Hartford Business Journal

8 Hartford Business Journal • January 23, 2017 www.HartfordBusiness.com FOCUS NONPROFITS Social Causes Glastonbury insurance agency directs 50% of profits to charity By Matthew Broderick Special to the Hartford Business Journal C had Yonker, a former hedge fund manager, never intended to own an insurance agency. In fact, his first exposure to GoodWorks Insurance — the Glaston- bury-based agency whose business model is designed to donate 50 percent of its annual profits to charity — was as an equity investor when the company launched in 2006. But when a series of business decisions under its previous ownership put the firm in financial turmoil by 2011, Yonker, seeing the social enterprise business model as a competitive differentiator in the insurance sector, bought the agency. Since then, Yonker and his team — which span four Connecticut offices and two in Mas- sachusetts — have grown revenue by more than 200 percent while investing, Yonker says, hundreds of thousands collectively in nonprofit organizations focused on three main areas: education, health and public safety. Over the past decade, social enterprises — busi- nesses that build com- munity support as a core principal of the company's purpose — have emerged as a growing sector in the U.S. economy. In 2014, a survey of social enterprises found that among survey respondents, social entrepre- neurs accounted for more than $300 million in revenue and employed more than 14,000 people in 28 states. That's been a positive — if still emerging — trend for nonprofits, said Gian-Carl Casa, president and CEO of the CT Community Nonprofit Alliance. "It's been eight years since the Great Recession and the economy has been slow to rebound, and that's put incredible pressures on nonprofits to find new sources of revenue," Casa said. "It's heartening to be at the begin- ning of a trend where businesses — especially younger entrepreneurs — want to give back [through their busi- ness model] to their community." And while the 50 percent threshold for charitable causes hasn't changed since GoodWorks' new ownership took over in 2011, the way the money is distributed has, accord- ing to Paul Brian, the agency's chief operating officer. "The agency used to give away a lot of smaller grants — in the $500 range — to a larger number of organiza- tions," Brian said. "But to have a great impact, we now provide larger grants to fewer nonprofits." The agency has also evolved how it distributes its prof- it-driven charitable contributions. While a pool of funds remains available for area nonprofits to apply for, for larger clients like member- based associations, Good- Works will allow clients to designate a particular cause to receive a specified amount of funding. That approach has helped the agency build a growing clientele and fueled a profit increase of nearly 25 percent in 2016. While GoodWorks is pro - hibited by law from having an insured client designate itself as the recipient of the agencies charitable funds — a process known as rebating, Brian explained — the charitable giving component has been a strong selling advantage with clients, including the CT Community Nonprofit Alli- ance and Connecticut Energy Marketers Association (CEMA), which promote GoodsWorks to its members. In fact, Brian said, through its contract with Good- Works, CEMA elected to designate Operation Fuel, a program that provides fuel assistance for struggling families, to benefit from insurance products sold through its association's membership. "We ended up donating $10,000 to Operation Fuel and then matched another $5,000 CEMA members raised to EXPERTS CORNER FASB releases major update to not-for-profit reporting By Katrina Olson L ast August, the Financial Accounting Standards Board (FASB) released the most sig- nificant overhaul of not-for-profit accounting and reporting in more than 20 years. These financial reporting changes were first proposed by FASB in April 2015. After soliciting feed- back on the proposal from nonprofits and their CPAs, the more controversial changes were tabled for fur- ther research, and the focus moved to pri- marily presentation matters. Nonprofits must be in compli- ance with the new rules for fiscal years beginning in 2018, however early adoption is permitted. The new standard aims to reduce complexities in reporting of net assets, as well as provide more useful information regarding a non- profit's liquidity, financial perfor- mance and cash flows. Nonprofits across the United States that pres- ent financial statements in accor- dance with generally accepted accounting principles (GAAP) will be impacted by the changes, includ- ing charities, healthcare providers, cultural institutions, colleges and universities and foundations. The release of this new financial reporting standard is a culmination of many years of groundwork, beginning in late 2009 when FASB formed the Not-for-Profit Advisory Com - mittee (NAC). The formation of NAC was an answer to concerns repeatedly raised by stakehold- ers regarding complexities and inconsistencies within the non- profit reporting model. FASB, located in Norwalk, serves as the standard-setting body that promulgates account- ing principles generally accepted in the United States of America. According to FASB Chairman Russell Golden, "The new guid- ance simplifies and improves the face of the financial statements and enhances the disclosures in the notes, which will enable not- for-profits to better communi- cate their financial performance and condition to their stakehold- ers, while also reducing certain costs and complexities in prepar- ing their financial statements." Some of the key provisions include: • Net assets classification — The former designations of unre- stricted, temporarily restricted, and permanently restricted have been eliminated. Going forward, net assets will be classified into two simple categories: (1) net assets with donor restrictions and (2) net assets without donor restrictions. Footnote disclosures will still be required that provide additional information about the nature and amounts of donor-imposed or b o a r d - d e s i g n a t e d restrictions. • Liquidity — Disclose availability of resources to meet cash needs for general expenditures cover- ing the upcoming fis- cal year. Availability is affected by factors such as restrictions or limits estab- lished by donors, grantors, laws or the governing board. • Cost allocation — Disclose how the organization allocates costs amongst programs versus supporting functions. • Underwater endowment funds — In cases where the market value of donor restricted endow- ment funds is less than the original amount of the gift, the amount of deficiency must be disclosed. These enhanced disclosures will provide greater transparency for situations where the endowment's principal asset has been invaded by either expenditure or loss of market value. • Contributions restricted for capital projects — In the past, donations restricted for capital proj- ects could be released from restric- tion over the useful life of the asset (to match depreciation expense). This option has been eliminated. Going forward any contributions restricted for capital projects will be released from restriction once the project is placed in service. • Functional expenses — In the past, only voluntary health and welfare organizations were required to present a statement of functional expenses. Under the new rule, all nonprofits are required to report expenses by both nature and function. • Statement of cash flows — Nonprofits now have a choice whether to report operating cash flows using the direct method or indirect method. Previously only the indirect method was allowed, which is the methodology also used by for-profit entities. Argu- ably the direct method provides a clearer presentation of cash receipts from key revenue sourc- es as well as disbursements to vendors versus employees. Financial reporting changes take time and effort to implement. Katrina Olson Continued Continued (From left) GoodWorks COO Paul Brian and Chairman Chad Yonker with Mike Metayer, CEO of Metayer Bonding Associates, a unit of GoodWorks. P H O T O | A S I A K E P K A ▶ ▶ ' The agency used to give away a lot of smaller grants — in the $500 range — to a larger number of organizations, but to have a great impact, we now provide larger grants to fewer nonprofits.' Paul Brian, chief operating officer, GoodWorks Insurance

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