2222

basics,role of treasure,
getting an accountant or bookkeeper,

buy accounting software,
getting a banker,
basic overview of financial management,
bookkeeping basics,
financial controls,
managing a budget,
managing cash flow,
credit and collections,
budget deviation analysis,
managing fixed assets,
financial statements,
profit and loss statement (Income Stmnt.),
balance sheet,
financial analysis.
Good luck.
Hello friend,
there are many topics namely,
Acounting
Asset management(finance)
budgeting
financial reporting
portfolio management
financial transsaction
investments
cost benifits analysis
csh flow manager
financial reporting
portfolio management
financial transsaction
investments
cost benifits analysis
csh flow manager
cash flow manager

-bookkeeping basics
-managing a budget
-investments
-Asset management(finance)
-budget deviation analysis,
-financial analysis.
-financial controls
-balance sheet,
PhD in Risk Management
Home
Basic Guide to Non-Profit Financial Management

A Basic Guide to Non-Profit Financial Management F
© Copyright Carter McNamara, MBA, PhD, Authenticity Consulting, LLC.
•Applies to nonprofits unless otherwise noted. •
Wh
New nonprofit leaders and managers have to develop at least basic skills in financial Search Our Site
management. Expecting others in the organization to manage finances is clearly
asking for trouble. Basic skills in financial management start in the critical areas of •
«
cash management and bookkeeping, which should be done according to certain
financial controls to ensure integrity in the bookkeeping process. New leaders and
managers should soon go on to learn how to generate financial statements (from
bookkeeping journals) and analyze those statements to really understand the
•financial condition of the business. Financial analysis shows the "reality" of the
Ho
situation of a business -- seen as such, financial management is one of the most
important practices in management. This topic will help you understand basic
practices in financial management, and build the basic systems and practices needed
in a healthy business.
Sections in This Topic Include:

The following links are to sections included further below in this Web page.
Basics and Getting Started

•
Sit
•- - - Fiscal Sponsorship -- Help You Get Started?
To
-- - Your Board Treasurer -- A Critical Resource to Help You Get Started
-- - Getting an Accountant or Bookkeeper to Help You, If Needed
-- - Getting a Banker
-- - Buy Accounting Software to Help You? •
-- - Reviewing the Basics of Nonprofit Financial Management Ass
Activities in the Yearly Accounting Cycle
Bookkeeping and Controls:

Nonprofit Bookkeeping (in Accounting)
Financial Controls
L
F
•Critical Operating Activities in Yearly Accounting Cycle:
List •
Designing a Budget
For
Managing Cash Flow (including managing your checking account)
Credit and Collections
Budget Deviation Analysis
Managing Program Finances
Financial Statements and Analysis:

A
- - - Statement of Activities (Income Statement)
- - - Statement of Financial Position (Balance Sheet)
•Financial Analysis (of statements, using ratios, doing break-even analysis, etc.)
Co
Financial Reporting
- - - Annual Reports •
No
Special Topics
Lease Versus Buy

Assessments and Audits of Nonprofit Financial Management Practices
- - - Various Assessments to Check the Financial Health of Your Nonprofit
- - - Financial Audits
General Resources
•Nonprofits Assistance Fund - Various tools for financial management

Free, Online, Self-Paced Program to Completely Build/Strengthen Your Nonprofit
Su
Basic Guide to Nonprofit Program Design and Marketing G
Various Types of Resources
Various Major Sites of Online Information •
Org
BASICS AND GETTING STARTED

Basics of Bookkeeping, Accounting and Financial Management
Fiscal Sponsorship -- Another Nonprofit Initially Supports Your Taxes and Finances?
In some cases, you might want to pursue finding a fiscal sponsor. For example, if
you're not sure you want to start a nonprofit, or if your nonprofit may not need to
exist for long, then a fiscal sponsor may be useful for you. A fiscal sponsor might
Coversee your financial management activities until your organization is more
developed or terminated. See •
•Fiscal Sponsorship -- Is it For You? Fre
Pro
Your Board Treasurer -- A Critical Resource to Help You Get
Started
An active board treasurer can be the most important resource in the long-term
financial health of your nonprofit. As a new nonprofit organization, you must get
accounting expertise somehow, if you don't have strong skills in this area yourself.
You (or, ideally your board chair) should get someone on your board with accounting
skills to be your treasurer. See •
Role of Your Board Treasurer Joi
Getting an Accountant, If Needed

•
You might choose to do the basic bookkeeping activities yourself. You should get an
Hel
accountant initially to help you set up your bookkeeping system, generate financial
statements and do some basic financial analysis.
Getting and Using Accounting Services
Buy a Software Package to Automate Your Financial

