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Finance Fundamentals for Nonprofits: Building Capacity and Sustainability

ISBN: 978-1-118-11400-1
240 pages
July 2011
Finance Fundamentals for Nonprofits: Building Capacity and Sustainability (1118114000) cover image
A complete guide to the financial requirements a nonprofit organization must follow to indefinitely maintain the volume and quality of their services

An organization may have plenty of capacity in the long run, but in the short run, donor restrictions and limited financing options are constraining. Here-and-now liquid assets are the only resources available. Finance Fundamentals for Nonprofits: Building Capacity and Sustainability shows how to measure a nonprofit organization's financial capacity in different time frames and how to measure its ability to sustain capacity in each case.

  • Explains how nonprofits differ from businesses and how they promote values-centered management
  • Reveals how to improve financial capacity and sustainability
  • Written by a nonprofit scholar

Filled with real-world case studies and actionable advice relating financial health to financial capacity and sustainability, this book is essential reading for every nonprofit professional.

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Preface ix

Acknowledgments xi

CHAPTER 1 Introduction: How Nonprofits Are (and Are Not) Like Businesses 1

What Are Nonprofits? 2

Why Are There Nonprofits? 4

Nonprofits as Businesses 5

Advantages and Disadvantages of Being Nonprofit 8

This Book’s Agenda 11

Concluding Thoughts 14

CHAPTER 2 Accounting: Measuring Past Performance 15

Basis of Accounting and Audits 16

Statement of Financial Position 17

Statement of Activities 20

Other Statements and Notes 26

What to Look For 27

IRS Form 990 30

Concluding Thoughts 31

CHAPTER 3 Investing: Looking to the Future 33

Investing 33

Endowment 39

Values-Centered Investing 42

Concluding Thoughts 46

Appendix 47

CHAPTER 4 Budgeting: Taking Control of the Present 49

Budgeting Practices 49

Budget Structure 53

Reconciling Budgets and Financial Statements 55

Reconciling Budgets and IRS Form 990 63

Concluding Thoughts 64

CHAPTER 5 Nonprofits in History and Tax Law: Why Nonprofits Do What They Do 65

Classification 66

Unrelated Business Income Tax 75

Intermediate Sanctions 76

Lobbying and Political Action 78

State Law 79

Concluding Thoughts 80

CHAPTER 6 Ordinary Service Providers: Serving the Public Today 81

Long-Term Objective: Maintaining Services 82

Short-Term Objective: Resilience 85

Current Objective: Paying Bills 89

Application 90

Benchmarking 91

Concluding Thoughts 94

Appendix 94

CHAPTER 7 Membership Associations: Serving People with a Common Purpose 97

Membership Associations 98

Cooperatives 101

Capacity and Sustainability 103

Two Applications 104

Concluding Thoughts 105

Appendix: ASAE/CAL Metrics of Financial Capacity for Membership Associations 106

CHAPTER 8 Endowed Service Providers: Serving the Next Generation, Too 107

Introduction 108

Long-Term Objective: Maintaining Services 111

Short-Term Objective: Resilience 113

Current Objective: Paying Bills 115

Application: Famous University 116

Building an Endowment 117

Concluding Thoughts 119

CHAPTER 9 Grantmaking Organizations: Serving Service Providers 121

Foundation Types 122

Financing Models 123

Capacity and Sustainability 126

Illustrations 131

Concluding Thoughts 131

Appendix: S&P Metrics of Financial Capacity for Grantmakers 133

CHAPTER 10 Beyond Sustainability: Managing Revenue to Maximize Growth 135

Revenue Sources 135

Theories of Revenue Compensation 139

Application 144

Unfair Competition 145

Concluding Thoughts 146

CHAPTER 11 The Nonprofit Difference: Doing Good Well 149

Control Environment 150

Being Businesslike 153

Concluding Thoughts 158

Notes 159

Glossary 173

References 187

About the Web Site 201

About the Author 203

Index 205

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WOODS BOWMAN, PhD, is a Professor of Public Service at DePaul University who brings to the classroom a range of experience in public finance and a passion for ethical governance. He is the former CFO of Cook County, a former member of the House of Representatives, Illinois General Assembly, from 1977–1990, and former chair of the Appropriations II Committee. He is a board member of the Association for Research on Nonprofit Organizations and Voluntary Action. He received the Chairman's Award from Goodwill Industries International for his service to a local affiliate. His articles have appeared in Nonprofit Management and Leadership and Nonprofit and Voluntary Sector Quarterly. In addition, Dr. Bowman writes a column on ethics for the Nonprofit Quarterly.

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