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Between Christmas and New Year’s , I decided to work on some calculations to project the CFC Revenue/Expenses for the last half of the fiscal year ( November 1, 2008 – April 30, 2009 ). I was concerned we were headed for another sizable deficit for the second half ( our first half was $ 8,717 ), and wanted to see what was needed to avoid this. My calculations led to three strong and clear recommendations for the CFC. I intended to forward this brief to CFC President David Lavin, and CFC Treasurer Chris Mallon, for their review and comment.
Then the other day, I heard a rumour that CFC was on the verge of making 2 major decisions this month:
1. not to rent space for the CFC office when their Office Unit sells January 15, but to go to a “ Home Office “ alternative;
2. to eliminate the CFC part-time employee position.
I am not sure if these decisions have been finalized yet, but they corresponded identically to 2 of the 3 recommendations I was making in my brief I had intended to submit.
In the light of this, I decided that submitting my brief now would be somewhat redundant. But I do want the CFC to take these steps, and I would like to put forward why I think they are absolutely necessary. So instead of submitting the brief, I am posting it below. I would be pleased to have pointed out any inaccuracies in my calculations, and to hear any comments. Here is the brief:
CFC Projected Revenue/Expenses for November 1, 2008 – April 30, 2009
REVENUE ( May 1 – October 31, 2008 – edited )
Gross Profit on Sales of books, equipment and software $ 13,921
( Analysis :
REVENUE
Sales of books, equipment and software $ 37,902
EXPENDITURE
Cost of sales 23,981
GROSS PROFIT $ 13,921 )
Shipping and handling charges $ 1,488
Membership fees $ 23,582
Interest earned from Chess Foundation of Canada $ 2,500
Rating fees $ 12,665
Donations $ 4,313
TOTAL $ 58,469
For the last 6 months of 2008-9, we will NOT have the gross profit of $ 13, 921, nor the shipping and handling charges of $ 1,488, since the retail business will have gone over to only a commission arrangement with Amazon.ca and FEN. The commission with FEN of $ 6,750 min. guarantee means approx. $ 2,200 commission for the last 4 months of 2008-9. If we assume $ 1,000 commission from Amazon for the 2nd half of 2008-9, this will give replacement revenue of $ 3,200.
On this basis, the current total retail sales revenue will drop approx. $ 12,200 ( $ 13,921 + $ 1,488 – $3,200 ). [ I recognize that CFC has continued sales of inventory after Nov. 1, but I don’t have a profit figure for the wind-up of the business sales, and so shall have to ignore it now for projection purposes. ] If all other revenue stays the same for the last 6 months, and all expenses, this means the second half deficit will climb from $ 8,700 to almost $ 21, 000 ( or an annual deficit comparable to the deficit of last year, from $ 33,000 to $ 29,700 ! ).
So let’s look at expected expenses for the second half of 2008-9 – are there savings coming up there to offset this dramatic loss of income, and avoid the climb back to the deficits of yesteryear?
EXPENDITURE ( May 1 – October 31, 2008 )
General and administrative :
Salaries, benefits and staff travel $ 40,343
Building and equipment expenses $ 7,629
Office $ 12,085
Programs :
Publications - $ 0
International $ 3,623
Contributions to clubs and affiliates $ 3,056
Contributions to Chess Foundation of Canada $ 450
TOTAL $ 67,186
[ Note: this gives us our first half deficit of $ 8,700 ]
Building and Equipment expenses will drop because of the sale of the CFC Office Unit – I will guess the division was Building 80% and Equipment 20%. This will then leave an Equipment expense of $1,500 ( or a drop of expenses of $ 6,000 ). This would leave us with a second half deficit still of $ 15,000 ! But where else are costs going to drop?
In fact it seems that some expenses for the 2nd half are going to INCREASE, not decrease, which is going to make the 2nd half deficit even higher :
1. “ Office expense “ - will go up if CFC moves to a small rental space now. Could they find a small shared office space for $ 500/mo? ( someone correct my estimate here – I’m not really familiar with commercial rents ). If so, for the sake of calculation, that will mean Feb. – April paying rent, or $ 1,500, added to office expense.
2. “ Publications " - will also have to rise from $ 0. We now have an “interim “ editor, Vincent Chow, and he is being paid $ 3,000 ( not sure for what period ). The on-line Chess Canada is to come on-stream this month, and so there will now be expenses associated with it as well ( e.g. Paying contributors for articles ). Former President, Peter Stockhausen, in another post , estimated a 2009-10 “ Web and E-zine “ expense of $ 10,000. I will use ½ of that as the 2nd half 2008-9 expense for Publications. So a $ 5,000 increase in expenses.
