Monthly Financial Report March 2006

March has ended, and its time to see how we did. The reports are rather siimple this month, but there's a problem that could use some feedback. Here are the links:


Neualtenburg Balance Sheet in Lindens
http://www.tospitimou.com/Neualtenburg/BalanceSheetLD.pdf

Neualtenburg Balance Sheet in US Dollars
http://www.tospitimou.com/Neualtenburg/BalanceSheet.pdf

Neualtenburg Income/Expense Report in Lindens
http://www.tospitimou.com/Neualtenburg/IncomeExpenseLD.pdf

Neualtenburg Income/Expense Report in US Dollars
http://www.tospitimou.com/Neualtenburg/IncomeExpense.pdf


Also, the site has links to the reports.

Looking at the US$ Income/Expense report for March, which we are now presenting in the form of Actual for the Month followed by Budget for the Month, you can see that the collections for "Land Tier" was "spot on". In addition, sales of new land was higher than projected, while "Other Revenue" was lower. The net result is that revenue for the month was a bit higher than projected.

And, on the Expenses, they were a bit lower than expected. So, the net result is that the Net Income, the "profit" if you will, was higher than budgeted.

But!, you will say! What's this with the "Linden Land Tier Payment of US$185.75. Aaaah. That's the little problem (!) that I was mentioning. More in a bit.

Going to the Balance Sheet, remember my old formula. The Balance Sheet is everything we *own* minus everything we *owe*. Well, basically good news, we no longer *owe* anything! In that situation, the "Value" of the City, called "Equity" on this report, is exactly equal to the sum of what we *own*, called Assets. So, thats interesting. That amount is US$594.

First off, that $594 is $116 more than it was last month, because the bottom line on the Income/Expense Report is the increase in the value of the City. Of the $594, $452 is cash, called on the Balance Sheet "Current assets" at the top. Also, you're beginning to see an increase in something called "Fixed Assets" which are the things we've spent money to invest in. These would be the Rathaus, some of the Fountain, and the first payment for the mapping software.

But, bottom, bottom line. Neualtenburg is worth $116 more now than it was last month. This compares to a budgeted $80 more, so we're doing well.

Back to the problem, mentioned above. In a nutshell, the Linden$ is experiencing SERIOUS inflation again. To explain why it looks like we paid only $185.75 for our monthly fee, well, on March 21, it WAS US$195. But the Linden$'s spent to pay that are now only worth the amount on the report. When the payment was posted, they were worth around 280 to the dollar. On the morning of April 1, the rate was as shown, 295. I see today that its around 300.

This is serious stuff. But I'm also a bit concerned, because this problem of managing dual currencies for our financial matters rather exceeds my experience zone. In RL I'm a small business owner... I've been doing the accounting for my businesses for perhaps 30 years. But, always in just one currency. Since taking on the challenge of managing the finances of Neualtenburg almost a year ago, I must say that even our simple transactions, carried out in two currencies, are quite a challenge.

As per an RA action of (I think) late last summer, those funds received as US$ are maintained in US$ accounts. US$ loans, for example, are manged as US$, so that the accounts show balances in US$ without regard to any fluctuation in the L$. But, monthly fee payments, directed as they are towards the payment to the Lindens for our monthly fee, come in both currencies, mostly L$. At a certain point each month, L$'s are converted to US$'s, according to the exchange rate at that moment, and then the fee is paid.

Obviously, we can take steps to protect ourselves by attempting to maintain more funds in the deflating currency (in this case the US$), and less in the inflating one (L$). But I am concerned that residents understand that your Treasurer is "learning on the job". Any and all serious advice is welcomed. I have often called for a "finance committee" to share some responsibility for money management, and consider this a renewed call.


Sudane

Remember that there is no problem with holding funds in $L that we intend to use to pay obligations in $L. Thus the only real issue is the payments people make in $L to cover land fee. If we do anything other that what we're doing now (keeping everything in its original currency until we have to convert) we are in essence speculating. If we believe the $L is headed down, we convert right away to $US. and vice versa.

On the other hand, since we really think of our value as being in $USD, maybe it would be wise to hold more of that value is $USD denominated accounts. I have to admit that I view a $L crash against the US Dollar as being more likely than the alternative.

That's consistent with my own arguments back when the original bills were passed, Claude. The one obligation we absolutely must pay is the monthly tier bill. Therefore, it's wise to make sure we can pay it.

That said, most calculations based on the amount of L$ one can get with a yearly account project the "true" L$ price at being somewhere in the 350-400 range, I believe. I'd only worry if we go past that point - since the reason the price is going down is because there's more L$ to go around than there is demand for more. Once you reach the point that you can't "make money" just by having a yearly account, I think it will be stable.

As I've said, it ultimately doesn't matter if hamburger costs $1 or $1,000 (and the same value in either case), so long as you have hamburgers.