Management?
There are a number of very useful software packages that will help you automate •
bookkeeping, generation of financial statement and their analysis. See Onl
Buy Accounting Software to Help You?
Getting a Bank and Banker
You'll need to start a checking account. Probably the best way to find a good bank is
•to ask for advice and references from other nonprofits, especially other nonprofits
De
that are of the size and nature of yours. If you're just starting out, you probably
don't have much money. You may be able to get buy with a non-interest-bearing
checking out that has no, or minimal, fees.The following link may be useful
Getting and Using a Banker •
Su
No Matter Who Does Your Finances, YOU Should Know Basic
Accounting Principles
To matter your finances as effectively as possible, you should at least have an

understand the basic accounting process. To get an overall sense for the recurring
financial activities in the typical nonprofit, read the following article. (You'll soon get
more basic information below in the section titled "Nonprofit Bookkeeping (in
Accounting)".) •
Basics of Nonprofit Financial Management Blo
Now, to Expand Your Learning of the Basics ...

Next, look at the wonderful range of information at the site of the Alliance for
Nonprofit Management FAQ's. This site provides an excellent overview of the aspects
of nonprofit bookkeeping, accounting and financial management! Although links to
that site are included throughout this topic in the library, the reader might best be
served to review all of the FAQ information at that site. Two key links to review now
are:
"Basic Elements of an Accounting System"
scroll down to "Differences Between Nonprofit and For-Profit Accounting"
•
Peri
Other sites that you might benefit from are:
Barton's Bookkeeping Tutorial
All Bookkeeping resources
Online Learning Center's tutorial
•
Ref
ACTIVITIES IN YEARLY ACCOUNTING CYCLE: Bookkeeping
and Controls

Now that you have a sense for the overall, recurring activities in nonprofit financial
management. Let's take a closer look at what happens in nonprofit accounting. One
of the biggest challenges is knowing how to enter each type of transaction in the
journal and ledger. The following links are very useful for this challenge.
What is the difference between cash basis and accrual basis accounting? (scroll
down)
How do we develop functional expense classification? (scroll down)
What should our chart of accounts include? (scroll down) •
Job
How can we allocate indirect costs to programs? (scroll down)
What is depreciation?(scroll down)
What is the unrelated business income tax?
How do we account for pledges? (scroll down)
How to account for donated goods
Accounting for Contributions Received and Contributions Made
Is there a way to just show a figure for "net fundraising events" ...? (scroll down)
answers to a variety of questions about accounting in the Nonprofit FAQ

Critical Issues in Financial Accounting Regulation for Nonprofit Organizations
Financial Controls
There are certain practices that you should consistently follow to ensure that
financial transactions are consistently recorded in an accurate fashion. These
controls also help to minimize risk, including employee theft.
What is an internal accounting control system and how can we make ours effective?
What internal controls are needed for cash disbursement?
What internal controls are needed for payroll? (scroll down)
Also see:
Assessments and Audits of Nonprofit Financial Management Practices
Insurance Information for Nonprofits
Risk Management Information for Nonprofits
CRITICAL ACTIVITIES IN YEARLY ACCOUNTING CYCLE:

Budgeting (Financial Forecasting) and Cash Management
Managing Operating Budgets

A budget depicts what you expect to spend (expenses) and earn (revenue) over a
time period . They are useful for projecting how much money you'll need for a major
initiative, for example, buying a facility, hiring a new employee, etc. They also help
track whether you're on plan or not. There are yearly (or annual or operating)
budgets, cash budgets, capital budgets (for major assets, such as equipment,
buildings, etc.) and proposal budgets (for fundraising), etc. The following links are
about annual budgets.
How Do We Prepare a Budget? (for yearly budgets) (scroll down)
How Can We Make a Budget for the IRS Before We Start Work? (multi-year org'l
budget)
Variety of answers to questions about budgeting in the Nonprofit FAQ
Managing Cash Flow

As a new or small nonprofit, your biggest challenge is likely to be managing your
cash flow -- probably the most important financial statement for a new business is
the cash flow statement. The overall purpose of managing your cash flow is to make
sure that you have enough cash to pay current bills. Businesses can manage cash
flow by examining a cash flow statement and cash flow projection. Basically, the
cash flow statement includes total cash received minus total cash spent. Cash
management looks primarily at actual cash transactions. (Note that nonprofits must
file a financial statement called Cash Flow Statements, or Statements of Cash
Flow -- this statement is not the same as a cash flow budget.)
Basics of Cash Flow Management -- articles specific to nonprofits
What is cash flow and how should we manage it?

