Budgeting and Financial Management for Nonprofit Organizations Using Money to Drive Mission Success 1st edition by Lynne Weikart, Greg Chen, Edward Sermier ISBN 1608716937 ‎ 978-1608716937

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ISBN 10: 1608716937
ISBN 13: ‎ 978-1608716937
Author: Lynne Weikart, Greg Chen, Edward Sermier 

In the nonprofit sector, money drives mission. Well-managed budgets and investments can spur long-term growth and achievement, while financial mismanagement can damage or destroy an organization. Lynne A. Weikart, Greg G. Chen, and Ed Sermier―in their exciting new text geared wholly to nonprofits―provide the financial tools nonprofit managers need to thrive in pursuit of mission success.

Given the wide array of nonprofit managers′ backgrounds and a common fear of “the financials,” the authors explain financial concepts without leaning unnecessarily on intimidating jargon. The result is a practical, accessible resource the prepares the next generation of nonprofit managers in financial planning and analysis as well as conventional and entrepreneurial financial management.

Grounded in real-world cases and offering plenty of opportunity for application and practice, Budgeting and Financial Management for Nonprofit Organizations helps readers develop a stable fiscal foundation and sound financial strategies for their organizations to prosper in times of economic expansion and contraction.

Budgeting and Financial Management for Nonprofit Organizations Using Money to Drive Mission Success 1st Table of contents:

PART I: INTRODUCTION

1. An Introduction to Nonprofits: Mission and Money

Definition of a Nonprofit

Nonprofit Origins and Growth

The Modern Nonprofit Structure

The Identification of Nonprofits as the Third Sector

Size and Scope of the Nonprofit World

Nonprofit Structure

Differences between the Business and Nonprofit Worlds

Setting Financial Policies

The Link between Mission and Money

The Push for Accountability: Watchdog Organizations and Their Standards

Conclusion

Discussion Questions

Assignments

Assignment 1.1. Linking Mission to Money

Assignment 1.2. Proposing Improvements to a Nonprofit’s Accountability Standards

Key Terms

Suggested Readings

PART II: PLANNING AND BUDGETING

2. Budgeting as Part of the Planning Process

Budget Vocabulary

The Links between Mission and Budgeting

Roles of the Board, Executive Director, and Staff

The Tools of Budgeting

Budgeting as a Planning Tool

Budgeting as a Management Tool

Budgeting as a Communications Tool

Different Types of Budgets: Operating and Capital

Two Sides of a Coin: Revenue and Expenses

The Link between Operating and Capital Budgets

Formatting Budgets: Line-Item Budgets, Program Budgets, and Performance Budgets

Line-Item Budgets

Program Budgets

Performance Budgeting or Results-Based Budgeting

Cutbacks and Performance-Based Budgets

The Budget Process as a Cycle

The Preparation Stage

The Approval Stage

The Execution Stage

Ending the Fiscal Year: The Auditing and Reporting Stage

Periodic Budget Reviews and Revisions

Applying Indirect Costs for a New Program

Cutback Budgeting

Conclusion

Case Study: Examining the Hypothetical Budget of the Sojourner Truth Settlement House

Discussion Questions

Class Exercise

Class Exercise 2.1. Creating a Projected Budget for a New Program

Assignments

Assignment 2.1. Creating a Nonprofit Budget

Assignment 2.2. Serving Seniors

Key Terms

Suggested Readings

3. Liquidity and Managing Cash Flow

Liquidity

Timing of Cash Flows and Undercapitalization

Restricted Monies

Liquidity Targets

Cash and Cash-Flow Management

Cash Budget

Examples of Cash-Flow Management and Cash-Flow Budget

Working through a Cash-Flow Analysis

Cash-Flow Budgeting in Practice

Cash-Flow and Liquidity Management Issues: Updating the Cash Budget with Actuals

Cash-Flow Strategies

What Do We Do When We Run Out of Cash?

