Essential tools and guidance for effective nonprofit financial management
Financial Management for Nonprofit Organizations provides students, professionals, and board members with a comprehensive reference for the field. Identifying key objectives and exploring current practices, this book offers practical guidance on all major aspects of nonprofit financial management. As nonprofit organizations fall under ever-increasing scrutiny and accountability, this book provides the essential knowledge and tools professional need to maintain a strong financial management system while serving the organization’s stated mission. Financial management, cash flow, and financial sustainability are perennial issues, and this book highlights the concepts, skills, and tools that help organizations address those issues. Clear guidance on analytics, reporting, investing, risk management, and more comprise a singular reference that nonprofit finance and accounting professionals and board members should keep within arm’s reach.
Updated to reflect the post-recession reality and outlook for nonprofits, this new edition includes new examples, expanded tax-exempt financing material, and recession analysis that informs strategy going forward.
- Articulate the proper primary financial objective, target liquidity, and how it ensures financial health and sustainability
- Understand nonprofit financial practices, processes, and objectives
- Manage your organization’s resources in the context of its mission
- Delve into smart investing and risk management best practices
- Manage liquidity, reporting, cash and operating budgets, debt and other liabilities, IP, legal risk, internal controls and more
- Craft appropriate financial policies
Although the U.S. economy has recovered, recovery has not addressed the systemic and perpetual funding challenges nonprofits face year after year. Despite positive indicators, many organizations remain hampered by pursuit of the wrong primary financial objective, insufficient funding and a lack of investment in long-term sustainability; in this climate, financial managers must stay up-to-date with the latest tools, practices, and regulations in order to serve their organization’s interests. Financial Management for Nonprofit Organizations provides clear, in-depth reference and strategy for navigating the expanding financial management function.
Table of Contents
About the Authors xxiii
Preface xxv
Acknowledgments xxix
1 Understanding Nonprofit Organization Finances 1
1.1 The Impact of the Great Recession 2
1.2 Definition of Nonprofit Organizations 3
1.3 Characteristics of Nonprofit Organizations 7
1.4 Understanding the Language of the Nonprofit Organization 9
1.5 Financial Policies 10
1.6 Financial Practices 11
1.7 Primary Financial Objective 12
1.8 Conclusion 17
2 Liquidity Management 29
2.1 Introduction 29
2.2 Noncommercial Nonprofit Organizations 34
2.3 Evidence on Liquidity Management in the Nonprofit Sector 37
2.4 Facets of Liquidity Management 40
2.5 Importance of Liquidity Management 42
2.6 What Is the Appropriate Level of Liquidity? 51
2.7 Conclusion 54
3 Managing Mission, Strategy, and Financial Leadership 59
3.1 Value of Strategic Planning 60
3.2 What Is Strategic Planning? 61
3.3 What Are the Organization’s Mission, Vision, and Goals/Objectives? 61
3.4 Strategic Management Process 65
3.5 Implementing the Strategic Plan 73
3.6 Performance Management Systems 78
3.7 Strategic Planning Practices: What Does the Evidence Show? 88
3.8 Conclusion 89
4 Managing Structure, Accountability, and Ethics 93
4.1 Financial Tools and Support Structure 93
4.2 Organizational Structure and Governance 96
4.3 Accountability Structure 122
4.4 Ethics 129
4.5 Structure, Accountability, and Ethics in Practice 135
4.6 New Forms 137
4.7 Conclusion 138
5 Developing Financial Policies 165
5.1 Introduction 165
5.2 Financial Policies 176
5.3 Putting Policies into Place 189
5.4 Establishing Procedures 190
5.5 Financial Policies and Procedures in Practice 191
5.6 Additional Resources 193
6 Understanding Financial Accounting Basics and Financial Statements 201
6.1 Introduction 201
6.2 Financial Statement Users and Uses 202
6.3 Accounting Basics 210
6.4 Three Financial Statements 213
6.5 The Audit and the Audit Committee 235
