In the following couple of posts I have to come back to IOF finances. Over the past two months I talked to several members of the Council. I had to realize that either they did not understand the severity of the financial situation, or did not really appreciate it. “We have lot’s of cash in the bank” and “I am positive that everything will be fine” were the typical replies when we talked about IOF finances.
So let’s have a closer look at the net cash position of the IOF on 31 December 2016, the date of the last audited accounts, as published on the IOF website. Below I’ll try to explain the accounting basics required to interpret the numbers.
There are two key points people concerned about the IOF should understand:
The net cash position of the IOF is practically zero. In simple terms: there is substantial money on the bank account only because there are substantial unpaid invoices.
The IOF has started to accumulate serious debt. Short term debt has jumped almost ninefold from €29,000 to €252,000 in one year from end 2015 to end 2016.
Net cash position shows the real amount of cash reserves assuming that all current invoices are paid (including consumed services not yet invoiced), and all current outstanding receipts are paid (including revenues earned, but not yet invoiced). There are variations to this calculation, due to the sad fact of life that it is more likely that you have to pay for services consumed, than that everybody pays you all the money you expect from them. It is always a question how to find the right balance between the optimistic and the prudent approach. Here we make adjustments only when there is a clear indication that not all the monies may be received.
On the chart below you can see the estimated net cash position of the IOF at the end of year 2016. It shows the accounting book values and it is also adjusted for items that are unlikely to be “cash equivalent” (like inventory and Brazilian debt) and an estimated “membership debt” referred to in Council minutes.
Despite the €191,000 in the bank, the net cash position of the IOF was only €37,000. Taking into account adjustments, the actual net cash is estimated at around €16,000.
At €16,000 (or even at €37,000) the IOF has practically no meaningful net cash reserves for its annual budget of €800,000 to €900,000. The budget overrun in early 2017 only for the World Games arena production was at around €20,000!
It should be noted that the revised budget of 2017 will not solve the problem. The new forecast is a profit of just above zero: €10,000. It was reduced from €70,000 planned for 2017 in August 2016. That, even if delivered, will not change principally the difficult financial situation of the IOF.
Below I’ll explain the various items for a better understanding.