How much cash should we hold in reserve?(scroll down)
How Should We Invest Our Short-Term Cash Balances?
What is petty cash and how should we handle it?(scroll down)
What is the Board's Responsibility in Investments?(scroll down)
More Basics of Cash Management
Note that cash management activities, whether nonprofit or for-profits, are

essentially the same.
Basics of Cash Management

The Importance of Cash Management
Techniques for Improving Cash Flow
Cash Management Basics Resources
Preparing a Cash Flow Statement

Preparing Your Cash Flow Statement
Cash Flow Worksheet cash flow worksheet
Preparing Cash Flow Projections and Forecasts

More information on doing cash flow forecast
Annual Cash Flow Projections

Short-Term Cash Flow Projections
Managing Your Bank Account
For a new nonprofit, your check register very likely will be your primary means to
record and track cash. Whether yours is a new nonprofit or an established nonprofit,
you'll need to know how to manage your bank account. See
Reconciling Your Bank Account
Managing Your Bank Account Resource Centre

Matters of credit and collections are similar between for-profit and nonprofit
organizations, other than that nonprofits obviously grant free services much more
than for-profit organizations. Consequently, nonprofits are not nearly as likely to
utilize credit and collections procedures.
Debt Collection-Know Your Rights
Credit Granting Authority
Nonprofits and Electronic Payments

You learned above that a budget depicts what you expect to spend (expenses) and
earn (revenue) over a time period. Budget deviation analysis regularly compares
what you expected, or planned, to earn and spend with what you actually spent and
earned. The budget deviation analysis can help greatly when detecting how well
you're tracking your plans, how much to accurately budget in the future, where
there may be upcoming problems in spending, etc. A budget deviation analysis
report might include columns with titles:
Difference
Planned for Month Actual for Month
(planned minus actual)
ACTIVITIES IN YEARLY ACCOUNTING CYCLE: Financial

Management of Programs, Assets, Inventory, etc.

Usually, there are two major types of costs to consider: indirect costs and direct
costs. Indirect costs are what we sometimes call "administrative" or "overhead"
costs, for example, costs to run the central facility. Direct costs are those that fund
resources which directly produce services to clients, for example, supplies and
materials for books provided to clients. Usually, the lower your administrative costs,
the more it looks like your resources are going directly to services to clients. In
addition, you may have restricted grants (that is, grants that are dedicated for
certain programs), which require you to report monies spent on overhead and
directly on the program. Therefore, it's wise to track carefully how much money
each of your programs requires to operate and how much revenue it generates, as
well. A major challenge is to analyze how much of the indirect costs are associated
with each program.
How can I determine my program costs easily?
How can we allocate indirect costs to programs?(scroll down)
How do we develop functional expense classification?(scroll down)
Also see Basic Guidelines for Nonprofit Program Design and Marketing.
ACTIVITIES IN YEARLY ACCOUNTING CYCLE: Financial

Statements and Analysis
Financial Statements
In order to know how your nonprofit is doing, you'll do some ongoing financial
planning and analysis. In this planning and analysis, you'll likely use your
bookkeeping information to produce various financial statements, including a cash
flow statement, statement of activities and a statement of financial position.
What Financial Statements are Nonprofits Required to Issue?(scroll down)
Financial Statements of Nonprofit Organizations
Nonprofit Financial Statements
Statement of Activities (Income Statements)
These statements include much money you've earned (your revenue) and subtracts
how much you've spent (your expenses), resulting in the total of your unrestricted
net assets. The statement of activities includes how much money you've earned
(your revenue) and subtracts how much you've spent (your expenses), resulting in
how much you've made money (your profits) or lost money (your deficits). Basically,
the statement includes total sales minus total expenses. It presents the nature of
your overall profit and loss over a period of time. Therefore, the Income Statement
gives you a sense for how well the nonprofit is operating.
Statement of Activities
A Sample Income Statement
Definitions of Statement of Activities
Statement of Financial Position (Balance Sheets)
Whereas the statement of activities depicts the overall status of your profits (or
deficits) by looking at income and expenses over a period of time, the balance sheet
depicts the overall status of your finances at a fixed point in time. It totals your all
your assets and subtracts all your liabilities to compute your overall net worth (or
net loss). This statement are referenced particularly when applying for funding.
Statement of Financial Position
Sample Balance Sheets
Statement of Financial Position (Purpose, Key Numbers, Assets, Liabilities, &
Stockholders' equity)
Financial Analysis (individual statements, ratios, break-even

analysis, etc.)
Financial analysis can tell you a lot about how your nonprofit is doing. Without this
analysis, you may end up staring at a bunch of numbers on budgets, cash flow
projections and financial statements. You should set aside at least a few hours every
month to do financial analysis. Analysis includes cash flow analysis and budget
deviation analysis mentioned above. Analysis also includes balance sheet analysis
and state of activities analysis. There are some techniques and tools to help in
financial analysis, for example, profit analysis (yes, these can be used even in
nonprofits), break-even analysis and ratios analysis that can substantially help to
simplify and streamline financial analysis. How you carry out the analysis depends
on the nature and needs of you and your business. The following links will help you
get a sense for the "territory" of financial analysis.
General Information
How Do We Interpret Our Financial Statements? (scroll down)