Adding these two increased expenses ( Office expense - $ 1,500; Publications - $ 5,000 ) to our calculated 2nd half deficit so far, gives a final anticipated 2nd half 2008-9 deficit of $ 21,500 ( or a 2008-9 deficit of over $ 30,000 ) ! This is totally unsustainable !!
Three things are clear from all this:
1. CFC must move to an “ E.D. Home Office “ arrangement to slash office costs. Let us assume an impossible scenario, for the sake of argument, that this would be done for FREE somewhere. This would then allegedly eliminate : “ Equipment cost - $ 1,500 + Office Cost - $ 12,100 + Increased Office Cost ( Office Rental ) - $ 1,500 = $ 15,100 ! This would then lower the second half projected deficit to $ 6,400. That would then still give an unacceptable 2008-9 annual deficit of $ 15,100. More must be done to at least get the second half 2008-9 deficit down to zero . And remember this calculation is based on office costs, above salaries, being zero, which I doubt to be possible; CFC member Steve Karpik when considering this advised:
“ I don’t think that a free home office is reasonable. There will be costs that have to be assumed by the organization:
A. Telephone (would you really want your family’s telephone tied up by CFC business)
B. Computer + printer + internet + fax machine (it isn’t really reasonable to expect the ED or whoever to be totally left to supply their own equipment; again how happy would someone’s family be if the family PC was tied up for business)
C. Postage, stationary, paper, etc. (a small cost but still a cost)
D. Mail service with forwarding
E. A person is going to dedicate one room of their house to an office for no compensation whatsoever?
I’m sure there are other things “
Also, getting to zero office cost is in fact impossible for the second half, because the CFC has incurred the normal office expenses for November 1, 2008 to January 15, 2009; this could still be as much as $ 6,800 based on the calculations above ).
2. Staff salaries and benefits must be dramatically reduced ( note that this was part of the Grassroots’ Campaign platform brought to the CFC AGM in July, 2008 ! ), and we now have only the last 4 months of the year in which to make savings [ in fact these costs had actually risen almost 20% in the first 6 months of 2008-9 ( from $ 34,000 to $ 40,300 )]. This requires at the very least that the part-time staff position be eliminated. Only if this eliminates $ 6,400 of salary costs for the second half of the year ( and more is required if CFC does have still in the second half, $ 6,800 office costs ), will CFC reduce its second half deficit to zero and be able to avoid step # 3 below.
3. The CFC must revisit its commitment to an on-line Chess Canada, as being a projected $ 10,000 annually we cannot currently afford.
Bob Armstrong
( Revision # 4
December 31, 2008 )
Then the other day, I heard a rumour that CFC was on the verge of making 2 major decisions this month:
1. not to rent space for the CFC office when their Office Unit sells January 15, but to go to a “ Home Office “ alternative;
2. to eliminate the CFC part-time employee position.
I am not sure if these decisions have been finalized yet, but they corresponded identically to 2 of the 3 recommendations I was making in my brief I had intended to submit.
In the light of this, I decided that submitting my brief now would be somewhat redundant. But I do want the CFC to take these steps, and I would like to put forward why I think they are absolutely necessary. So instead of submitting the brief, I am posting it below. I would be pleased to have pointed out any inaccuracies in my calculations, and to hear any comments. Here is the brief:
CFC Projected Revenue/Expenses for November 1, 2008 – April 30, 2009
REVENUE ( May 1 – October 31, 2008 – edited )
Gross Profit on Sales of books, equipment and software $ 13,921
( Analysis :
REVENUE
Sales of books, equipment and software $ 37,902
EXPENDITURE
Cost of sales 23,981
GROSS PROFIT $ 13,921 )
Shipping and handling charges $ 1,488
Membership fees $ 23,582
Interest earned from Chess Foundation of Canada $ 2,500
Rating fees $ 12,665
Donations $ 4,313
TOTAL $ 58,469
For the last 6 months of 2008-9, we will NOT have the gross profit of $ 13, 921, nor the shipping and handling charges of $ 1,488, since the retail business will have gone over to only a commission arrangement with Amazon.ca and FEN. The commission with FEN of $ 6,750 min. guarantee means approx. $ 2,200 commission for the last 4 months of 2008-9. If we assume $ 1,000 commission from Amazon for the 2nd half of 2008-9, this will give replacement revenue of $ 3,200.
On this basis, the current total retail sales revenue will drop approx. $ 12,200 ( $ 13,921 + $ 1,488 – $3,200 ). [ I recognize that CFC has continued sales of inventory after Nov. 1, but I don’t have a profit figure for the wind-up of the business sales, and so shall have to ignore it now for projection purposes. ] If all other revenue stays the same for the last 6 months, and all expenses, this means the second half deficit will climb from $ 8,700 to almost $ 21, 000 ( or an annual deficit comparable to the deficit of last year, from $ 33,000 to $ 29,700 ! ).
