Streetsmart Financial Basics for Nonprofit Managers

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.

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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