Financial Statement Example
Beginner's Guide to Financial Statements
The Busy Person's Guide to Four Essential Finance Reports
How Financial Sustainability is So Misunderstood
5 Strategies for Non-profits to Use to Get Rid of a Deficit
Financial Planning and Analysis -- Ratios
There are a variety of ratios that can be used to help determine the current and
future condition of a nonprofit. The following links provide explanation and
procedures for using those ratios. The ratios are produced from numbers on the
financial statements. Note that the usefulness of ratios often are from comparing
ratios from different time periods in the same nonprofit or from standards for a type
of nonprofit, eg, social services, associations, civic organizations, etc.
Nonprofit FAQ's questions about ratios (find them in this section)
Financial Ratio Analysis (Definition)
Financial Ratios (different types)
The following articles are in reference to for-profits, but the principles behind the
ratios also apply to nonprofit organizations.
Overview of major types of ratios and how they're computed
Financial Planning and Analysis -- Break-Even Analysis
The break-even analysis uses information from the statement of activities and cash
flow statements to compute how much sales or revenue much be accomplished in
order to pay for all of your fixed and variable expenses. Fixed expenses are
expenses that you'd have regardless of the level of sales of products or services (eg,
sales, rent, insurance, maintenance, etc.). Variable expenses are incurred according
to the level of sales of products or services (eg, sales commissions, sales tax, freight
to ship products, etc.). Break-even analysis can help you when deciding how much
to charge for a service, how much to ask for from donors, etc.
Break-Even Analysis
Break-Even Analysis
Break-Even Analysis Definition
Financial Reporting
The types and frequency of reports depend on the nature of the nonprofit and its
situation. Banks might want reports to verify financial strength to pay back loans.
Foundations, individuals, or other donors may want reports to verify that donations
are being spent as expected by the foundation or donor. The Internal Revenue
Service will want certain reports when filing yearly tax forms.
Overviews
What financial statements are nonprofits required to issue?(scroll down)

What financial reports do management and the board need?(scroll down)
What information are we required to provide to individual donors?(scroll down)
AICPA SOP 98-2 and its Impact on Financial Reporting
Basics of Nonprofit Financial Management
Annual Reports
Tips for Creating a Good Annual Report

Tips for Reading an Annual Report
Sample Report: United Way of America
The Annual Reports Library
General
Nonprofit Resource Center

(also see "General Information" in Nonprofit Taxation)
SPECIAL TOPICS
Lease Versus Buy

The Basics of Leasing
Cost of Lease vs. Purchase
Leasing Versus Buying Cars
Leasing Office Space
Assessments and Audits of Nonprofit Financial Management

Practices
Various Assessments and Indicators
Financial Indicators
Minnesota Council of Nonprofits "Principles and Practices", section about finances
Seven characteristics of financial healthy nonprofits
Audits
What is an audit?
Should we get an audit?(scroll down)
What is an A-133 audit?(scroll down)
How do we prepare for an audit?(scroll down)
GENERAL RESOURCES

Sources of Online Assistance and Information
Resources for Nonprofits
Software to Help Manage Your Finances
Software for Nonprofits
Getting and Using Banking Services
Setting up Your Bank Accounts

Closing a Bank Account Without Going to the Bank
Choosing Professionals to Help You
Ways in Which an Accountant Can Help

How Do I Select an Accountant?
Keeping Accounting Costs Down
Business Contracts (this will be useful if you sign any contracts with the accountant)
You should carefully consider whether you should hire an outside accountant, or hire
your own employee. The IRS pays increasing attention to the hiring of independent
contractors.
Potential Issues in Hiring Consultants (general information and IRS-related issues)
Have a Treasurer to Help You?
Does a nonprofit organization need a treasurer?