So let’s look at expected expenses for the second half of 2008-9 – are there savings coming up there to offset this dramatic loss of income, and avoid the climb back to the deficits of yesteryear?
EXPENDITURE ( May 1 – October 31, 2008 )
General and administrative :
Salaries, benefits and staff travel $ 40,343
Building and equipment expenses $ 7,629
Office $ 12,085
Programs :
Publications - $ 0
International $ 3,623
Contributions to clubs and affiliates $ 3,056
Contributions to Chess Foundation of Canada $ 450
TOTAL $ 67,186
[ Note: this gives us our first half deficit of $ 8,700 ]
Building and Equipment expenses will drop because of the sale of the CFC Office Unit – I will guess the division was Building 80% and Equipment 20%. This will then leave an Equipment expense of $1,500 ( or a drop of expenses of $ 6,000 ). This would leave us with a second half deficit still of $ 15,000 ! But where else are costs going to drop?
In fact it seems that some expenses for the 2nd half are going to INCREASE, not decrease, which is going to make the 2nd half deficit even higher :
1. “ Office expense “ - will go up if CFC moves to a small rental space now. Could they find a small shared office space for $ 500/mo? ( someone correct my estimate here – I’m not really familiar with commercial rents ). If so, for the sake of calculation, that will mean Feb. – April paying rent, or $ 1,500, added to office expense.
2. “ Publications " - will also have to rise from $ 0. We now have an “interim “ editor, Vincent Chow, and he is being paid $ 3,000 ( not sure for what period ). The on-line Chess Canada is to come on-stream this month, and so there will now be expenses associated with it as well ( e.g. Paying contributors for articles ). Former President, Peter Stockhausen, in another post , estimated a 2009-10 “ Web and E-zine “ expense of $ 10,000. I will use ½ of that as the 2nd half 2008-9 expense for Publications. So a $ 5,000 increase in expenses.
Adding these two increased expenses ( Office expense - $ 1,500; Publications - $ 5,000 ) to our calculated 2nd half deficit so far, gives a final anticipated 2nd half 2008-9 deficit of $ 21,500 ( or a 2008-9 deficit of over $ 30,000 ) ! This is totally unsustainable !!
Three things are clear from all this:
1. CFC must move to an “ E.D. Home Office “ arrangement to slash office costs. Let us assume an impossible scenario, for the sake of argument, that this would be done for FREE somewhere. This would then allegedly eliminate : “ Equipment cost - $ 1,500 + Office Cost - $ 12,100 + Increased Office Cost ( Office Rental ) - $ 1,500 = $ 15,100 ! This would then lower the second half projected deficit to $ 6,400. That would then still give an unacceptable 2008-9 annual deficit of $ 15,100. More must be done to at least get the second half 2008-9 deficit down to zero . And remember this calculation is based on office costs, above salaries, being zero, which I doubt to be possible; CFC member Steve Karpik when considering this advised:
“ I don’t think that a free home office is reasonable. There will be costs that have to be assumed by the organization:
A. Telephone (would you really want your family’s telephone tied up by CFC business)
B. Computer + printer + internet + fax machine (it isn’t really reasonable to expect the ED or whoever to be totally left to supply their own equipment; again how happy would someone’s family be if the family PC was tied up for business)
C. Postage, stationary, paper, etc. (a small cost but still a cost)
D. Mail service with forwarding
E. A person is going to dedicate one room of their house to an office for no compensation whatsoever?
I’m sure there are other things “
Also, getting to zero office cost is in fact impossible for the second half, because the CFC has incurred the normal office expenses for November 1, 2008 to January 15, 2009; this could still be as much as $ 6,800 based on the calculations above ).
2. Staff salaries and benefits must be dramatically reduced ( note that this was part of the Grassroots’ Campaign platform brought to the CFC AGM in July, 2008 ! ), and we now have only the last 4 months of the year in which to make savings [ in fact these costs had actually risen almost 20% in the first 6 months of 2008-9 ( from $ 34,000 to $ 40,300 )]. This requires at the very least that the part-time staff position be eliminated. Only if this eliminates $ 6,400 of salary costs for the second half of the year ( and more is required if CFC does have still in the second half, $ 6,800 office costs ), will CFC reduce its second half deficit to zero and be able to avoid step # 3 below.
3. The CFC must revisit its commitment to an on-line Chess Canada, as being a projected $ 10,000 annually we cannot currently afford.
Bob Armstrong
( Revision # 4
December 31, 2008 )
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