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View Full Version : May 1 - October 31, 2008 CFC Deficit - Where from Here?



Bob Armstrong
12-28-2008, 10:02 PM
CFC President, David Lavin, in GL # 3, in the President’s Message, states in relation to the 2008-9 first 6 months financials:

“ …we do have a paper loss of over $8,000 …“.

One might quibble a bit and say he should have said slightly under $ 9000, since the deficit is actually $ 8,717.
But the real issue is how will we reduce this deficit to zero in the second half of 2008-9 ?
On the surface one could say the deficit of the first 6 months of 2007-8 was $ 16,626 ( ½ the annual loss ). So it appears the executive have shaved about $ 8,000 off the 6 month deficit. That would definitely be an improvement. But looking more deeply into the revenue and expenses figures shows :

1. that most savings come from only 1 item being cut. We had a major decrease in expenditures with the cessation of the print Chess Canada magazine - $ 18,500 ( for 6 months ), and we have incurred to date no expenses directly related to the on-line Chess Canada ( on the “ Publications “ line ). [ It may be that the $ 3,000 the President mentions as going to the new “ interim editor “, Vincent Chow, is included in “ Salaries, Benefits and Staff Travel “, rather than being a direct on-line magazine expense ].

2. that we are losing revenue. Roughly speaking, this 6 months we lost significant revenue:

Shipping & Handling charges - $ 700
Membership Fees - $ 2,000
Publication Sales and Advert. - $ 2,400
Donations - $ 4,000
Canadian Open Surplus - $ 2,500
Total Decrease - $ 11,600


So as can be seen, if everything else in Expenses stayed relatively the same the one disappearance of the “ publications “ expense item, covers all the revenue loss, and gives approximately only $ 6,900 to lessen the anticipated first 6 months 2008-9 deficit.
The deficit anticipated for first 6 months 2008-9 ( if all stayed the same ), was $ 16,625 ( ½ the annual 2007-8 deficit ). Taking off the $ 6,900 gained by no print publication would reduce the anticipated 6 month 2008-9 deficit to approx. $ 9,700.
Now we can also reduce this anticipated deficit by other savings we made on other expenses ( since they all did not remain the same ):

Building and Equipment Expenses - $ 2,000
Office - $ 1,500
Programs – International - $ 1,500
Contributions to Chess Foundation - $ 700
Total Savings - $ 5,700


This would decrease the anticipated deficit to $ 4,000. And we show on the books, the first 6 months 2008-9 deficit as $ 8,700 ( the difference is due to increased staff expenses ). So the analysis above does show mainly where revenue dropped and expenses dropped.

But where are we going to get increased revenue to offset this deficit for the second half of 2008-9?
David Lavin in GL # 3 asks:

“ Thirdly, we need to review revenues from membership and ratings. Can we realistically and reasonably raise any of these fees? “

Will the membership stand for increases in either of these fees, after the print magazine has been cut, and they see little benefit in membership directly to them, other than the national rating system?

And can we not expect that revenue from “ Sales of books, equipment and software “ will drop from the first half amount of $ 37,900, now that the book business has gone to Amazon.com and the equipment has gone to FEN? This makes our need for increased revenue in the second 6 months even more dramatic. Our commission arrangements will definitely generate much less than our business. The whole point of the sale of the retail business was to be able to cut staff hours, since the business was eating up ½ our staff time on some estimates . So does the CFC now need to look seriously at cutting staff, which have remained the same, in order to balance off this loss of revenue?

Since there are no other sources of income, to reduce the deficit requires dramatically cutting expenses. There will hopefully be savings from the sale of the building. We will lose some of the expense “ Building and equipment expenses ( $ 7,600 ) “. But will we see “ Office “ expenses rise from $ 12,000 if we have to go to now renting office space, now that the building is sold? And how will CFC be able to afford introducing expenses back in under “ Publications “ with the new on-line Chess Canada?

So, the staff cuts are the ones that stand out as being the only place to save sufficient money to eliminate the deficit. This will not be easy. I note that the expense “ Salaries, Benefits and Staff Travel “ have actually risen almost 20% in the first 6 months of 2008-9 ( from $ 34,000 to $ 40,300 ). This is unsustainable. We need cuts, not increases. And it may be questionable whether we can afford an on-line Chess Canada editor salary/contract. Maybe all CFC can afford is an enhanced CFC “ News “ website section, and a monthly CFC e-bulletin to all members highlighting Canadian events, maintained by the ED ( this was the preference of the Grassroots’ Campaign , in its “ Restructuring “ platform ).

I realize this is a difficult program to have to follow, but I see no other areas where expenses can be reduced sufficiently to eliminate the second half deficit.

So yes the situation has improved, but because so much of that improvement has been from the dropping of the print magazine, it has masked the great difficulty CFC has in trying to move forward to eliminating the second half 2008-9 deficit. Some tough decisions ahead.

[ Note: I am not the greatest at reading financials, so please make corrections if I have muffed some stuff. ]

Christopher Mallon
12-28-2008, 10:54 PM
Hi Bob,

It's a pretty good analysis, there are a few points you missed but I don't think it really matters because mainly I think you're going at it from the wrong direction.

The CFC going forward will be a much different entity - as far as financials are concerned - given that a lot of expenses and revenues are wiped off the books (to our net benefit, I should add).

The way we are approaching it at the executive level is to actually create a whole NEW budget, rather than trying to make a thousand little tweaks to the old one. This is made even easier by the fact that we have achieved a fair degree of revenue certainty (that is, we know fairly closely what our "floor" income will be).

