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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:
Practical and informative, Streetsmart Financial Basics for Nonprofit Managers is the go-to financial management reference for nonprofit managers, boards of directors, and funders.
THOMAS A. MCLAUGHLIN is the founder of McLaughlin & Associates, a nonprofit consulting firm. He is a contributing editor for the NonProfit Times, and he taught financial management and strategic management to mission-based MBA and international students at Boston University and Brandeis University for 28 years.
Preface xiii
Acknowledgments xvii
Note to Reader xix
PART ONE Analysis 1
CHAPTER 1 Structure of Nonprofit Organizations 3
Corporations 3
Programs 6
Hybrid Corporations 8
Loss of Tax-Exempt Status: The Monster Within 14
CHAPTER 2 Mission: Managing Your Two Bottom Lines 17
The Role of a Value System 18
The Nonprofit’s Dilemma and How to Solve It 20
CHAPTER 3 Accounting as a Second Language: A Nine-Point Program 23
The Entity Principle 23
Money Measurement 24
Conservatism Principle 24
The Cost Concept 26
The Materiality Principle 27
Going Concern 29
Dual Aspect 30
Realization Principle 32
Matching Principle 33
CHAPTER 4 Assets Are for Boards, Activities Are for Managers 35
Concepts Versus Details 36
Boards Invest, Managers Spend 37
If It Has to Be Decided Today, It’s Probably the Wrong Question 38
Boards Own the Controls, Managers Implement Them 38
CHAPTER 5 Balance Sheets: How They Get That Way 39
Current Assets (from IRS Form 990, page 11) 40
Noncurrent Assets 43
Current Liabilities 45
Noncurrent Liabilities 45
Making the Balance Sheet Dance 49
Transparency, Thy Name Is IRS Form 990 52
What to Do 53
CHAPTER 6 Financial Analysis: A Few Analytical Tools 67
Financial Statement Analysis for Math Phobics 68
Current Ratio 75
Days’ Cash 77
Days’ Receivables 79
Cash Flow to Total Debt 81
Debt to Net Assets 82
Operating Margin 85
Accounting Age of Plant/Equipment (or Land, Buildings, and Equipment) 86
A Footnote 87
CHAPTER 7 Beyond the C3: Alternate Corporate Structures 89
Commonly Available Structures 92
PART TWO Accounting 95
CHAPTER 8 Nonprofit Accounting: Acknowledging the Strings Attached 97
Net Asset Categories 98
Other Provisions 99
What It All Means 99
CHAPTER 9 Cost Accounting: How Much Does It Cost? 103
A Form of Management Accounting 104
Indirect Costs 106
Certain Support Costs Get Assigned to Other Support Costs 106
Breakeven Analysis—Another Use for Cost Data 110
Cost Accounting versus Cost Reporting 113
CHAPTER 10 Auditing: Choosing and Using an Auditor 115
Audit, Review, and Compilation 117
The Auditor Market 119
Getting Value from the Audit 122
Conclusion 124
PART THREE Operations 125
CHAPTER 11 Cash Is King 127
Up the Balance Sheet 128
How Much Cash Is Enough? 141
Conclusion 145
CHAPTER 12 Capital: Not a Four-Letter Word 147
Sources of Capital 148
The Mechanics of Capital Financing 150
The Present Value of Money 156
The Great Divide among Nonprofits 157
Future Access to Capital Markets 159
The Role of Net Assets 161
Strategic Capital Management 161
CHAPTER 13 Budgeting: Taming the Budget Beast 163
Playing Revenues Like a Symphony 165
Expenses 166
Conclusion 176
CHAPTER 14 Indirect Costs and Other Despised Items 177
Rules Govern Audits, Economics Rules Budgets 179
Still, It’s Low That Counts 182
Secrets of the Indirect Cost Game 185
CHAPTER 15 Managing Money-Losing Programs 191
The Origin of the Problem 192
Solutions 192
Other Sources of Value 192
Ding Ding Ding Ding Ding! 194
CHAPTER 16 The Milestones of Spending on Overhead Costs 199
CHAPTER 17 Pricing: How Much Should It Cost? 205
Pricing Methodologies 208
Going the Other Way—Contractual Adjustments and Subsidies 212
Pricing Strategies 213
How to Price 214
CHAPTER 18 Profit: Why and How Much? 217
Profit Defined 217
Uses of Profit 218
Profit—How to Get It 226
What Can Be Done 228
CHAPTER 19 To Raise More Money, Think Cows 229
Donations 230
Bequests—Cow to Charity 230
Charitable Remainder Trusts—Milk to Beneficiaries, Cow to Charity 230
Pooled Income Funds—Donors Put Their Cows in a Herd, Keep Rights to Milk 233
CHAPTER 20 Owning a Building: What’s in It for You? 235
A Three-Part Calculation 236
CHAPTER 21 Insurance: The Maddeningly Complicated Art of Covering Your Assets 239
To Insure or Self-Insure? 241
Risk Management 242
Captive Insurance Companies 245
Quality Assurance in Disguise 246
CHAPTER 22 Internal Controls for External Goals 249
The Elements of Internal Control 251
How to Monitor the System 264
Maintaining the System 266
Conclusion 268
CHAPTER 23 Scrutiny Intensifies 269
Some Predictions 272
The Growing Industry of Charity Watching 274
CHAPTER 24 Management Controls: Toward Accountability for Performance 279
Management Controls circa 1980 280
Beyond Management Controls in the Twenty-First Century: How to Do It 281
Messages 281
How to Prepare—Changes in the CFO Role 283
It’s Called Accounting for a Reason 286
Appreciate the Abrupt Change 287
Frame the New Role 288
Meet Your New CFO 288
PART FOUR Planning, Control, and Miscellaneous 289
CHAPTER 25 Finance Is Oil, Development Is Water 291
It’s All about Time 291
The Fix 293
CHAPTER 26 When Do You CFO? 295
DIY 296
The Financial Tasks Multiply 296
CHAPTER 27 Business Models and Business Plans 301
First the Model, Then the Plan 302
How to Build Your Business Model 304
What, Exactly, Is a Business Plan? 305
What Is in a Business Plan (Usually…)? 306
Start-Up Nonprofits 306
The Restructuring Nonprofit 307
New Program or Division 308
Goals Drive the Plan 309
CHAPTER 28 How to Beat the Next Recession 311
Understand the Demand Pattern for Your Services 312
Prepare for Reductions—in New Services 312
Anticipate Foundation Behavior 313
Proactively Communicate with Your Staff 314
Consider Repurposing Your Reserves 315
Stay Calm 315
Appendix A A Financial Management Cultural Primer 317
Appendix B Budget Bloopers 323
Appendix C Using the Website: Table of Contents with Commentary 327
Index 333
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