Streetsmart Financial Basics for Nonprofit Managers

by McLaughlin, Thomas A.

• ISBN13: 9780471114574
• ISBN10: 047111457X
• Edition: Disk
• Format: Paperback
• Copyright: 1995-04-01
• Publisher: John Wiley & Sons Inc

Summary

Get the financial tools you need to make sound business decisions for your nonprofit organization Nonprofit managers, let this book show you how to become a better consumer of financial information. To get the most out of the information your bookkeepers and accountants provide, you need to understand and interpret it correctly. Written by Thomas McLaughlin, a nonprofit management expert, it cuts through technical jargon and complex mathematical contortions to give you the nuts and bolts of nonprofit financial management-as it happens in the real world. In a friendly, informal style, McLaughlin schools you in all the important terms and concepts, explains how to read and interpret financial reports, shows you how to analyze and control costs, provides practical tips for budgeting, and much more. Clear, easy-to-follow explanations of financial management essentials, from balance sheets and cost analyses to budgeting and internal cost control More than 50 easy-to-read charts, tables, checklists, and instructive sidebars Lots of real-world examples based on the author's experience as a manager, consultant, and instructor Discussions centering around IRS Form 990-the government form which drives virtually all nonprofit accounting and financial reporting in the United States An IBM-compatible disk containing templates for financial reports, checklists, sample documents and other handy tools that you can copy, modify, and use

Author Biography

Thomas A. McLaughlin has over twenty-five years of nonprofit experience as a nonprofit manager, trade association executive, and consultant. He is a nonprofit management consultant with Grant Thornton, LLP in Boston