Role of Board Treasurer
Being a Club Treasurer -- the Basics
Fiscal Sponsorship -- To Help Get Your Finances Started ...
Fiscal Sponsorship (Wikipedia)

How Fiscal Sponsorship Nurtures Nonprofits
Fiscal Sponsors
Guidelines for Fiscal Sponsors from the National Network of Fiscal Sponsors
More Than the Money: Fiscal Sponsorship’s Unrealized Potential
Fiscal Sponsorship - An Alternative To Creating A Nonprofit
What You Need to Know About Fiscal Sponsorship
Miscellaneous Other Resources
Financial Calculators (many kinds)

More Financial Calculators
Financial Resources on the Internet
20 Emergency Funding Sources for Nonprofits
Major Sites of Online Information

The Support Center for Nonprofit Management
Learning Institute for Nonprofit Organizations
Financial resources for nonprofit financial management
Ethics and Accountability Code for the Nonprofit Sector
For the Category of Financial Management (Nonprofit):
Related Library Topics
Recommended Books
Basics and General Information
Budgeting
Bookkeeping and Accounting
Cash Management
Financial Statements and Analysis

Bookkeeping Basics -- What Every Nonprofit Bookkeeper
Needs to Know
by Debra L. Ruegg and Lisa M. Venkatrathnam, published by
Fieldstone Alliance. Explains all aspects of developing and successfully
managing systems to track and spend nonprofit finances. This is an easy-to-
reference resource that is useful to new or established nonprofits. Today,
nonprofits have to be more accountable than ever before about planning,
managing and explaining their finances. This accountability now extends
beyond just the Board treasurer -- other Board members no longer can
expect just one person to handle the finances. This book helps everyone
meet their responsibilities about finances!
The following books are recommended because of their highly practical nature and
often because they include a wide range of information about this Library topic. To
get more information about each book, just hover your cursor over the image of the
book. A "bubble" of information will be displayed. You can click on the title of the
book in that bubble to get more information, too.
Budgeting
Bookkeeping Basics -- What Every Nonprofit Bookkeeper

Needs to Know
by Debra L. Ruegg and Lisa M. Venkatrathnam, published by
Fieldstone Alliance. Explains all aspects of developing and successfully
managing systems to track and spend nonprofit finances. This is an easy-to-
reference resource that is useful to new or established nonprofits. Today,
nonprofits have to be more accountable than ever before about planning,
managing and explaining their finances. This accountability now extends
beyond just the Board treasurer -- other Board members no longer can
expect just one person to handle the finances. This book helps everyone
meet their responsibilities about finances!
The following book is recommended because of its highly practical nature and often
because it includes a wide range of information about this Library topic. To get more
information about each book, just hover your cursor over the image of the book. A
"bubble" of information will be displayed. You can click on the title of the book in
that bubble to get more information, too.
Cash Management
Also See
Taxation (Nonprofit) -- Recommended Books
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Special Topics
Lease Versus Buy

Assessments and Audits of Nonprofit Financial
Management Practices
- - - Various Assessments to Check the Financial Health
of Your Nonprofit
- - - Financial Audits
General Resources
Nonprofits Assistance Fund - Various tools for financial

management
Free, Online, Self-Paced Program to Completely
Build/Strengthen Your Nonprofit
Basic Guide to Nonprofit Program Design and Marketing
Various Major Sites of Online Information
BASICS AND GETTING STARTED

Basics of Bookkeeping, Accounting and
Financial Management
Fiscal Sponsorship -- Another Nonprofit Initially Supports

Your Taxes and Finances?
In some cases, you might want to pursue finding a fiscal
sponsor. For example, if you're not sure you want to start
a nonprofit, or if your nonprofit may not need to exist for
long, then a fiscal sponsor may be useful for you. A fiscal
sponsor might oversee your financial management
activities until your organization is more developed or
terminated. See
Fiscal Sponsorship -- Is it For You?
Your Board Treasurer -- A Critical Resource

to Help You Get Started
An active board treasurer can be the most important

resource in the long-term financial health of your
nonprofit. As a new nonprofit organization, you must get
accounting expertise somehow, if you don't have strong
skills in this area yourself. You (or, ideally your board
chair) should get someone on your board with accounting
skills to be your treasurer. See
Role of Your Board Treasurer
Getting an Accountant, If Needed
You might choose to do the basic bookkeeping activities

yourself. You should get an accountant initially to help
you set up your bookkeeping system, generate financial
statements and do some basic financial analysis.
Buy a Software Package to Automate Your

Financial Management?
There are a number of very useful software packages

that will help you automate bookkeeping, generation of
financial statement and their analysis. See
Buy Accounting Software to Help You?
Getting a Bank and Banker
You'll need to start a checking account. Probably the best

way to find a good bank is to ask for advice and
references from other nonprofits, especially other
nonprofits that are of the size and nature of yours. If
you're just starting out, you probably don't have much
money. You may be able to get buy with a non-interest-
bearing checking out that has no, or minimal, fees.The
following link may be useful
Getting and Using a Banker
No Matter Who Does Your Finances, YOU

Should Know Basic Accounting
Principles
To matter your finances as effectively as possible, you

should at least have an understand the basic accounting
process. To get an overall sense for the recurring
financial activities in the typical nonprofit, read the
following article. (You'll soon get more basic information
below in the section titled "Nonprofit Bookkeeping (in
Accounting)".)
Now, to Expand Your Learning of the Basics ...

