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Financial Management for Nonprofit Organizations: Policies and Practices, 3rd Edition

Financial Management for Nonprofit Organizations: Policies and Practices, 3rd Edition

John Zietlow, Jo Ann Hankin, Alan Seidner, Tim O'Brien

ISBN: 978-1-119-38256-0

Apr 2018

768 pages

Description

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.  

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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

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