Streetsmart Financial Basics for Nonprofit Managers E-Book

Thomas A. McLaughlin

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Wiley Nonprofit Law, Finance, and Management Series
• Sprache: Englisch

Seitenzahl: 492

Veröffentlichungsjahr: 2016

Beschreibung

The complete guide to the basics of nonprofit financial management Let's be honest. Most books about financial management are densely written, heavy on jargon, and light on practicality. Expert financial consultant and author Tom McLaughlin takes a different approach with his fourth edition of Streetsmart Financial Basics for Nonprofit Managers. This comprehensive guide provides effective, easy-to-use tips, tools, resources, and analyses. The light, humorous tone in Streetsmart Financial Basics for Nonprofit Managers makes it an accessible resource for nonprofit executives, board members, students, and those new to the field. This book forgoes useless, pretentious verbiage in order to outline real-world strategies that work. This edition includes: * New insights, updates, vignettes, case studies, and examples to deal with the implications of nonprofit financial management * An examination of nonprofit business models in relation to growing demands from the government and other funders * How to construct business plans for virtually any nonprofit entity * Customizable resources--including financial worksheets, forms, and Excel templates to help nonprofit managers complete their day to day assignments * A guided tour through common aspects of nonprofit management, such as financial analysis, accounting, and operations Practical and informative, Streetsmart Financial Basics for Nonprofit Managers is the go-to financial management reference for nonprofit managers, boards of directors, and funders.

Leseprobe

Table of Contents

Title Page

Copyright

Dedication

Preface

Acknowledgments

Note to Reader

Part One: Analysis

Chapter 1: Structure of Nonprofit Organizations

Corporations

Programs

Hybrid Corporations

Loss of Tax-Exempt Status: The Monster Within

Chapter 2: Mission: Managing Your Two Bottom Lines

The Role of a Value System

The Nonprofit's Dilemma and How to Solve It

Chapter 3: Accounting as a Second Language: A Nine-Point Program

The Entity Principle

Money Measurement

Conservatism Principle

The Cost Concept

The Materiality Principle

Going Concern

Dual Aspect

Realization Principle

Matching Principle

Chapter 4: Assets Are for Boards, Activities Are for Managers

Concepts Versus Details

Boards Invest, Managers Spend

If It Has to Be Decided Today, It's Probably the Wrong Question

Boards Own the Controls, Managers Implement Them

Chapter 5: Balance Sheets: How They Get That Way

Current Assets (from IRS Form 990, page 11)

Noncurrent Assets

Current Liabilities

Noncurrent Liabilities

Making the Balance Sheet Dance

Transparency, Thy Name Is IRS Form 990

What to Do

Chapter 6: Financial Analysis: A Few Analytical Tools

Financial Statement Analysis for Math Phobics

Current Ratio

Days' Cash

Days' Receivables

Cash Flow to Total Debt

Debt to Net Assets

Operating Margin

Accounting Age of Plant/Equipment (or Land, Buildings, and Equipment)

A Footnote

Chapter 7: Beyond the C3: Alternate Corporate Structures

Commonly Available Structures

Part Two: Accounting

Chapter 8: Nonprofit Accounting: Acknowledging the Strings Attached

Net Asset Categories

Other Provisions

What It All Means

Chapter 9: Cost Accounting: How Much Does It Cost?

A Form of Management Accounting

Indirect Costs

Certain Support Costs Get Assigned to Other Support Costs

Breakeven Analysis—Another Use for Cost Data

Cost Accounting versus Cost Reporting

Chapter 10: Auditing: Choosing and Using an Auditor

Audit, Review, and Compilation

The Auditor Market

Getting Value from the Audit

Conclusion

Part Three: Operations

Chapter 11: Cash Is King

Up the Balance Sheet

How Much Cash Is Enough?

