Financial statements: first half, 2007

Financial Update

This place belongs to the earth; this project belongs to you. Some of us work daily with TLC Farm as an organization so that the broader sustainability movement -- that's you! -- can more easily engage the work and play of learning to become respectful allies with all our relations, starting right here.

An important part of that is giving you full and useful financial information. In this update I'll include both a qualitative summary of our situation, and full financial data so you can explore the numbers for yourselves. (I know it's not usual for organizations to make internal, interim financial reports publicly available. But we feel that you should be in the position of an "owner" -- a responsible party -- able to make your choices around what you put energy in, with good information. Enjoy!)

This project has always been expensive: dollars go to pay exceptionally high land costs, and volunteer time runs the programs and administration. The miraculous acquisition (that many of you were part of) demonstrated a hopeful reality: by working together, we created a more sustainable land use strategy that raised money equivalent to destructive development. At the same time, that success depended on a great peak of energy and investment.

Now, midway into our second year since the acquisition, we are able to assess our progress at becoming economically sustainable month to month, without a sharp crisis to motivate everyone. You may want to check the numbers for yourselves, below.

The good news:

First, it's incredible how much is accomplished in this place with so little money. For $3k to $4k per month total operating expenses, this project is a very strong value. Think of it!

Secondly, in the first half of the year, which is not our prime fundraising period, our income slightly exceeded our operating expenses, including interest (net $660). That means that we're kept afloat by our education programs, hosted gatherings, arts immersion events, and Friends of the Farm regular contributors. (And, of course, we rely on the hundreds of thousands of dollars of volunteer time so many people put in.) Thanks so much to all of you! This demonstrates that we're a going concern, and the economic ecology of our work can succeed in the long term.

The bad news:

Unfortunately, we still have major debts left from the acquisition that have to be paid off very soon: $25,000 in bridge loans, due right now; and about $50,000 in non-mortgage loans that start becoming due next year ($2500 in 2008, $14,500 in 2009). That's obviously a lot less than we raised for the acquisition, but without that pressure of immediate crisis it's been a lot harder to motivate donors to give. Moreover, it means that all excess funds we bring in over our immediate operating needs are absorbed entirely by paying off loans. (Comparing financial positions, note the unrestricted cash reduced by decreasing the short-term liabilities.) So, right now, we don't have a comfortable cushion of unrestricted liquid assets.

This means that our core organizers are, frankly, stressed out. We'd love to focus much more energy on growing our core programs: making sustainability technologies legal and easy; designing and building a year-round, closed loop, regeneratively designed education building; planting a food forest research center; and lots more. Instead, our time and money are focused on fundraising.

The plan:

So, we're laying the groundwork for an exciting, engaging fundraising season this autumn, to get through the hump:

• First, we're working with major donors who've indicated a willingness to support us. One local eco-friendly developer, in particular, has indicated that he'd like to contribute $20,000 towards the bridge loans; now we need to encourage him to be able to fulfill that pledge. It's important to keep major donors personally up-to-date on our situation and how their support can make a difference in changing the world; if you'd like to help, please let us know!
• If our local developer pulls through, we'll have $5000 of bridge loans and $2500 of other debt to raise money for, as well as around $7500 in operating expenses during the rainy season. So, second, we're actively organizing our harvest festival and fundraising auction, where we expect to bring in $5000.
• That leaves $10,000 to raise through mailings, canvasses, events, and other major donors. We're inviting everyone who feels a part of this project to get involved with an aspect of this campaign: many hands make light work, and a lot of fun to boot!

At the same time as we're seeking direct contributions, we're also planning on expanding our programs and associated income. For example, the Mother Earth Kindergarten that will be using the land three days a week starting in September will bring in $400 a month right through our slow season. In particular, we're looking for grant writers interested in inviting foundations to support new and existing programs (if you're a good writer, we'll train you in how to write a good grant). Let us know!

Our focus as an organization is on stacking functions and creating ecological density: we're always looking for organizations and communities that would like to partner with us to use this land in ways that deepen our relation with the earth. Meetings? Retreats? Ceremonies? Trainings? Healing sessions? Education programs? Demonstration projects? We're weaving it all together. It's that synergy that's going to sustain this place -- and this earth -- in the long-term.

Until next time, thanks for everything!  

Financial Reports

Several prefatory notes; more detailed narrative description follows. First, these are provisional reports, meaning that they have not been finalized by our finance working group and therefore may change slightly. Second, our books are kept on a slightly modified accrual basis: this means that some small items (<$250) are recorded as we receive or pay for them, but all major income and expenses (grants, insurance, interest, payroll, etc.) are realized when they are actually earned (revenue) or become due (expense). Thirdly, note that these are "management-style" reports designed to give the most useful, actionable information about the income and balance situation. Formal financial reports (including the IRS's 990) will record certain values differently (see notes below). Let me know if you have questions: email brush@tryonfarm.org.

