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Preface

Overthepastthreedecades,thenonprofitsectorhasgrownatan astonishingpace.Today,therearemorethan1.1millionnonprofit publiccharitiesandabout380,000othertypesofnonprofitentities.The sectorisbeginningtofigureprominentlyinpublicconversationsasan acknowledgedsourceofinnovationandsolutionstovarioussocialissues, especiallyinareaswheregovernmentatalllevelswasformerlymoreactive. Thistrendseemslikelytocontinueandevenaccelerateintheyearstocome.

Withgreaterprominenceandmorewidespreadacceptancecomegreater attentionandmorescrutiny.Nonprofitmanagementisbecomingarecognizedspecialty,andthereisagrowingrecognitionthatnonprofitfinancial managementisnotjustfor-profitfinancialmanagementwithadifferent name.Thenumberofindividualsandentitiesspecializinginnonprofit financialmanagementisgrowingaswell.

Withthisgrowthinnumberscomesacomparablegrowthinthedemand forsophisticatedmanagement.Theproblemisthatfewnonprofitmanagers haveanyformaltraininginfinancialmanagement.Almosteverythingthey knowisfromon-the-jobtraining,withaliberalamountofassumptions andconventionalwisdomthatmayormaynotbehelpful.Insomecases, thesemanagerscanrelyonnativeinstinctandclarityofthought,butmost oftentheysimplywingitandhopeforthebest.

Nonprofitorganizations—andtheusersandfundersoftheirservices— deservebetter,andtheyaregettingit.Itisnotmuchofastretchtosay thattheincreasedemphasisonfinancialmanagementinnonprofitsreflects alaudablestrivingforgreateraccountability.Nolongerisitenoughjust forone’sfinancialrecordstobeinorder;onemustbeabletodemonstrate

Acknowledgments

Manypeoplehelpedwithoneormoreeditionsofthisbook.IparticularlywanttothankAllwynBaptist,BeckyJ.Cerio,Robert Cowden,DennisFusco,JimGambon,RobertGardiner,CatherineGill, ElizabethHart,JohnJoyce,LauraKenney,BillLevis,MartyMcLaughlin, JimMecone,ClaraMiller,WayneMoss,JamesNesbitt,DavidOrlinoff,MaryPlant,JoanneSunshower,ShariSankner,andSherrellM. Smith.CatherineGillattheNonprofitFinanceFundsuppliedsomeof thevignettes.MyeditorsatJohnWiley&Sons,MarlaBobowick,Susan McDermott,andMattGilbertprovidedsupport,feedback,andguidance inoneormoreeditions.

NotetoReader

Throughoutthisbook,awebiconindicatesthatyoushouldgoto theaccompanyingwebsiteforcorrespondingtemplatesorexamples. Thewebsiteaddressiswww.wiley.com/go/basics4E.RefertoAppendix C,“UsingtheWebsite,”forthetableofcontentsanddetailedinstructions foruseofthesetemplates.

StructureofNonprofit Organizations

CORPORATIONS

Oneofthedistinguishingfeaturesofourlegalandfinancialsystemsisthat theyhavefoundawaytomakesomethingthatnoonecanseeortouch seemreal—andtherefore,ithasbecome real.Thehighpointofthisaccomplishmentisthatperfectlyintelligent,normalpeoplecanfindthemselves debatingthevirtuesofthebehaviorofthisthingandevenchangingtheir ownbehaviorsandchoicesbecauseofitsexistence.

Wearetalking,ofcourse,aboutthecorporation.Eventheworditself soundssubstantial,andwhenvariousnamesorotheridentifiersgetput infrontofit,weaccepttheresultseasily.Buttheideaofacorporation isnothingmorethanaconstructthatgainssubstanceandcredibilityin financialmatterslargelybecauseweneedittodoso.Ouracceptanceofthe metaphorofacorporate structure istangibleevidencethatwehumanbeings yearnforpredictabilityandconsistencyevenwhentheentityitselfexists onlyinourmindsandinthewaysthatacorporatestructureissaidto behave

Wesayallthisbecausewhatevercorporatestructureslackintangible qualitiestheymorethanmakeupforviatheirwidelyacceptedwaysof indicatingfinancialboundaries.Asyouwillseelaterinthisbook,those boundariescantakeonthenearlyconcretefeelofsomethingthatcanseem tobevirtuallyaphysicalpresence.

Thehighestlevelofnonprofitmanagementisthecorporationthat “owns”orrunstheprograms.Thecorporationisastatutoryentity

(continued)

Ultimately,corporatestructuresaresimplyawaytoorganize programsandservicesinlogicalwaystoachievemaximum results.WhatthecommunitycenterrealizedwasthataMontessorischool,whileimportanttothecommunity,wastoomuchof amissionstretchforthem.Recastingthelegalstructuresallowed thecentertofocusontheprogramsandservicesitwasgoodat, whileturningamanagementdiversionintoasourceofrevenue.

PROGRAMS

Programsarethemostvisibleandbestunderstoodaspectofthenonprofit formofbusinessorganizationanditschiefmeansofcarryingoutitsmission. Alsocalledservices,projects,clinics,divisions,departments,floors,orany oneofathousandothernames,programsaretheactivitiesofthenonprofit organization.

Comingupwithafairandworkabledefinitionofaprogramisdifficult. Here’sanattempt:Aprogramisacoherentlypackagedgroupofactivities,usuallyassociatedwithoneormorespecificlocations,designedto accomplishastatedresult.

Nonprofitorganizationsrunallkindsofprogramsandoftenmorethan one.Daycarecentersofferinfantcareprograms,environmentalgroups operaterecyclingsystems,museumsrunartappreciationcourses,andso forth.Thetwokeystounderstandingprogramsarethattheygenerallyhave somecoherentinternalstructure,andtheyappearasdistinctchoicesto potentialusers.

Inmostnonprofitorganizations,programsarelikelittlebusinesses,with astructurereinforcedbynonprofitaccountingrulesandwithimmense iflargelyunnoticedconsequencesforeverythingfromcompensationto organizationaleffectiveness.Theyrepresentadelegationofresponsibility fromtheCEO,andsotheyaretheenginesofmission.Itisattheprogram levelthattheorganization’sgoalsareaccomplishedornot;therefore,those inchargeofprogramscarryheavymoralpressuretogetthejobdone.

Noticetheuseoftheword“moral”intheprecedingsentence.Typically, themotivationsofthosewhorunnonprofitorganizationsaredifferent