Next, look at the wonderful range of information at the
site of the Alliance for Nonprofit Management FAQ's. This
site provides an excellent overview of the aspects of
nonprofit bookkeeping, accounting and financial
management! Although links to that site are included
throughout this topic in the library, the reader might best
be served to review all of the FAQ information at that
site. Two key links to review now are:
"Basic Elements of an Accounting System"
scroll down to "Differences Between Nonprofit and For-
Profit Accounting"
Other sites that you might benefit from are:

Barton's Bookkeeping Tutorial
All Bookkeeping resources
Online Learning Center's tutorial
ACTIVITIES IN YEARLY ACCOUNTING

CYCLE: Bookkeeping and Controls

Now that you have a sense for the overall, recurring
activities in nonprofit financial management. Let's take a
closer look at what happens in nonprofit accounting. One
of the biggest challenges is knowing how to enter each
type of transaction in the journal and ledger. The
following links are very useful for this challenge.
What is the difference between cash basis and accrual
basis accounting? (scroll down)
How do we develop functional expense classification?
(scroll down)
What should our chart of accounts include? (scroll down)
How can we allocate indirect costs to programs? (scroll
down)
What is depreciation?(scroll down)
What is the unrelated business income tax?
How do we account for pledges? (scroll down)
How to account for donated goods
Accounting for Contributions Received and Contributions
Made
Is there a way to just show a figure for "net fundraising
events" ...? (scroll down)
answers to a variety of questions about accounting in the
Nonprofit FAQ
Critical Issues in Financial Accounting Regulation for
Nonprofit Organizations
Financial Controls
There are certain practices that you should consistently
follow to ensure that financial transactions are
consistently recorded in an accurate fashion. These
controls also help to minimize risk, including employee
theft.
What is an internal accounting control system and how
can we make ours effective?
What internal controls are needed for cash disbursement?
What internal controls are needed for payroll? (scroll
down)
Also see:
Assessments and Audits of Nonprofit Financial
Management Practices
Insurance Information for Nonprofits
Risk Management Information for Nonprofits
CRITICAL ACTIVITIES IN YEARLY

ACCOUNTING CYCLE: Budgeting
(Financial Forecasting) and Cash
Management
Managing Operating Budgets

A budget depicts what you expect to spend (expenses)
and earn (revenue) over a time period . They are useful
for projecting how much money you'll need for a major
initiative, for example, buying a facility, hiring a new
employee, etc. They also help track whether you're on
plan or not. There are yearly (or annual or operating)
budgets, cash budgets, capital budgets (for major assets,
such as equipment, buildings, etc.) and proposal budgets
(for fundraising), etc. The following links are about
annual budgets.
How Do We Prepare a Budget? (for yearly budgets)
(scroll down)
How Can We Make a Budget for the IRS Before We Start
Work? (multi-year org'l budget)
Variety of answers to questions about budgeting in the
Nonprofit FAQ
Managing Cash Flow

As a new or small nonprofit, your biggest challenge is
likely to be managing your cash flow -- probably the most
important financial statement for a new business is the
cash flow statement. The overall purpose of managing
your cash flow is to make sure that you have enough
cash to pay current bills. Businesses can manage cash
flow by examining a cash flow statement and cash flow
projection. Basically, the cash flow statement includes
total cash received minus total cash spent. Cash
management looks primarily at actual cash transactions.
(Note that nonprofits must file a financial statement
called Cash Flow Statements, or Statements of Cash
Flow -- this statement is not the same as a cash flow
budget.)
Basics of Cash Flow Management -- articles

specific to nonprofits
What is cash flow and how should we manage it?