What Do We Do When We Have Too Much Short-Term Cash?

Conclusion

Case Study: Hope for All (HFA) Borrows Money

Discussion Questions

Assignments

Assignment 3.1. Identifying Working Capital and Liquidity

Assignment 3.2. Developing a Cash Budget

Assignment 3.3. Managing Cash Flow

Key Terms

Suggested Readings

4. Costs and Cost Analysis

Opportunity Costs and Accounting Costs

Opportunity Costs

Accounting Costs

A Short Study in Determining Program Costs

Direct Costs and Indirect Costs

Estimating Direct and Indirect Costs

Costing Services and Allocating Costs

Step-Down Method to Allocate Costs

Working through the Step-Down Method

Fixed, Variable, and Step Costs

Average Costs and Marginal Costs

Examples of Average and Marginal Costs

Relevant Costs in Financial Decision Making

Extension of Existing Services: Marginal Analysis

Potential New Programs or Services: Break-Even Analysis

Conclusion

Case Study: New Program at City University to Help the Unemployed

Discussion Questions

Class Exercises

Class Exercise 4.1. Assessing Fixed and Variable Costs

Class Exercise 4.2. Considering Program Expansion with Marginal Analysis

Class Exercise 4.3. Conducting Break-Even Analysis

Assignments

Assignment 4.1. Applying Opportunity Costs to a Grant Application

Assignment 4.2. Determining the Break Even Point for a New Program

Assignment 4.3. Identifying Types of Costs

Key Terms

Suggested Readings

PART III: FINANCIAL ANALYSIS IN NONPROFIT ORGANIZATIONS

5. Basic Principles of Accounting and Reporting Requirements

Accounting Standards Structure

Users of Accounting

Principles of Accounting

The Four Key Assumptions

The Four Basic Principles

The Four Basic Constraints

Basis of Accounting

Cash Accounting

Accrual Accounting

Advantages of the Accrual Accounting Method

Fund Accounting

Unrestricted Net Assets

Temporarily Restricted Net Assets

Permanently Restricted Net Assets

Introduction to Financial Statements

Balance Sheet or Statement of Financial Position

Income Statement or Statement of Activities

Statement of Cash Flow

Statement of Functional Expenses

The Accounting Cycle

Reporting Requirements

National-Level Requirements

State-Level Requirements

The Task of Financial Responsibility

Conclusion

Case Study: Fraud and the Importance of Accounting Principles

Discussion Questions

Class Exercise

Class Exercise 5.1. Identifying Financial Terms

Assignments

Assignment 5.1. The Assumptions, Principles, and Constraints of Accounting

Assignment 5.2. Identifying Cash and Accrual Accounting

Assignment 5.3. Creating Balance Sheets

Assignment 5.4. Reconciling Surplus and Deficit in Wisconsin’s Budget

Key Terms

Suggested Readings

6. Understanding Financial Statements

The Statement of Financial Position (Balance Sheet)

Assets

Current Assets

Long-Term Assets

Liabilities

Current Liabilities

Long-Term Liabilities

Net Assets (Fund Balance)

Unrestricted Net Assets

Temporarily Restricted Funds

Permanently Restricted Net Assets

Nonprofit Financial Statements: The Statement of Activities (Income Statement)

Revenues

Expenses

Relationship between the Statement of Financial Position and the Statement of Activities