Conclusion

Chapter 12: Capital: Not a Four-Letter Word

Sources of Capital

The Mechanics of Capital Financing

The Present Value of Money

The Great Divide among Nonprofits

Future Access to Capital Markets

The Role of Net Assets

Strategic Capital Management

Chapter 13: Budgeting: Taming the Budget Beast

Playing Revenues Like a Symphony

Expenses

Conclusion

Chapter 14: Indirect Costs and Other Despised Items

Rules Govern Audits, Economics Rules Budgets

Still, It's Low That Counts

Secrets of the Indirect Cost Game

Chapter 15: Managing Money-Losing Programs

The Origin of the Problem

Solutions

Other Sources of Value

Ding Ding Ding Ding Ding!

Chapter 16: The Milestones of Spending on Overhead Costs

Chapter 17: Pricing: How Much Should It Cost?

Pricing Methodologies

Going the Other Way—Contractual Adjustments and Subsidies

Pricing Strategies

How to Price

Chapter 18: Profit: Why and How Much?

Profit Defined

Uses of Profit

Profit—How to Get It

What Can Be Done

Chapter 19: To Raise More Money, Think Cows

Donations

Bequests—Cow to Charity

Charitable Remainder Trusts—Milk to Beneficiaries, Cow to Charity

Pooled Income Funds—Donors Put Their Cows in a Herd, Keep Rights to Milk

Chapter 20: Owning a Building: What's in It for You?

A Three-Part Calculation

Chapter 21: Insurance: The Maddeningly Complicated Art of Covering Your Assets

To Insure or Self-Insure?

Risk Management

Captive Insurance Companies

Quality Assurance in Disguise

Chapter 22: Internal Controls for External Goals

The Elements of Internal Control

How to Monitor the System

Maintaining the System

Conclusion

Chapter 23: Scrutiny Intensifies

Some Predictions

The Growing Industry of Charity Watching

Chapter 24: Management Controls: Toward Accountability for Performance

Management Controls circa 1980

Beyond Management Controls in the Twenty-First Century: How to Do It

Messages

How to Prepare—Changes in the CFO Role

It's Called

ACCOUNTING

for a Reason

Appreciate the Abrupt Change

Frame the New Role

Meet Your New CFO

Part Four: Planning, Control, and Miscellaneous

Chapter 25: Finance Is Oil, Development Is Water

It's All about Time

The Fix

Chapter 26: When Do You CFO?

DIY

The Financial Tasks Multiply

Chapter 27: Business Models and Business Plans

First the Model, Then the Plan

How to Build Your Business Model

What, Exactly, Is a Business Plan?

What Is in a Business Plan (Usually…)?

Start-Up Nonprofits

The Restructuring Nonprofit

New Program or Division

Goals Drive the Plan

Chapter 28: How to Beat the Next Recession

Understand the Demand Pattern for Your Services

Prepare for Reductions—in New Services

Anticipate Foundation Behavior

Proactively Communicate with Your Staff

Consider Repurposing Your Reserves

Stay Calm

Appendix A: A Financial Management Cultural Primer

Appendix B: Budget Bloopers

Appendix C: Using the Website: Table of Contents with Commentary

Part One: Analysis

Part Two: Accounting

Part Three: Operations

Part Four: Planning, Control, and Miscellaneous

Introduction

System Requirements

Using the Files

User Assistance

Index

End User License Agreement

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Guide

Cover

Table of Contents

Begin Reading

List of Exhibits

Chapter 1: Structure of Nonprofit Organizations

Exhibit 1.1 Form 990 Returns of 501(c)(3)–(9) Organizations: Balance Sheet and Income Statement Items, by Code Section, Tax Year 2012

Chapter 4: Assets Are for Boards, Activities Are for Managers

Exhibit 4.1 Proper Areas of Focus

Chapter 5: Balance Sheets: How They Get That Way

Exhibit 5.1 Form 990 versus the Audit: Summary of Strengths

Exhibit 5.2 Sample Balance Sheet

Exhibit 5.3 Sample Balance Sheet with Purchase of Building

Exhibit 5.4 Sample Balance Sheet with Paid Bills

Exhibit 5.5 Sample Balance Sheet With More Collected Funds

Exhibit 5.6 Sample Balance Sheet Showing the Effect of a Profit

Exhibit 5.7 Sample IRS Form 990

Chapter 7: Beyond the C3: Alternate Corporate Structures

Exhibit 7.1

Chapter 9: Cost Accounting: How Much Does It Cost?