Everything you need to know to do such an analysis is in the GL, so if you felt like doing it I wouldn't mind seeing how close it came to my own analysis :)

David Lavin
12-29-2008, 10:08 AM
There have been substantial changes in the CFC's operations and I think a more useful way to look at the statements is to look for normalized revenue and expenses. This willl give a good indication of what fiscal 2010 will look like.

Bob does bring up a very good point. Administration costs have increased by 20%. Indeed, $40,000 over six months is simply unsustainable when related to the revenues that the CFC produces and the tasks that need to be managed.

I still see no reason that the CFC can't budget for a surplus next year.

Peter Stockhausen
12-29-2008, 10:12 AM
Hi Bob,

After all is said and done the "NEW" CFC Annual Proforma may look something like this:

REVENUES

47,000 Membership
26,000 Rating Fees
5,000 Interest from Foundation
2,000 Commission from Sales
80,000 Total Revenues

EXPENSES

50,000 Salaries and Benefits
10,000 Web and E Magazine
10,000 Fide
7,000 Office
77,000 Total Expenses

3,000 PROFIT


Please feel free to play with the numbers.

Cheers
Peter

David Lavin
12-29-2008, 10:43 AM
Hi Peter:

My revenue estimate is $83,500 for fiscal 2010. We do have a minimum guarantee for book and equipment revenue which is higher than your estimate. Expenses are the wild card.

One idea I have to avoid the fiscal problems in the past is to have the budget passed annually by the Governors. That way, the Executive can't spend more than whatever number is passed in any given year.

Bob Armstrong
12-29-2008, 11:51 AM
Hi Peter:

Your simplified financial is very helpful for projection - thanks ( financial experience helps here ). Here are my comments:

2009-10 CFC Financials ( A Projection )

REVENUES ( roughly agreed to by Peter Stockhausen, David Lavin and Bob Armstrong )

47,000 Membership
26,000 Rating Fees
5,000 Interest from Foundation
5,000 Commission from Sales ( based on David Lavin’s estimate )
83,000 Total Revenues

EXPENSES ( Stockhausen Projection )

50,000 Salaries and Benefits ( My comment: based on 2008-9, the yearly salaries would be $ 80,600. So Peter is projecting a 38% cut in staff salaries – a deep cut. This will definitely mean elimination of the part-time employee position. It also raises the question of whether CFC can get an ED with
all the skills required for less than $ 50,000. )
10,000 Web and E Magazine ( My comment: CFC is currently paying the interim editor of the on-line Chess Canada, Vincent Chow, $ 3,000, which is apparently very low for the technical web skills he brings to the website aspect of the e-zine. Can CFC really afford a qualified part-time editor to
replace him? And what about the expense associated with paying for articles by contributors? And is Peter suggesting that this editor will also deal with all maintenance of the whole CFC website? And does this include ongoing costs of the website? I suspect Peter’s figure is somewhat lower than will be required for all this. The Grassroots' Campaign in their restructuring platform put forward an alternative to an on-line magazine: an enhanced “ Canadian News “ section of the existing CFC website, plus a CFC E-bulletin on highlights in Canadian chess news, free to all members. It would be maintained by the ED. The cost of this would be almost zero.
10,000 Fide
7,000 Office ( My comment: In the first 6 months of 2008-9, $ 7,600 was spent on building and EQUIPMENT – so even if the building will be gone, part of this item will continue as an expense. Office costs for 2008-9 , based
on the first part of 2008-9 would be $ 24,000. And we will now have to
include rent in office expense ( where previously it was effectively covered in building expenses ). So I fail to see how the CFC can cover office ( including rental ) and equipment with only the projected $ 7,000. )
77,000 Total Expenses ( My comment: I believe this to be overly optimistic )

6,000 PROFIT ( My comment: I think this will get eaten up in higher expenses )

My Comment: I believe Peter is on the right track, despite my comments. We need to project what amount we will have for each expense, and then we will have to find a way to stay within that figure. I think the problem here is the on-line Chess Canada. If we can axe it, we may be able to project other somewhat more tolerable expense figures we can live with. I would be pleased to see the Executive projection of 2009-10 Expenses.

Bob

Christopher Mallon
12-29-2008, 11:56 AM
I think the problem here is the on-line Chess Canada. If we can axe it, we may be able to project other somewhat more tolerable expense figures we can live with.

That's not going to happen...

David Lavin
12-29-2008, 12:03 PM
Bob:

I don't know where you are getting your information about the CFC's expenses but they are not accurate. It is also grossly premature to be axing the on-line magazine. There are other ways to reduce expenses and I plan to focus on these over the next few weeks.

I'm having dinner with Bob Gillanders this evening and I am sure we will have a very productive discussion.

Bob Armstrong
12-29-2008, 12:13 PM
Hi David:

I will look forward to the Executive projection of 2009-10 expenses, so I can compare them with my own ( which I am mostly basing on the financials available ). It will be helpful if you can also use Peter's template ( makes comparisons easier ). Hopefully you will post a draft of them after your meeting with Bob Gillanders, so we can see how the picture is better than what I project.

Bob

David Lavin
12-29-2008, 12:30 PM
I hope you'll give me more than one day!

Happy New Year!

Bob Armstrong
12-29-2008, 12:33 PM
Hi David:

I know you will do it in a timely manner !

Happy New Year !

Bob

Egidijus Zeromskis
01-06-2009, 11:41 AM
I'm having dinner with Bob Gillanders this evening and I am sure we will have a very productive discussion.

Any summary? :)