This article will help explain how Balance handles spending distributions and options for client set up.  It will also provide recommendations for handling different distribution configurations.

The spending exception data is initially imported as part of the initial data load. Additional rules can be set up as funds are created.

To use an import for enter and update spending rule exceptions, please see How Do I Enter Spending Rule Exceptions (Distribution Rules) in Balance via an Import?

Create or Edit a Spending Exception/Distribution Rule

To create/edit spending rule exceptions in bulk via an import, please see How Do I Enter Spending Rule Exceptions (Distribution Rules) in Balance via an Import?

To manually create/edit spending rule exceptions, navigate to Funds on the left panel in your database, select the fund, then click on the Spending & Fees tab.

Here you can view all existing Spending rule exceptions setup for the fund. You can hit Edit to update the existing Spending rule exceptions, or hit 'Add exception rule' to create a new one.

Note: Only funds that have split distributions, donor-directed reinvestment, or special exceptions (such as fixed amount rules) should be set up in the Spending rule exceptions area.

Select the Activity type from the drop down

There are four choices available.  See below for examples of how to use each Activity type.

Distribute 

Distributes all earnings based on Spending Rule applied. A distribution transaction entry is posted. 

Reinvest to Market 

An external transfer in transaction is posted.  Records as a transfer.  Increases temporarily restricted as long as fund is above water.

Reinvest to Principal

Impacts cost and gets recorded as a gift.  Impacts permanently restricted net asset. An Income to Principal transaction is posted. 

Add to Unspent Allocation

Fund accumulates spending in a bucket. Does not impact cash until it is spent.  Does not get reset each year; the cash builds up.  A Spending Bucket Transfer transaction is posted. 

Select a Calculation type

All, Percentage or Fixed. 

Examples

Below are examples of different distribution rules and how their application affects distributions. The examples will explain how the fields in the screen capture below should be populated in each scenario.  Check out the attached spreadsheet at the conclusion of this article for more examples!

Example 1: Making a simple distribution for the full amount

Make an entry in the distribution screen for a distribution of the full amount.

1. Click the add button
2. Select Distribute as ACTIVITY TYPE
3. Select All as CALC TYPE (the system ignores the amount)
4. Optional: Enter a note and a Destination ID or internal account

Cash flow impact: Cash flow out of the pool for the amount of the distribution.

Example 2: Making a distribution for a partial amount

In this example, we will be distributing 50% of the calculated amount and the rest will remain in the fund). Enter a percentage amount as a whole number. For example, 50% should be entered as “50” not “.5”.

Result:  Distribution created for half of the calculated distribution amount.  Balance will only create a distribution transaction for 50%, leaving the rest in the fund/pool.

Example 3: How to reinvest a percentage of the distribution

You will need to create 2 spending exception entries.

Create a second entry to tell the program to reinvest a percentage of the earnings back to principal.

Note: Reinvest rules only work if there is a DISTRIBUTION RULE set up.  Destination ID, Fund, Project all need to be added to rule if that information is needed on the transaction record.

Cash flow impact:  The net cash flow on the reconciliation for this scenario (25% reinvested back to principal) will be cash flow out for the remaining 75% of the calculated distribution amount.

 

 Example 4:  How to distribute a fixed amount

Result: A single distribution transaction will be created for the fixed amount.

 

 

Example 5: What happens if there is no entry in the distribution grid?

Result: The system creates a distribution based on the fund's assigned Spending Rule (via the Fund Profile Section).

Example 6: How to retain the entire distributed amount as undistributed income

Net cash flow impact: None

Net cash flow impact: None

Note: Reinvest rules only work if there is a DISTRIBUTION RULE set up.  Destination ID, Fund, Project all need to be added to rule if that information is needed on the transaction record.

Other things to note when setting up distributions:

If a client's setup has distribution activity impacting unit price rather than units, all funds in that pool need to participate in the same spending rule. If not, all funds participate in the spending, then this unequal distribution will be shown in unrealized gain (loss) allocation.

If a client has an Authorize date and Reinvest threshold populated and the Authorize date criteria has been met, that overrides the Reinvest threshold criteria. Update setting to force both conditions to be met.

A client's Reinvest threshold is based on historic gift.  Balance can customize this option to be based on pooled market value.

When setting up a CALC TYPE of Percentage, setting up two rules (one as a Distribute ALL and one as your percentage) will ensure that all pennies are accounted for.  Setting up two percentage rules (ex. 50% and 50%) might overlook pennies due to rounding.

All of the fields in the box below will pull onto the transaction record when the distributions are processed.

If distributions are going to two or more destinations, multiple rules will need to be set up.

 

Reinvest threshold

Limits spending from fund until minimum dollar threshold for historic gift or market value has been reached.  The default setting on this is for principal/historical gift, but client can choose market value. Please contact Balance Support if you need your minimum dollar amount to look at market value as opposed to historical gift. Balance also allows for some funds to look at historical gift and others to look at market value. 

Note: If the reinvest threshold remains populated and the setting looks at market value, then if a fund drops below the threshold it will cease distributing. If a client needs this threshold to only be met once, then this would need to be configured.

 

To set up a reinvest threshold, enter a dollar amount in the field below.  You can also set an authorize date, if one has been specified in the donor agreement or as board spending policy (for example, a fund may need to accumulate 3 years of appreciation prior to spending). The reinvest threshold will determine if spending can occur, if populated and a fund meets the threshold it will begin participating in spending (if it has been assigned a spending rule).

If a fund has an Authorize date, the fund is not able to make distributions until that date has passed. The program default uses the current posting period as the date to compare to the authorize date.  If the current posting period is greater than the authorize date, the fund is eligible to make distributions.