Exhibit 9.1 Allocation of Costs

Chapter 10: Auditing: Choosing and Using an Auditor

Exhibit 10.1

Exhibit 10.2

Exhibit 10.3

Chapter 11: Cash Is King

Exhibit 11.1

Exhibit 11.2

Chapter 12: Capital: Not a Four-Letter Word

Exhibit 12.1 Amortization Schedule

Exhibit 12.2 Paying Off a Loan

Exhibit 12.3 Cash Flows of a Loan

Chapter 13: Budgeting: Taming the Budget Beast

Exhibit 13.1 CCUA Municipal Recycling Program Budget

Exhibit 13.2 FICA Wage Base since the Great Recession

Chapter 14: Indirect Costs and Other Despised Items

Exhibit 14.1 Major Differences Between Accounting and Budgeting

Exhibit 14.2 Direct Costs

Exhibit 14.3 10%—Aggressive Computation of Indirect Costs

Exhibit 14.4 71 Percent—Broad Computation of Indirect Cost

Chapter 15: Managing Money-Losing Programs

Exhibit 15.1 Alternative Signs of Ding Ding Ding Ding Ding

Chapter 17: Pricing: How Much Should It Cost?

Exhibit 17.1 Pricing Strategies

Exhibit 17.2 The Nonprofit Pricing Map

Chapter 21: Insurance: The Maddeningly Complicated Art of Covering Your Assets

Exhibit 21.1 Common Insurance Coverage Needed to Provide Responsible Service

Chapter 22: Internal Controls for External Goals

Exhibit 22.1 Segregation of Duties

Exhibit 22.2 Sample Record-Keeping System

Chapter 27: Business Models and Business Plans

Exhibit 27.1 Business plan Guidance for Start-ups, Restructuring Organizations, and New Programs

StreetsmartFinancialBasicsFORNonprofitManagers

FOURTH EDITION

THOMAS A. McLAUGHLIN

This book is printed on acid-free paper. ∞

Copyright © 2016 by Thomas A. McLaughlin. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

McLaughlin, Thomas A.

Streetsmart financial basics for nonprofit managers / Thomas A. McLaughlin.

Fourth Edition. | Hoboken : Wiley, 2016. | Revised edition of the author's Streetsmart financial basics for nonprofit managers, 2009. | Includes index.

LCCN 2015042429 (print) | LCCN 2015047242 (ebook) | ISBN 9781119061151 (pbk.) | ISBN 9781119061274 (pdf) | ISBN 9781119061328 (epub)

LCSH: Nonprofit organizations–Finance. | Nonprofit organizations–Accounting.

Classification: LCC HG4027.65 .M35 2016 (print) | LCC HG4027.65 (ebook) | DDC 658.15—dc23

LC record available at http://lccn.loc.gov/2015042429

Cover Design: Wiley

Cover Illustration: Alexander Chernyakov /iStockphoto

To Gail, Paul, and Emily

Preface

Over the past three decades, the nonprofit sector has grown at an astonishing pace. Today, there are more than 1.1 million nonprofit public charities and about 380,000 other types of nonprofit entities. The sector is beginning to figure prominently in public conversations as an acknowledged source of innovation and solutions to various social issues, especially in areas where government at all levels was formerly more active. This trend seems likely to continue and even accelerate in the years to come.

With greater prominence and more widespread acceptance come greater attention and more scrutiny. Nonprofit management is becoming a recognized specialty, and there is a growing recognition that nonprofit financial management is not just for-profit financial management with a different name. The number of individuals and entities specializing in nonprofit financial management is growing as well.

