Nonprofit

Management

Chapter 13: Financial Management 2

Collins Good to Great Summary


First rule of nonprofits:
mission, mission, mission
Second rule of nonprofits:
no money, no mission

Nonprofit Financial Statements

Statement of financial position (balance sheet)

-- shows a snapshot of the organizations assets and
liabilities at a single point in time
Statement of operations/activities (income
statement) -- shows the flow of revenues and
expenses of the organization, and the resulting
changes in net assets, over a period of time (e.g.,
fiscal year)
Statement of cash flows -- shows cash inflows and
outflows over the year
Statement of changes in net assets or fund
balances these transfers between funds dont
change the economic resources of the company but
reflect where there financial assets are at
Relevant concepts
Net assets -- difference between assets and liabilities
Depreciation -- decline in the value of physical assets

Financial Ratios

Key question -- how can we interpret financial

data and use it to make decisions about the
financial management of the organization?
Using ratios to assess financial health
Profitability -- the change in net assets on the
statement of activities
Liquidity -- the organizations use of cash
Asset management -- the organization's use
and management of fixed assets
Long-term solvency -- the long-term financial
outlook for the organization

Developing and Managing the Budget

Three budgets for organizations

Operating budget -- all revenues and expenditures

Capital budget -- the purchase or disposal of longterm physical assets
Cash budget -- the flow of cash during the year

Budgets are also political documents

Tangible expression of an organizations real priorities

Reflect considered plans along with the push and pull
of political forces

Budgets create incentives that influence

behavior

Use-it-or-lose-it approach
Structuring budgets on an organizational or center
basis
Developing budget incrementally or allowing for
redistribution

Internal Controls

More than simply the domain of the NPOs

accountant or auditor
Internal control
Allows NPO to achieve plans, protect
resources, motivate employees, evaluate
performance, alert management to variations
from the plan, and take corrective action
(COSO* Framework)
Carried out by the board and management, the
internal control process has three objectives:

Effectiveness (goal achievement) and efficiency

(least cost)
Reliability of financial reporting
Compliance with applicable laws and regulations
*COSO - Committee of Sponsoring Organizations

COSO Framework

Control environment: the tone at the top

that refers to integrity, ethical values,
philosophy, and competence of organization
board and senior management
Risk assessment: much like SWOT analysis
with an internal and external analysis and
identification of risks
Control activities: policies and procedures (see
next slide)
Information and communication: helps
facilitate decision making throughout the
organization
Evaluating: framework components need to be
regularly monitored and evaluated by board and

Financial Policies and Controls

Key distinctions
Internal versus external policies
Prescriptive versus restrictive policies

Accountability and regulatory compliance policies -policies established by legal requirements

Avoiding conflicts of interest

Financial and financial management policies -- policies

established by the governing board
Allowable ranges for specific financial indicators or ratios
Procedures internal financial controls

Data integrity policies -- policies designed to ensure

privacy, confidentiality, records retention, the
separation of duties, data backup, and other such
concerns

Collins Good to Great

Summary

Level 5 Leadership: Leadership involves a

mixture of intense determination and profound
humility
First Who, Then What: Getting the right
people in the right positions first, then work on
the strategy
Hedgehog Concept: Not about doing many
things well, rather do one thing better than
anyone else
Culture of Discipline: Unrelenting
determination and entrepreneurship
Turning the Flywheel/Doom Loop: Business
decisions accrue over time (often many
years); that is, once momentum takes hold,