Objective: Understand principles of finance in the nonprofit setting

Comments

Financial management in the nonprofit sector is substantially similar to its for-profit counterpart. Both nonprofit and for-profit organizations are concerned with carefully managing their financial affairs, tracking their progress, and ensuring their financial health.

In addition, although nonprofit organizations do not necessarily have a “profit motive,” per se, they are called to operate with fiscal integrity. This requires that they keep their expenses beneath their income streams.

What is a “Nonprofit Organization”?
A “nonprofit” organization is one that is organized and chartered for the purpose of carrying out a mission without earning a profit. “Nonprofit” status refers to the organization’s corporate charter, not to its tax status.

Earning tax-exempt status under the US Internal Revenue Service’s Code 501c3 is a separate matter which is often undertaken by nonprofits. Once an organization earns tax-exempt status under Code 501c3, its donors may receive tax deductions for their contributions.

However, an organization may incorporate with “nonprofit” status, whether it ever pursues a tax exemption or not. In the US, those who wish to establish a “nonprofit” organization need only follow the requirements for their particular state for filing a charter and incorporating a nonprofit (sometimes called Not-For-Profit) corporation.

Differences Between Nonprofits and For-Profits
There are some significant differences in the financial management of nonprofit organizations from for-profits. Nonprofits can be classified in two general types: those which produce income and those which do not.

Nonprofits that produce income are those that charge for their services. They may include schools, hospitals, treatment centers, among others.

Nonprofits that do not produce income have no way to charge for their services. They may include charities, ministries and churches, museums and art groups, among others.

Within both groups of nonprofit organizations exists another important financial activity that differentiates them from the for-profits: fund raising.

Both types of nonprofits (those who generate income and those who do not) may, given certain circumstances, solicit donations from individuals, companies, and foundations or grantors. These funds are used in the general operation of the organization and to build its resource base.

In this course, we will be concerned specifically with financial issues in ministries, most of which are nonprofit organizations. Our assumption will be that most churches, parachurch ministries, and lay ministries are organized as nonprofits.

Financial Issues for Nonprofits
In the nonprofit environment, financial issues can be grouped in a few general categories. Within each category, several important topics also reside.

Key Issues for Nonprofit Organizations:
Accounting systems and accountability
Budgets and financial controls
Cash flows, income and fund raising
Capital budgeting, raising and expenditure
Extending credit and collecting
Financial personnel – treasurer, chief financial officer, financial managers
Financial management software and computer programs
Financial and compliance reporting 

Site review: Basic Guide to Non-Profit Financial Management

The Management Assistance Program for Non-Profits (MAP for Non-Profits) has developed an extraordinary Web-based guide for new managers in nonprofit organizations.

The guide is designed for managers who have expertise in non-financial areas (such as ministry) yet who are called to lead a nonprofit organization. It is a very useful resource and we will make extensive reference to it in this course.

For this assignment, please review the Basic Guide and provide a written review of its content. Be sure that your review includes a thorough introduction to financial management for nonprofit organizations.

Your paper should include the following sections:

Introduction – provide an overview of the Basic Guide, including its layout, navigability, usefulness and accessibility.

Content – give a thorough introduction to the topics presented, including answers to the following:

What is the accounting cycle and what is its function?
What is a budget and what is its function?
What are financial controls and why are they important?
Does every nonprofit need an independent accountant?
Who is the corporate treasurer and what do they do?
What are the most important methods for managing cash flow?
What are financial statements and which ones are important to nonprofit organizations?
What software might a nonprofit organization need to help manage its finances?

Conclusion – provide your final impression of the site and its resources