Cash-Flow Statement

Statement of Functional Expenses

Conclusion

Discussion Questions

Class Exercise

Class Exercise 6.1. Recording and Categorizing Transactions

Assignments

Assignment 6.1. Recording Transactions

Assignment 6.2. Determining Marketable Securities

Key Terms

Suggested Readings

7. Financial Analysis

Financial Resources

Liquidity

Long-Term Solvency

Efficiency

Profitability

Matching

Revenue Diversification

Conducting Ratio Analysis

Ratios and Liquidity

Ratios and Long-Term Solvency

Ratios and Efficiency

Ratios and Profitability

Matching

Diversification

Red Flags

Financial Health of the ABC Nonprofit Corporation

Ratios and Rating Agencies

Conclusion

Case Study: Financial Analysis of the Montana Mentoring Nonprofit

Discussion Questions

Assignments

Assignment 7.1. Using Ratios to Assess Current and Long-Term Liabilities

Assignment 7.2. A Second Year’s Worth of Data

Assignment 7.3. The MLK Settlement House and Its Profits

Key Terms

Suggested Readings

8. Financial Tools for Informed Decision Making

Reporting Problems in Financial Statements

Separating the Net Asset Classes

Fiscal Year Comparisons within the Statement of Activities

Transferring Funds

Confusion with the Budget

Campaign Funds

Financial Tools to Drive Management Decisions

Breaking Down the Data for Effective Comparison

Determining Financial Issues

Understanding Budgets as an Aid to Mission Success

The Importance of Cash Management

The Benefits of a Quarterly Financial Reporting System

Financial Plans Offer Strategy for the Future

Conclusion

Case Study: Creating a Balanced Budget for Management Decision Making

Assignments

Assignment 8.1. Creating a Statement of Financial Position

Assignment 8.2. Creating a Statement of Activities

Assignment 8.3. Describing the Financial Situation

Key Terms

Suggested Readings

PART IV: FINANCIAL MANAGEMENT

9. Understanding Revenues

Theoretical Development on Nonprofits’ Finance: The Benefit Theory

Types of Benefits

Matching Benefits and Revenues

Existing Sources of Revenue

Donations

Government Grants and Fees for Services and Goods from Government

Earned Revenues

Nonprofit Revenue Strategies

Funding Models of Large Nonprofits: The Benefit Theory in Practice

Diversification: Revenue Strategies and Risk Management

Advantages and Disadvantages of Different Funding Sources

Conclusion

Case Study: An Environmental Nonprofit Considers Extending Its Cleanup Program

Discussion Questions

Assignments

Assignment 9.1. Identifying Main Sources of Revenue

Assignment 9.2. Using the Benefit Theory in Revenue Strategy

Assignment 9.3. Considering a Deal for Corporate Support

Assignment 9.4. Assessing a Nonrelated Business

Key Terms

Suggested Readings

10. Performance Measurement in Financial Management

Performance Measurement’s Role in Mission Success

Linking to Budgets

Educating Stakeholders

Managing Resources

The Ingredients to Measuring Program Performance

Inputs, Process, Outputs, and Outcomes

The Challenges of Measuring Effectiveness

Efficiency or Unit Cost Ratio as Compared to Effectiveness

The Development of Performance Management Systems

The Urban Institute’s Steps to Develop a Performance Management System

The Balanced Scorecard System

The Challenges of Selecting Performance Indicators

Outcomes as Compared to Outputs

Relationship between Program Evaluation and Performance Measurement

Performance Measures and Management Information Systems

The Role of the Federal Government

The Role of Foundations and Policy Centers

Conclusion

Case Study: Mentoring Program to Reintegrate Ex-Prisoners into the Community

Discussion Questions

Class Exercise

Class Exercise 10.1. Indicators of Program Performance

Assignments

Assignment 10.1. Identifying Program Performance Indicators

Assignment 10.2. Working within the Balanced Scorecard Framework

Assignment 10.3. Developing a Performance Management System

Key Terms

Suggested Readings

11. Time Value of Money and Cost-Benefit Analysis

The Time Value of Money

Calculating Future Value

Calculating Present Value

Net Present Value: A Decision Criterion

Introduction to Cost-Benefit Analysis

Conceptual Framework of CBA

Steps in Conducting CBA

Conclusion

Case Study: Cost-Benefit Analysis for a Nonprofit Hospital Considering Adopting New Technology

