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Managing Nonprofit Organizations Like a Business

Author/Moderator: Phil Sherman, CPA
Publisher: AICPA
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Description

The corporate world has used a well-defined set of financial management tools for years. Nonprofitorganizations have been encouraged to adopt those tools in order to manage their operations like a business. Explore these tools and how to modify them for the unique characteristics of nonprofit operations and systems.

Objectives: 

  • Examine the finance function in a nonprofit organization
  • Identify the unique accounting rules applicable to nonprofit organizations
  • Design appropriate planning and budgeting systems
  • Monitor compliance with government and grantor requirements
  • Evaluate financial conditions and operating results
  • Build cash management, investment and financing programs

Prerequisite:  Experience in accounting systems and nonprofit reporting

Table of Contents

  • Chapter 0 - Overview
    • Course Objectives
    • The Players
  • Chapter 1 - Should a Nonprofit Organization Be Run Like a Business?
    • Learning Objectives
    • Introduction
    • The Nonprofit's Place in the Economy
      • One of the Big Three and Growing
      • Adapting to the Change
      • Dealing with the Negative Image
      • Can Dreamers and Motivators Manage the Business of the Nonprofit?
      • Is There a Conflict between Business Methods and Nonprofit Missions?
      • Resource Management
    • Comparing Nonprofits and Businesses
      • Similarities
      • Differences
    • The Uniqueness of the Nonprofit
      • A Quick Review
    • The Business Toolbox (Ten Tools That Can Work in the Nonprofit)
      • Policies
      • Strategic Plans
      • Budgets
      • Financial Statements
      • Ad Hoc Committees
      • Cost Allocation/Indirect Cost Plans
      • Financial Ratios/Analysis
      • Internal Control Procedures
      • Cash Flow Analysis
      • Performance Measures
      • Can Every Nonprofit Use Any or All of These Ten Tools?
    • Summary
    • Questions
  • Chapter 2 - Accounting for the Nonprofit
    • Learning Objectives
    • Introduction
    • Accounting Standards
      • The Development of Standards
      • The Evolution of Nonprofit GAAP
    • Accounting for Contributions
      • The Issues
      • Recognizing Pledges and Promises
      • Discounting Future Pledges
      • Accounting for Collections
      • Accounting for Contributions Other Than Cash
      • Contributed Services
      • The Concept of Net Assets
      • Disclosures
      • Other Revenue Considerations
      • Agent, Trustee, Intermediary, and Other Fiduciary Activities
    • Financial Statement Presentation
      • Designing the Statement Format
      • Other Design Considerations
      • Basis of Accounting
      • Enter the External Accountant
      • The Statement of Net Assets
      • The Statement of Activity
      • Functional and Natural Expense Reporting
      • The Cash Flow Statement
    • Other Pronouncements of Significance
      • Accounting for Investments
      • Nonprofit GAAP Hierarchy
      • Consolidated Financial Statements
      • The Audit and Accounting Guide
    • Summary
    • Questions
  • Chapter 3 - Planning in the Nonprofit Organization
    • Learning Objectives
    • Introduction
    • The Mission and the Plan
      • The Scope of Planning
      • The Mission Statement
      • The Strategic Plan
      • The Inverted Pyramid Approach
      • Self Assessment
    • The Budgets
      • Getting Started
      • Preparing the Budgets
      • Accomplishment Driven versus Resources Driven
      • The Capital Budgets
      • The Cash Flow Budget
      • Three Budgets in One: A Unique Presentation
      • Plan Maintenance
    • Resource Planning
      • Sources of Funds
      • Government and Foundation Grants
      • Grants from Other Agencies
      • Making Your Case
      • Contributions from the General Public
    • Summary
    • Questions
    • Appendix - Checklist for a Planning Assessment for Nonprofit Organizations
      • Planning Regarding the Total Organization
      • Planning Regarding the Organization's Programs
      • Planning Regarding the Organization's Evaluations
  • Chapter 4 - Financial Analysis and Performance Measurement
    • Learning Objectives
    • Introduction
    • Managing Resource Efficiency and Liquidity
      • The Need to Manage the Checkbook
      • A Classified Balance Sheet
      • A Shortlist
      • Other Liquidity Considerations
      • Managing Enterprise Activities