6.6 Financial Statement Users and Uses in Practice 236
6.7 Social Accounting 237
6.8 Additional Resources 237
7 Developing Financial Reports and Ratios: Making Sense of the Numbers 257
7.1 Introduction 257
7.2 Major Differences From For-Profit Business Reports 258
7.3 Objectives of Financial Reports 263
7.4 Reporting System Design 267
7.5 Major Reports 268
7.6 Internal Reports 268
7.7 External Reports 304
7.8 Conclusion 306
8 Developing Operating and Cash Budgets 333
8.1 Introduction 333
8.2 Overview of the Budgeting Process 335
8.3 Are Nonprofit Organizations Doing Their Budgeting Properly? 336
8.4 Developing and Improving Your Budgeting Process 337
8.5 Setting the Budgetary Amounts 346
8.6 Budget Technique Refinements 357
8.7 Cash Budget 363
8.8 Managing off the Budget 367
8.9 Conclusion 372
9 Long-Range Financial Planning and Capital Budgeting 389
9.1 Introduction 389
9.2 Planning for the Future 391
9.3 Financial Evaluation of New and Existing Programs 415
9.4 Capital Budgeting: Financial Evaluation of Projects That Arise from Existing Programs 418
9.5 Financial Evaluation of Mergers, Joint Ventures, and Strategic Alliances 425
9.6 Financial Planning and Capital Budgeting in Practice 434
9.7 Conclusion 435
10 Managing Your Organization’s Liabilities 447
10.1 Managing the Balance Sheet 448
10.2 Balance Sheet Management: Benefits and Steps 449
10.3 Payables 454
10.4 Short-Term Borrowing 455
10.5 Strategic Financing Plan 456
10.6 Steps to Successful Borrowing 458
10.7 Matching Financial Sources to Strategic Objectives 463
10.8 Preparing the Financing Proposal 464
10.9 Making the Presentation 465
10.10 Other Factors in Borrowing/Lending Decisions 466
10.11 Municipal and Taxable Bonds 470
10.12 Leasing and Nontraditional Financing Sources 477
10.13 Developing a Debt and Hedging Policy 479
10.14 Liability Management in Practice 481
10.15 Conclusion 484
11 Cash Management and Banking Relations 489
11.1 Introduction 489
11.2 What Is Cash Management? 492
11.3 Collection Systems: Managing and Accelerating Receipt of Funds 501
11.4 Disbursements 507
11.5 Structuring a Funds Management System 509
11.6 Monitoring Bank Balances and Transactions 509
11.7 Cash Forecasting 511
11.8 Short-Term Borrowing 512
11.9 Short-Term Investing 513
11.10 Benchmarking Treasury Functions 517
11.11 Upgrading the Caliber of Treasury Professionals 518
11.12 Security and Risk Management Issues 521
11.13 Trends in Treasury Management 522
12 Investment Policy and Guidelines 533
12.1 Investment Policy 533
12.2 Investment Guidelines 538
12.3 Checklist of Elements for Long-Term/Endowment Investment Policy and Guidelines 548
12.4 Investment Committee 550
12.5 Trends in Investment Management 551
12.6 Investment Policy Summary 553
13 Information Technology and Knowledge Management 587
13.1 Introduction 587
13.2 How Much Technology and Which to Choose? 591
13.3 Knowledge Management and Information Technology 596
13.4 Information Technology in Today’s Nonprofits 597
13.5 What Should I Know/Do Before Investing in Technology Tools? 602
13.6 Software: Design Internally or Purchase? 604
13.7 Disclosure, the Law, and Security 604
13.8 Needs Assessment and Analysis 609
13.9 Policies and Practices in Knowledge Management and Information Technology 613
Notes 617
14 Managing Risk, Legal Issues, and Human Resources 629
14.1 What Is Risk Management? 629
14.2 Identifying Risk 635
14.3 Primary Financial Risk: Illiquidity 636
14.4 Legal Environment 637
14.5 Safeguarding People 639
14.6 Directors’ and Officers’ Liability 647
14.7 Safeguarding Your Financial and Physical Assets 649
14.8 Risk Management and Human Resource Management
15 Evaluating Your Policies and Progress 671
15.1 Introduction 671
15.2 Evaluation 673
15.3 Evaluating Your Decisions and Ethics 673
15.4 Evaluating Your Communications 679
15.5 Evaluating Your Mentoring and Supervisory Skills 683
15.6 Testing Your Supervisory and Managerial Skills 684
15.7 Evaluating the Strategic Nature of Your Role 684
15.8 Evaluating the Financial Health of Your Organization 689
15.9 Evaluating Your Financial Policies in Six Key Areas 691
15.10 Evaluating Quality and Outcomes 705
15.11 Using External Consultants and Data Sources 706
15.12 Conclusion 706
Notes 707
Index 711
