(See “Critical Reading” in Chapter 1)

1

Doing good by serving on the board of nonprofit organizations, always laudable, is more demanding as public scrutiny of nonprofit financial management increases. But the job need not be onerous. A board member with a solid financial background can help a nonprofit achieve a sounder financial footing which will in turn help maintain its independence by minimizing potential legislative intrusion. Several types of sound financial management practices can benefit nonprofit organizations.

2

Documenting accounting and financial management practices. Organizations cannot know what needs improving until they understand how they currently operate. Everything the organization does should be inventoried and documented, including fund-raising, accounting, generating financial reports, interactions between senior management and the board, and when these actions occur.

3

Budgeting as part of strategic planning. Budgeting provides an opportunity to link the organization’s operational plans with its strategy and financial success and growth. Before plunging into the budget process and assigning costs to program activities, all program and project managers should understand and discuss the organization’s strategy. The time spent educating, communicating, and planning will get everyone to agree on organizational goals and how to achieve them.

4

Managing to the operating budget and audited financial statements. Frequently, management and the board look at cash budgets. Outsiders, including lenders, look at audited statements and can get a different picture. For example, depreciation expenses and vacation accruals can turn a $10,000 surplus on an operating budget into a $50,000 loss on an audited statement of activities.

5

Budget a surplus. Being around for the long term requires building reserves. Budget an annual surplus, even a minimal amount, to ensure that adequate resources exist to guard against unexpected shortfalls.

6

Project cash flow. An organization should have three to six months of current assets (cash, accounts receivable, and short-term investments) on hand. This policy and practice ensures enough cash to meet obligations throughout the year. It will help manage accounts receivable and accounts payable and the timing of budgeted expenditures.

7

With the nonprofit sector pumping more than $50 billion into the Massachusetts economy each year, solid financial management of nonprofit organizations is not simply nice to have. It is mandatory, and it need not be onerous for a person with financial acumen.