How much cash should we hold in reserve?(scroll down)
How Should We Invest Our Short-Term Cash Balances?
What is petty cash and how should we handle it?(scroll
down)
What is the Board's Responsibility in Investments?(scroll
down)
More Basics of Cash Management
Note that cash management activities, whether nonprofit

or for-profits, are essentially the same.
Basics of Cash Management

The Importance of Cash Management
Techniques for Improving Cash Flow
Cash Management Basics Resources
Preparing a Cash Flow Statement

Preparing Your Cash Flow Statement
Cash Flow Worksheet cash flow worksheet
Preparing Cash Flow Projections and Forecasts

More information on doing cash flow forecast
Annual Cash Flow Projections

Short-Term Cash Flow Projections
Managing Your Bank Account
For a new nonprofit, your check register very likely will

be your primary means to record and track cash.
Whether yours is a new nonprofit or an established
nonprofit, you'll need to know how to manage your bank
account. See
Reconciling Your Bank Account
Managing Your Bank Account Resource Centre

Matters of credit and collections are similar between for-
profit and nonprofit organizations, other than that
nonprofits obviously grant free services much more than
for-profit organizations. Consequently, nonprofits are not
nearly as likely to utilize credit and collections
procedures.
Debt Collection-Know Your Rights
Credit Granting Authority
Nonprofits and Electronic Payments

You learned above that a budget depicts what you expect
to spend (expenses) and earn (revenue) over a time
period. Budget deviation analysis regularly compares
what you expected, or planned, to earn and spend with
what you actually spent and earned. The budget
deviation analysis can help greatly when detecting how
well you're tracking your plans, how much to accurately
budget in the future, where there may be upcoming
problems in spending, etc. A budget deviation analysis
report might include columns with titles:
Planned for Month Actual for Month

(planned minus actual)
CYCLE: Financial Management of
Programs, Assets, Inventory, etc.

Usually, there are two major types of costs to consider:
indirect costs and direct costs. Indirect costs are what we
sometimes call "administrative" or "overhead" costs, for
example, costs to run the central facility. Direct costs are
those that fund resources which directly produce services
to clients, for example, supplies and materials for books
provided to clients. Usually, the lower your administrative
costs, the more it looks like your resources are going
directly to services to clients. In addition, you may have
restricted grants (that is, grants that are dedicated for
certain programs), which require you to report monies
spent on overhead and directly on the program.
Therefore, it's wise to track carefully how much money
each of your programs requires to operate and how much
revenue it generates, as well. A major challenge is to
analyze how much of the indirect costs are associated
with each program.
How can I determine my program costs easily?
How can we allocate indirect costs to programs?(scroll
down)
How do we develop functional expense classification?
(scroll down)
Also see Basic Guidelines for Nonprofit Program Design

and Marketing.

CYCLE: Financial Statements and
Analysis
Financial Statements
In order to know how your nonprofit is doing, you'll do
some ongoing financial planning and analysis. In this
planning and analysis, you'll likely use your bookkeeping
information to produce various financial statements,
including a cash flow statement, statement of activities
and a statement of financial position.
What Financial Statements are Nonprofits Required to
Issue?(scroll down)
Financial Statements of Nonprofit Organizations
Nonprofit Financial Statements
Statement of Activities (Income Statements)
These statements include much money you've earned

(your revenue) and subtracts how much you've spent
(your expenses), resulting in the total of your
unrestricted net assets. The statement of activities
includes how much money you've earned (your revenue)
and subtracts how much you've spent (your expenses),
resulting in how much you've made money (your profits)
or lost money (your deficits). Basically, the statement
includes total sales minus total expenses. It presents the
nature of your overall profit and loss over a period of
time. Therefore, the Income Statement gives you a sense
for how well the nonprofit is operating.
Statement of Activities
A Sample Income Statement
Definitions of Statement of Activities
Statement of Financial Position (Balance

Sheets)
Whereas the statement of activities depicts the overall

status of your profits (or deficits) by looking at income
and expenses over a period of time, the balance sheet
depicts the overall status of your finances at a fixed point
in time. It totals your all your assets and subtracts all
your liabilities to compute your overall net worth (or net
loss). This statement are referenced particularly when
applying for funding.
Statement of Financial Position
Sample Balance Sheets
Statement of Financial Position (Purpose, Key Numbers,
Assets, Liabilities, & Stockholders' equity)
Financial Analysis (individual statements,

ratios, break-even analysis, etc.)
Financial analysis can tell you a lot about how your
nonprofit is doing. Without this analysis, you may end up
staring at a bunch of numbers on budgets, cash flow
projections and financial statements. You should set aside
at least a few hours every month to do financial analysis.
Analysis includes cash flow analysis and budget deviation
analysis mentioned above. Analysis also includes balance
sheet analysis and state of activities analysis. There are
some techniques and tools to help in financial analysis,
for example, profit analysis (yes, these can be used even
in nonprofits), break-even analysis and ratios analysis
that can substantially help to simplify and streamline
financial analysis. How you carry out the analysis
depends on the nature and needs of you and your
business. The following links will help you get a sense for
the "territory" of financial analysis.
General Information
How Do We Interpret Our Financial Statements? (scroll