Discussion Questions

Assignments

Assignment 11.1. Calculating Future Value

Assignment 11.2. Budgeting for Debt Service Payment

Assignment 11.3. Evaluating Property Purchase

Key Terms

Suggested Readings

12. Capital Budgeting and Financing

Capital Budgeting and Capital Assets

The Relationship between Capital Budgets and Operating Budgets

Accepting or Not Accepting a Donated Capital Asset: An Example

Capital Budgeting Process

Life-Cycle Costing

Capital Financing: Pay-as-You-Go and Debt Financing

Debt Financing: Bank Loans and Bond Issuance

Securing a Bank Loan

Issuing Bonds

Payment Schedules

Level Debt Service Payments

Level Principal Payments

Capital Budgeting Policy and Debt Policy

Conclusion

Case Study: The Drug-Free Center Considers Which Repayment Schedule to Select in Bond Financing Its Facility Expansion

Discussion Questions

Assignments

Assignment 12.1. Conducting Life-Cycle Costing

Assignment 12.2. Preparing a Level Debt Service Bond Payment Schedule

Assignment 12.3. Understanding Capital Budgeting

Key Terms

Suggested Readings

13. Investment Strategies

Investment Policies and Guidelines

Roles and Responsibilities of the Board

Investment Policy Statement

Short-Term Investment Strategy

Issues in Short-Term Investment

Investment Objectives: Safety, Liquidity, and Yield

Default and Market Risks

Key Short-Term Investment Vehicles

Long-Term Investment Strategy

Key Issues in Endowment Investment: Spending Policy

Key Issues in Endowment Investment: Investment Policy

Other Key Investment Practices and Considerations

Key Long-Term Investment Vehicles and Instruments

Conclusion

Case Study: The Financial Manager Takes Steps to Manage a New Endowment

Discussion Questions

Assignments

Assignment 13.1. Formulating an Investment Policy

Assignment 13.2. Where to Invest Short-Term

Assignment 13.3. Managing Endowment Funds

Key Terms

Suggested Readings

14. Internal Controls

Defining Internal Controls

The Internal Control System

Safeguarding Assets

Controlling Personnel and Nonpersonnel Services

Setting Audit Standards

The Independent Sector and Accountability

The Sarbanes-Oxley Act

Examples of Fraud

Controlling Cash and Its Equivalents and Reconciliation of Bank Accounts

Accessing Cash: Forging Signatures and Controlling Payroll

Nonprofits as Victims

Conclusion

Discussion Questions

Assignments

Assignment 14.1. Crafting Internal Control Policies to Prevent Conflict of Interest

Assignment 14.2. Applying Internal Control Policies to Guard against Theft

Assignment 14.3. Using Internal Control Policies to Discourage Fraud

Key Terms

Suggested Readings

PART V: NEW DIRECTIONS

15. Adapting to Turbulent Times: Conventional and Entrepreneurial Financial Strategies

The Effects of the Economic Crisis

Assessing Financial Risks

Mitigating Risk: Increasing Revenues

Mitigating Risk: Cutting Costs

Mitigating Risk: Collaborations

Changing the Structure

The Growth of Nonprofit Capital Intermediaries

Venture Philanthropy

Nonprofit Loan Funds

The Role of Government in Promoting Innovation

The Federal Level

State Government Models

Local Government Models

University Models

The Role of Foundations in Promoting Social Enterprise

The Fourth Sector of Social Enterprise

The Yunus Centre

Program-Related Investments and the New L3Cs

The Rise of the B Corporation

Conclusion

Discussion Questions

Assignment

Assignment 15.1. Exploring Social Entrepreneurship

Key Terms

Suggested Readings

Appendixes

Appendix A: Form 990

Appendix B: Debits and Credits

Appendix C: Sample Investment Policy Statement for Nonprofit Education Foundations

Glossary

Index

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Tags: Lynne Weikart, Greg Chen, Edward Sermier, Financial Management, Nonprofit Organizations