      • Green Valley Center for the Performing Arts
    • Comparative Analyses
      • Actual to Budget
      • Trends Analysis
      • Other Analytical Procedures
    • Cash Flow Analysis
      • What a Cash Flow Statement Does
      • Cash and Cash Equivalents
    • Cost Assignment and Cost Allocation
      • Why Allocate Costs and Expenses?
      • Functional Expenses and Natural Expenses
      • Direct and Indirect Expenses
      • Joint Costs and Fundraising Activities
      • SOP 98-2
      • How SOP 98-2 Differs from Prior Standards
    • Managing for Risks
      • Internal Control
      • Understanding Internal Control
      • Recognizing Controls
      • Insurable Risks
      • Directors' and Officers' Liability
      • Mandatory Insurance Coverage
      • Fraud
      • Self Assessment
    • Summary
    • Questions and Cases
      • Case 4-1
      • Case 4-2
      • Case 4-3
    • Appendix 4A - Checklist to Assess Financial Activities in Nonprofit Organizations
    • Appendix 4B - Internet Resources
  • Chapter 5 - Managing Investments, Endowments, and Fixed Assets
    • Learning Objectives
    • Introduction
    • Investment Management
      • Responsibilities of Managers and Directors
      • Who Selects the Investments?
      • Investment Philosophy
      • The Prudent Man Rule(s)
      • Investment Options
      • The Investment Policy
      • Working Capital
    • Endowments
      • Special Considerations
      • Total Return Concept
      • Spending Policy
      • Endowments Gains and Losses
      • Special Gifting Arrangements
      • Financial Statement Presentation
    • Fixed Assets
      • Gifts of Fixed Assets
      • Depreciation in the Nonprofit
      • Maintenance and Protection
    • Summary
    • Questions
  • Chapter 6 - Human Resources Management
    • Learning Objectives
    • Introduction
    • The Nonprofit as an Employer
      • Laws and Regulations
      • The Employee-Independent Contractor Issue
      • Employee Benefits
      • Other Employee Considerations
    • The Nonprofit and the Volunteer
      • Volunteers as a Resource
      • Volunteers Are Not Free
      • Fostering Staff/Volunteer Appreciation
    • The Nonprofit Board of Directors
      • The Board-Staff Partnership
      • Partnering Is Not Micro-Managing
      • Taking the Lead
      • Director Training
      • Duties and Responsibilities of Directors
      • The Steering Committee
      • The Advisory Board
    • Summary
    • Questions
    • Appendix 6A - Form I-9 - Employment Eligibility Verification
    • Appendix 6B - The Fair Labor Standards Act
      • Who Is Covered?
      • Basic Wage Standards
      • Tipped Employees
      • Employer Furnished Facilities
      • Industrial Homeworker
      • Subminimum Wage Provisions
      • Youth Minimum Wage
      • Exemptions
      • Child Labor Provisions
      • Recordkeeping
      • Enforcement
      • Recovery of Back Wages
      • Equal Pay Provisions
      • Overtime Security Amicus Program
      • Terms Used in the FLSA
      • Other Labor Laws
      • Where to Obtain Additional Information
  • Chapter 7 - The Nonprofit and the Government
    • Learning Objectives
    • Introduction
    • The Nonprofit as an Entity with an Identity
      • Corporate Structure
      • Beware the Corporation Sole
    • The Nonprofit and the Internal Revenue Service
      • The Relationship
      • Getting the Exemption
      • Fill in ALL of the Blanks
      • Formal Notice
    • The Federal Tax Reporting Obligation
      • Annual Income Tax Returns
      • The Pension Protection Act
      • Other Tax Reporting Issues
      • Unrelated Business Income Tax
      • Retracted or Prohibited Transactions
      • Private Inurement
      • The IRS's Enforcement Role
      • IRS's Disclosure of Information Rules
      • Other Penalties
    • The Government as a Resource Provider
      • Federal Financial Assistance
      • Audit Requirements
    • Summary
    • Questions
    • Appendix 7A
    • Appendix 7B
  • Chapter 8 - Ethics Focus: Business and Industry
    • Ethics Overview
    • Recent Developments
    • Key Ethical Dilemmas
    • Addressing Ethical Dilemmas
    • Available Resources
  • Chapter 9 - Latest Developments

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Excerpts

Chapter 0 - Overview Course Objectives

Have you ever been to a meeting of a nonprofit organization and heard someone ask,"Why can't they run this organization like a business?" If one takes the position that a nonprofit could be run like a business, the obvious questions are the following:

  • How can it be done?
  • What are the benefits?
  • What business techniques apply?