	PROVISIONAL STATEMENT OF ACTIVITIES
INCOME		Total (First Half 2007)	Jan 2007	Feb 2007	Mar 2007	Apr 2007	May 2007	Jun 2007
	Individual/small business contributions	3,832	2,865	295	325	45	150	152
	Suggested donations (events, services)	1,297				1,297
	Friends of the Farm regular contributions	1,253	193	200	205	150	200	305
	Corporate contributions	143		143
	Foundation/trust grants	6,551	350	962	1,073	1,295	1,282	1,589
	Program service fees	7,886	50	148	271	1,432	3,959	2,026
	Personal property rent	92					82	10
	Noninventory sales gross	726	81	172	60		250	165
	TOTAL INCOME	21,779	3,539	1,920	1,933	4,219	5,923	4,246
EXPENSES
	Salaries & wages other	3,747		549	592	780	793	1,034
	Payroll taxes, etc.	431		63	68	90	91	119
	Bank service and related fees	186	35	32	66	15	12	26
	Temporary help contract	64			64
	Professional fees other	40		40
	Supplies	1,475	470	31	141	272	324	237
	Telephone & telecommunications	309		62	78	55	59	55
	Postage & shipping	24	7		8			9
	Printing & copying	542	46	11	89	287	47	62
	Rent, parking, other occupancy	1,050	175	175	175	175	175	175
	Mortgage interest	10,143	1,732	1,731	1,562	1,726	1,669	1,722
	Interest general	736	123	123	123	123	123	123
	Insurance nonemployee related	2,281	375	375	383	383	383	383
	Permits and related fees	50			50
	Travel	36	36
	Other expenses	5	5
	TOTAL EXPENSES	21,119	3,004	3,191	3,397	3,906	3,676	3,945
INCOME / (LOSS)		660	535	(1,271)	(1,464)	313	2,246	301

PROVISIONAL STATEMENT OF FINANCIAL POSITION
ASSETS		Dec 31, 2006	Jun 30, 2007
	Cash in bank - unrestricted	22,803	4,172
	Cash in bank - Spirit Mountain Grant	20,000	14,870
	Cash in PayPal	1,702	0
	Accounts receivable	763	3,220
	Inventories for auction	2,490	2,490
	Prepaid expenses	175	2,364
	Land - operating	584,936	584,936
	Furniture, fixtures, & equip	505	505
	Funds held in trust by others	0	187
	TOTAL ASSETS	633,375	612,745
LIABILITIES
	Accounts payable	462	325
	Accrued payroll taxes	0	431
	Accrued expenses - other	0	736
	Payroll tax withholdings payable	0	769
	Deferred grant revenue	20,000	13,449
	Trustee & employee loans payable	15,500	15,500
	Short-term liabilities - other	40,000	25,000
	Mortgages payable	235,671	234,132
	Long-term liabilities - other	35,570	35,570
	TOTAL LIABILITIES	347,203	325,913
NET ASSETS
	Net assets	70,624	286,171
	Current Earnings	215,548	660
	TOTAL NET ASSETS	286,171	286,832
TOTAL LIABILITIES & NET ASSETS		633,375	612,745

Notes:

• You can clearly see the seasonal fluctuation in income in the Statement of Activities:
  • In early January we received some late donations from our holiday fundraising campaign, but in general our donation income was low throughout the first half of the year.
  • Friends of the Farm have been consistent: some folk have had to move on, and others have joined us. Increasing this proportion to $500 or $1000 a month would have an enormously positive impact on our operating bottom line.
  • Program fees fluctuated most of all! During the rainy months a few, small classes come out. Our bigger program events (such as the Earth Activist Training in May) really peak in the late spring and summer. Program income has also been very positively impacted by our new half-time education coordinator (Matt Gordon), who started in February and really got going in April (see payroll expenses).
  • Foundation grant income is tied to expenditures related to the Spirit Mountain education grant we received in November (see last note). More grants will help a lot!
  • Goat milk and vegetable sales will be growing significantly for the duration of the summer.
• Expenses are fairly consistent, except for payroll as our education coordinator got going. Mortgage interest, insurance, and interest on other loans account for a whopping $2200 per month! Most of our physical materials are recycled and/or donated, and most of our labor is volunteer.
• In the Statement of Position, there are important nuances regarding our accounting of the land value (and therefore net assets).
  • The vast majority of our liabilities -- mortgage and other loans -- went to pay part of the market value of the land at acquisition. After acquisition, use of the land was legally constrained by a variety of contracts that ensure that it must be used for sustainable purposes -- eg. no big subdivisions, which would otherwise be the "highest and best use". In the standard model appraisal system, that means that the land's market value is now far less: TLC Farm's interest is estimated at just $195,325.
  • However, standard accounting practices require that fixed assets be booked according to "historical costs", rather than present appraised value. Historical costs include the money actually paid to acquire the property, as well acquisition-related costs (closing costs, etc.). This value is much higher: for TLC Farm's interest in the land, the $681,736 recorded under Assets.
  • Normally, the "historical costs" approach undervalues existing fixed assets. In this case, it overvalues them. Therefore, it's important to recognize that our liabilities significantly exceed (to the tune of $100k) our net assets at market value, rather than book value.
• Finally, a note about how grants (and other restricted contributions) are accounted for. For many years, the standard official accounting approach was to account restricted revenues as deferred revenues, and recognize income only when the restriction is lifted (ie. when monies are spent on specific activities). This makes most sense from a management perspective, since generally the grant income and expenses are tied to each other: you wouldn't have one without the other. However, in the mid 90's the rules for formal reports were changed to require that restricted contributions be recognized when they're received, and booked as restricted assets. (The reasons for this are not very relevant to our needs, and the result is that the "matching principle" of accrual accounting is broken.) These "management-style" reports are generated according to the former procedure, and therefore differ from more formal statements.