market
Manpower for Functioning Price of the Product is
Main activity
and Delivering ≠ Main income stream
the Services Worth it to the Customers
INDIRECT COSTS > MARGIN
is Efficient & Satisfactory and Willing to Spend for it
Division of people vs. Division of margins ⇨ LOSS after Indirect Costs

Low efficiency
 Products at Risk!

HousingCost incurred
Costs is for
Operating
Higher the Products and
than Budgeted
DIRECT COSTS
Maintaining the>Business
PRICE Value for Sustainable Product
⇨Well
is Negative
FundedMargin
by Core
Pricing isn’t High
Revenue
Organization
Enough

Poor Understanding of
Products = Poor Sales &
Value for Value for Delivery
Slow Conversion =
Slow Efficiency of Members Market
Members
Manpower for Functioning Price of the Product is
Main activity
and Delivering ≠ Main income stream
the Services Fixed Costs Worth
INDIRECT Cannot it be
COSTS
to the Customers
Covered by
> MARGIN
is Efficient & Satisfactory and Willing to Spend for it
Division of peopleThere’s way too
vs. Division many people
of margins ⇨ the
LOSSProfit
afterMargin
Indirect Costs
allocated to Back Office than
those in Operations
Low efficiency
Scope of Calculation

Sustainability is achieved when the business is able to

deliver services to the customers at a price that covers their
expenses and generates a profit.
How to Improve
1. Legal Operations

Ensuring that your product is legally compliant allows the operations to be

safe and avoids risks that could potentially charge significant amounts of
money.

a. National Policies = have regulations when operating the product

b. Visas and/or Working Permits = learn the procedures when
supporting acquisition for these documents for the customers
c. Contracts Management = ensure that there is a contract and/or
agreement between the entity and stakeholders
d. Insurance Compliance = make sure that the EPs have insurance as
per required
2. Budgeting
Early & precise budgeting will pave the foundation when it comes to
operating the products.

a. Connecting to Customer Flow = define all activities needed to

conduct throughout the whole CF; Budgeting is not only about
standards delivery but should also count from Raising Opportunities
to Impact Measurement/Brand Advocacy
b. Backed up with Data = make sure you have estimated the costs based
on research and past data
c. Indirect Costs = discuss with your VPF how much indirect costs
every exchange should cover
d. Target Profit = determine how much surplus you want to have from
every exchange
3. Pricing

Sell our product for what it’s worth

a. Fully Covered = ensure your price is enough to cover both direct &
indirect costs
b. Repricing = use tools such as the GFB Pricing Tool and market
research to define an appropriate price
c. Fee Structure = connect the way you structure your chargine to what
is suitable for the partners and delivery of the service. Charging can be
one-time payment, monthly servicing fees, a combination of one-time
payment + monthly servicing fees or multiple fixed installments.
4. Cost Cutting

Small spending comes a long way

a. Strategic Alliances = find partners that can help provide you the
support you need such as Logistics, Hosting, Training & Preparation,
Implementation Handbooks etc. By this, you can also create shared
value for the partner
b. In Kind Sponsorships = find partners that can provide non-monetary
support such as Food, Welcome Packages, Project Materials,
Promotions and Free Press
5. Constant Tracking

If not measured, it’s not managed

a. Reporting & Meetings = make sure to have regular discussions with

our VPF to discuss the current status of product profitability. You can
only improve your product profitability if you are aware of the state.
6. Be Careful with Discounts

Discounts can be a blessing or a curse

a. Deduction from Profit = Lowering the price of the product for a short
period of time to attract more people can be effective, but make sure
it’s taken from the profit of the product and the product can still cover
the direct and indirect costs
7. Sticking to the Business
Model

How are we charging our partners

a. Charging Enough = There are products that somehow charge EPs.

Partners are not charged enough to cover for the costs of the product -
which eventually charged by either AIESEC or EP. We need to find
partners that can finance the project
8. Tracking your ROI

The return of our investments boosts operations making our entities able
to deliver more experiences that really develop leadership.

a. Return of Investments = if we keep investing on different cost items,

but have no clue how much we are actually getting out of these
investments, we should probably start reconsidering this.
b. Replicating Investments = determine which investments have the
highest benefits so you can replicate those for future plans.
c. Discontinuing Investments = determine which investments have no
benefits so you can discontinue those away from future plans.
9. Charging the Partner

How should partners support iGV

a. iGV Opportunity Fees = There’s a regularly a discussion if we

should be charging our iGV partners, as they are often NGOs with a
small budget. However, by not charging our partners, we are indirectly
charging AIESEC.

This makes us financially unsustainable, and if we want to continue

creating impact, we need to make sure we are sustainable. Make sure
to find partners, or sponsors, that can finance the project
10. Triangle Model
Multiple stakeholders for sustainable impact

a. Triangle Model:
i. AIESEC will be responsible to provide the EPs for the project
ii. Companies will be responsible for funding the initiative
iii. NGO will run the project
Entity
NGOs

$
$$ Companies NGOs
11. Ensuring Transparent
Payment

Being transparent when charging our iGV EPs for Project Fees

a. Costs in Detail = Categorize the cost structure into platform and

customer language as customers needs to know what they pay for.
b. Platform Guidelines = Follow the guideline from our platform to
finish your transparent payment process
c. Stakeholder Touchpoints = Ensure cost structure is attached in all
touch points with OP Takers/EPs during the whole process.
QnA