Table of Contents

PART ONE ANALYSIS
Organizational Structure: Programs and Corporations	3	(16)
Types of Nonprofit Organizations	3	(5)
Direct Service Providers	4	(1)
Information Managers	4	(1)
Resource Distributors	5	(1)
Support and Development Providers	6	(1)
Grant Makers of Funders	7	(1)
Social Organizations	7	(1)
Structure of Nonprofit Organizations	8	(8)
Programs	8	(1)
Corporations	9	(5)
The Role of the Internal Revenue Service	14	(1)
An IRS Question: Private Foundation or Not?	15	(1)
Another IRS Question: What Type of Nonprofit?	15	(1)
Loss of Tax-Exempt Status, or the Monster Within	16	(3)
Revocation Not Typical of Public Charities	17	(2)
Mission: Managing Your Two Bottom Lines	19	(6)
The Role of a Value System	20	(2)
The Nonprofit's Dilemma and How to Solve it	22	(3)
Balance Sheets: How They Get That Way	25	(14)
Current Assets	26	(2)
Cash (45)	26	(1)
Savings and Temporary Cash Investments (46)	26	(1)
Accounts Receivable (47)	26	(1)
Allowance for Doubtful Accounts (Same Line)	26	(1)
Pledges Receivable (48)	27	(1)
Grants Receivable (49)	27	(1)
Receivables Due from Officers (50)	27	(1)
Other Notes and Loans Receivable (51)	27	(1)
Inventories (52)	27	(1)
Prepaid Expenses and Deferred Charges (53)	28	(1)
Securities (54)	28	(1)
Noncurrent Assets	28	(1)
Investments Held as Land, Buildings, and Equipment (55)	28	(1)
Other Investments (56)	28	(1)
Land, Buildings, and Equipment (57)	29	(1)
Current Liabilities	29	(1)
Accounts Payable and Accrued Expenses (60)	29	(1)
Grants Payable (61)	29	(1)
Noncurrent Liabilities	29	(3)
Support and Revenue Designated for Future Periods (62)	29	(1)
Loans from Officers and Directors (63)	30	(1)
Mortgages and Other Notes Payable (64)	30	(1)
Fund Balances or Net Assets (67-74)	30	(2)
Making the Balance Sheet Dance	32	(7)
Financial Analysis: A Few Diagnostic Tools	39	(22)
Financial Statement Analysis for Math Phobics	40	(4)
Steps in Reading a Financial Statement	40	(4)
Current Ratio	44	(2)
Days' Cash	46	(2)
Days' Receivables	48	(2)
Cash Flow to Total Debt	50	(1)
Debt to Fund Balance (Net Assets)	51	(1)
Total Margin	52	(2)
Operating Margin	54	(1)
Return on Fund Balance (Net Assets)	55	(1)
Accounting Age of Plant/Equipment	56	(2)
A Footnote	58	(3)
PART TWO ACCOUNTING
Nonprofit Accounting: Acknowledging the Strings Attached	61	(8)
The New Fund Categories	62	(1)
Permanently Restricted Net Assets (Fund Balance)	62	(1)
Temporarily Restricted Net Assets (Fund Balance)	62	(1)
Unrestricted Net Assets (Fund Balance)	63	(1)
Other Provisions	63	(1)
What It All Means	63	(6)
Cost Accounting: How Much Does it Cost?	69	(16)
A Form of Management Accounting	70	(3)
Indirect Costs	73	(1)
Certain Support Costs Get Assigned to Other Support Costs	74	(5)
Another Use for Cost Data	79	(3)
Cost Accounting vs. Cost Reporting	82	(3)
Auditing: Choosing and Using an Auditor	85	(16)
Audit, Review, and Compilation	87	(2)
Who Uses What	88	(1)
The Audit Equation	88	(1)
The Auditor Market	89	(6)
Elements of Auditor Choice	90	(5)
Getting Value from the Audit	95	(2)
The Management Letter	95	(1)
Specialized Reporting	96	(1)
Conclusion	97	(4)
PART THREE OPERATIONS
Cash Flow Management: Why Cash Is King	101	(18)
Up the Balance Sheet	102	(8)
Next Stop, A/R	104	(1)
Improve Invoicing Technology	105	(1)
Borrow Against or Sell Receivables	105	(1)
Pledges Can Be Promising	106	(1)
Other Receivables	107	(1)
Prepaid Expenses and Deferred Charges	108	(1)
Investments	108	(1)
Land, Buildings, and Equipment	108	(1)
Stretch Those Payables	109	(1)
Support and Revenue Designated for Future Periods	109	(1)
Loans from Officers, Directors, Trustees, and Key Employees	110	(1)
Mortgages and Other Notes Payable	110	(1)
Fund Balances (Net Assets)	110	(1)
How Much Cash Is Enough?	110	(7)
The Fail-Safe Source of Cash---Profits	112	(1)
The Cash Flow Projection	113	(3)
What It All Means	116	(1)
Conclusion	117	(2)
Capital: Why Capital Is Not a Four-Letter Word	119	(12)
The Mechanics of Capital Financing	120	(4)
The present Value of Money	124	(1)
Sources of Capital	125	(2)
The Great Divide among Nonprofits	127	(1)
Future Access to Capital Markets	128	(2)
The Role of Net Assets or Fund Balances	130	(1)
Strategic Capital Management	130	(1)
Budgeting: Taming the Budget Beast	131	(16)
Playing Revenues Like a Symphony	132	(2)
Expenses	134	(10)
Salaries	134	(1)
Relief/Overtime	135	(3)
Payroll Taxes	138	(1)
Independent Contractors versus Employees	139	(1)
Benefits	140	(4)
Other Direct Expenses	144	(1)
Indirect (General and Administrative) Costs	144	(2)
Conclusion	146	(1)
Pricing: How Much Should It Cost?	147	(12)
Pricing Methodologies	150	(5)
Fee for Service	150	(2)
Cost-Based Reimbursement	152	(1)
Unit Reimbursement	152	(1)
Class Rates	153	(1)
Fixed Price or Project-Based	153	(1)
Vouchers	154	(1)
Standard or Market Pricing	154	(1)
Going the Other Way---Contractual Adjustments and Subsidies	155	(1)
Pricing Strategies	155	(2)
How to Price	157	(2)
Profit: Why and How Much?	159	(14)
Profit Defined	159	(1)
Uses of Profit	160	(8)
Profit for Stability	161	(2)
Profit for Personnel Bonuses	163	(3)
Profit for Innovation	166	(1)
Profit for Growth	167	(1)
Profit---How to Get It	168	(2)
What Can Be Done	170	(3)
PART FOUR CONTROL
Internal Controls for External Goals	173	(22)
The Elements of Internal Control	174	(14)
Control Cues	175	(1)
Policy Communication	175	(1)
Segregation of Duties	176	(8)
Recordkeeping	184	(4)
How to Monitor the System	188	(3)
Use a Payroll Service	189	(1)
Accounts Receivable Management	190	(1)
Cash Management Services	190	(1)
Maintaining the System	191	(2)
The Management Letter	191	(1)
Reporting	192	(1)
Conclusion	193	(2)
Management Controls: Toward Accountability for Performance	195	(10)
Management Controls Circa 1980	196	(1)
Beyond Management Controls in the 21st Century: How to Do It	197	(3)
Waukesha County Technical College	197	(1)
The City of Portland, Maine	198	(1)
Loomis House Nursing Home	199	(1)
The Morals of the Stories	200	(2)
How to Prepare---Strategic Business System Positioning	202	(3)
Appendix Using the Disk	205	(10)
Index	215