This presentation attempts to answer those questions and to stimulate thinking in this area on the part of nonprofit managers, and on the part of professionals who advise the nonprofit. The course also recognizes that there exist some significant differences between an entity that has as its mission to turn a financial profit and one whose mission is to bring about a change in an individual or in society. Will these differences present a problem to a nonprofit that attempts to operate like a business?

The course examines the legal and accounting similarities and differences and updates the participant as to the recent changes to the industry's accounting standards. The author intends that this course will encourage nonprofit managers, directors, and consultants to consider other ways in which the unique blending of the for-profit's drive for profit and the nonprofit's drive to achieve an altruistic mission can lead to more successful financial management. After all, the continual existence of both the nonprofit and the for-profit depends upon successful financial management.

The Players

The nonprofit organization consists of people committed to the accomplishment of a mission. Therefore, people play a key role in any nonprofit. Anyone interested in understanding how a manager may efficiently and effectively manage a nonprofit organization needs to understand the roles and the players. They are as follows:

  • Stakeholders – Stakeholders are everyone who has a stake in the nonprofit organization. They may be considered the equivalent of stockholders in a commercial entity, but the concept of the stakeholder is much broader, including beneficiaries, resource providers, and even society as a whole.
  • The Board Members – Usually volunteers, they represent authoritative management. Corporately they set policies and act as the legal representative of the nonprofit organization. They also partner with the staff toward the accomplishment of the organization's goals. They may also be called trustees or directors.
  • Executive Director – This is generally a compensated staff position. He/she is the chief executive officer at the staff level, commonly referred to as director or manager.
  • Staff – These individuals work under the direction of the executive director or manager. They may be employees or volunteers.
  • Resource Providers – They provide the capital for the organization. Examples of resource providers are as follows:
    • Donors
    • Grantors
    • Beneficiaries
  • Beneficiaries – These are the individuals or groups of individuals who receive the products or services of the organization, or who in some way benefit from the nonprofit's accomplishment of its mission. They are the customers of the organization.

Chapter One discusses how nonprofits are similar to businesses and how they are different. The chapter suggests that the nonprofit's management can in some ways emulate the for-profit's management.

Chapter Two explores the financial accounting concepts. It discusses in some detail the most recent standards and the implementation issues. It poses the question, "How does net asset accounting differ from traditional fund accounting?"

Chapter Three considers the business plan, or the strategic planning process of a for-profit business, as a springboard for planning in the nonprofit.

Chapter Four looks into the for-profit business manager's financial toolbox and considers the selection of some of the contents as being applicable to the nonprofit. This chapter also explores possible analytical and measurement devices peculiar to the nonprofit organization.

Chapter Five discusses the management of certain resources, particularly money and the fact that maximization of earnings on investments means the same thing to the nonprofit as it does to the for-profit enterprise. For purposes of this course the term resources is defined as all assets owned or controlled by a nonprofit organization, as well as, in a broader sense, sources of future cash or in-kind contributions. This chapter looks at some investment issues that are unique to the nonprofit. It introduces the terms variance power and total return, along with other concepts unique to the nonprofit. The chapter also discusses other assets and the responsibility for acquiring and managing those assets.

Chapter Six deals with the management of human resources in the nonprofit, particularly the volunteer. The chapter discusses the nonprofit's financial responsibilities stemming from human resource management issues. Also discussed are the concept of shared power and the issue of independent contractor versus employee.

Chapter Seven explores the relationship of the government to the nonprofit organization. Business often considers itself to be in partnership with the government because of the obligation to pay income taxes. The nonprofit is also a partner with government, but income taxation is not generally the reason for the partnership.

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Videocourse Details

NASBA Field of Study: Business Management and Organization
Level: Intermediate
Recommended CPE Credit: 10
Yellow Book Hours: 10
Important Information on Your CPE Credit
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