Understanding Nonprofit Organization Finances

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Almost 1.7 million nonprofits are registered in the United States today, not including churches and small nonprofit organizations that are not required to register with the Internal Revenue Service (IRS).

The number of registered charitable organizations has exploded from roughly 300,000 in 1970 to 1,680,000 today. One-half of the nonprofit sector’s revenue goes to the largest 15 percent of these organizations, some of which are large hospitals and universities. Faced with growing missions and shrinking resources, many organizations have turned to for-profit activities, such as issuing credit cards with their logos and selling their mailing lists to advertising firms, in order to augment their revenues. Most of these same organizations have overlooked the potential of better financial management to enhance revenues (from better investment management and faster cash collections) or reduce costs (from better negotiations with banks and process reengineering).

Our framework is intended to be of immediate value to nonprofit financial professionals. This handbook caters to the treasurer with little or no formal training, business-only training, or too little time (perhaps due to a multitude of responsibilities) or support staff to do the job the way he or she knows it can be done. Our other target audiences are the chief executive officer (or executive director) and board members. This handbook specifically includes material for small and resource-constrained organizations, as  well as large ones. Material is presented in an easy-to-use format, including forms or checklists where helpful. The discussion goes beyond the buzzwords to provide reasonable steps toward more proficient treasury management. We incorporate a number of concepts:

  • Donor accountability and stewardship
  • Learning organization, reengineering, and benchmarking
  • Balanced scorecard
  • Program selection and cost-benefit evaluation
  • Social entrepreneurship
  • Strategic alliances and collaborations
  • Financial statements and ratio analysis
  • Budgeting techniques, including cash budgeting
  • Financial forecasting
  • Liquidity measurement and analysis
  • Fundraising evaluation
  • Fraud prevention and detection
  • Advanced cash flow management
  • Investment and other financial policies
  • E-business
  • Executive performance incentives