With this growth in numbers comes a comparable growth in the demand for sophisticated management. The problem is that few nonprofit managers have any formal training in financial management. Almost everything they know is from on-the-job training, with a liberal amount of assumptions and conventional wisdom that may or may not be helpful. In some cases, these managers can rely on native instinct and clarity of thought, but most often they simply wing it and hope for the best.

Nonprofit organizations—and the users and funders of their services—deserve better, and they are getting it. It is not much of a stretch to say that the increased emphasis on financial management in nonprofits reflects a laudable striving for greater accountability. No longer is it enough just for one's financial records to be in order; one must be able to demonstrate good financial systems in order to meet all the other rising demands on today's nonprofit.

In my work as a nonprofit management consultant and nonprofit board member, I continue to find a widespread hunger for practical, immediately helpful financial information. That was the initial stimulus for this book, and it remains so today.

In this volume, I tend to steer away from technical compliance-related matters, for two reasons. First, others can cover financial compliance subjects better than I. And, second, my vision of financial management goes far beyond simple compliance to a stage that I fervently hope will be characterized by thoughtful, creative, and persistent management actions.

To support those who share my vision, I have tried to make this book as practical as possible. For example, most of my financial calculations and many examples are based on the IRS Form 990, the nonprofit tax return. By using the only common financial reporting form, I hope to bridge the gaps between different types of nonprofit organizations so that the content will work equally well for a broad audience.

In recent years, I have seen a growing interest in the American nonprofit sector by people from other countries. From conversations with my consulting and academic colleagues, I know I am not alone. Foreign students and managers face the double challenge of learning financial concepts while also familiarizing themselves with cultural matters that are uniquely American. This is why I added an appendix again in this version that is designed to be a kind of cultural primer on practices, institutions, and policies that most Americans take for granted but that would be stumbling blocks to non-Americans' understanding.

As with the first edition, this book is not intended to be primarily a textbook. There are hundreds of thousands of people involved with nonprofits who need to know about financial management but who don't need another textbook in their lives. It is to them that I speak through these pages. At the same time, I have been flattered that many professors and academic programs throughout the country have adopted the book for use in the classroom, and I thank them. I can only hope that their students do, too.

As a rookie executive director many years ago, I never dreamed that I might one day write a book that so many would find useful. Mainly, I was consumed with trying to figure out what seemed like a gargantuan task rapidly enough to avoid appearing foolish. In some very real ways, this book is a record of my personal journey through a sometimes confusing topic. The existence of this fourth edition is pleasing validation that many people have found my approach to nonprofit financial management helpful. I hope only that that will continue to be the case.

—Tom McLaughlinNovember 2015

Acknowledgments

Many people helped with one or more editions of this book. I particularly want to thank Allwyn Baptist, Becky J. Cerio, Robert Cowden, Dennis Fusco, Jim Gambon, Robert Gardiner, Catherine Gill, Elizabeth Hart, John Joyce, Laura Kenney, Bill Levis, Marty McLaughlin, Jim Mecone, Clara Miller, Wayne Moss, James Nesbitt, David Orlinoff, Mary Plant, Joanne Sunshower, Shari Sankner, and Sherrell M. Smith. Catherine Gill at the Nonprofit Finance Fund supplied some of the vignettes. My editors at John Wiley & Sons, Marla Bobowick, Susan McDermott, and Matt Gilbert provided support, feedback, and guidance in one or more editions.

Note to Reader

Throughout this book, a web icon indicates that you should go to the accompanying website for corresponding templates or examples. The website address is www.wiley.com/go/basics4E. Refer to Appendix C, “Using the Website,” for the table of contents and detailed instructions for use of these templates.

Part OneAnalysis

Chapter 1Structure of Nonprofit Organizations

Corporations

One of the distinguishing features of our legal and financial systems is that they have found a way to make something that no one can see or touch seem real—and therefore, it has become real. The high point of this accomplishment is that perfectly intelligent, normal people can find themselves debating the virtues of the behavior of this thing and even changing their own behaviors and choices because of its existence.