down)
Financial Statement Example
Beginner's Guide to Financial Statements
The Busy Person's Guide to Four Essential Finance
Reports
How Financial Sustainability is So Misunderstood
5 Strategies for Non-profits to Use to Get Rid of a Deficit
Financial Planning and Analysis -- Ratios
There are a variety of ratios that can be used to help

determine the current and future condition of a nonprofit.
The following links provide explanation and procedures
for using those ratios. The ratios are produced from
numbers on the financial statements. Note that the
usefulness of ratios often are from comparing ratios from
different time periods in the same nonprofit or from
standards for a type of nonprofit, eg, social services,
associations, civic organizations, etc.
Nonprofit FAQ's questions about ratios (find them in this
section)
Financial Ratio Analysis (Definition)
Financial Ratios (different types)
The following articles are in reference to for-profits, but

the principles behind the ratios also apply to nonprofit
organizations.
Overview of major types of ratios and how they're
computed
Financial Planning and Analysis -- Break-

Even Analysis
The break-even analysis uses information from the

statement of activities and cash flow statements to
compute how much sales or revenue much be
accomplished in order to pay for all of your fixed and
variable expenses. Fixed expenses are expenses that
you'd have regardless of the level of sales of products or
services (eg, sales, rent, insurance, maintenance, etc.).
Variable expenses are incurred according to the level of
sales of products or services (eg, sales commissions,
sales tax, freight to ship products, etc.). Break-even
analysis can help you when deciding how much to charge
for a service, how much to ask for from donors, etc.
Break-Even Analysis
Break-Even Analysis
Break-Even Analysis Definition
Financial Reporting
The types and frequency of reports depend on the nature
of the nonprofit and its situation. Banks might want
reports to verify financial strength to pay back loans.
Foundations, individuals, or other donors may want
reports to verify that donations are being spent as
expected by the foundation or donor. The Internal
Revenue Service will want certain reports when filing
yearly tax forms.
Overviews
What financial statements are nonprofits required to

issue?(scroll down)
What financial reports do management and the board
need?(scroll down)
What information are we required to provide to individual
donors?(scroll down)
Annual Reports
Tips for Creating a Good Annual Report
Tips for Reading an Annual Report
Sample Report: United Way of America
The Annual Reports Library
General

(also see "General Information" in Nonprofit Taxation)
SPECIAL TOPICS
Lease Versus Buy

The Basics of Leasing
Cost of Lease vs. Purchase
Leasing Versus Buying Cars
Leasing Office Space
Assessments and Audits of Nonprofit

Financial Management Practices
Various Assessments and Indicators
Financial Indicators
Minnesota Council of Nonprofits "Principles and
Practices", section about finances
Seven characteristics of financial healthy nonprofits
Audits
What is an audit?
Should we get an audit?(scroll down)
What is an A-133 audit?(scroll down)
How do we prepare for an audit?(scroll down)
GENERAL RESOURCES

Sources of Online Assistance and
Information
Resources for Nonprofits
Software to Help Manage Your Finances
Software for Nonprofits
Getting and Using Banking Services
Setting up Your Bank Accounts

Closing a Bank Account Without Going to the Bank
Choosing Professionals to Help You
Ways in Which an Accountant Can Help

How Do I Select an Accountant?
Keeping Accounting Costs Down
Business Contracts (this will be useful if you sign any
contracts with the accountant)
You should carefully consider whether you should hire an

outside accountant, or hire your own employee. The IRS
pays increasing attention to the hiring of independent
contractors.
Potential Issues in Hiring Consultants (general
information and IRS-related issues)
Have a Treasurer to Help You?
Does a nonprofit organization need a treasurer?

Role of Board Treasurer
Being a Club Treasurer -- the Basics
Fiscal Sponsorship -- To Help Get Your

Finances Started ...
Fiscal Sponsorship (Wikipedia)

How Fiscal Sponsorship Nurtures Nonprofits
Fiscal Sponsors
Guidelines for Fiscal Sponsors from the National Network
of Fiscal Sponsors
More Than the Money: Fiscal Sponsorship’s Unrealized
Potential
Fiscal Sponsorship - An Alternative To Creating A
Nonprofit
What You Need to Know About Fiscal Sponsorship
Miscellaneous Other Resources
Financial Calculators (many kinds)

More Financial Calculators
Financial Resources on the Internet
20 Emergency Funding Sources for Nonprofits
Major Sites of Online Information

The Support Center for Nonprofit Management
Learning Institute for Nonprofit Organizations
Financial resources for nonprofit financial management
Ethics and Accountability Code for the Nonprofit Sector
For the Category of Financial

Management (Nonprofit):
Related Library Topics
Recommended Books
Budgeting
Cash Management

Bookkeeping Basics -- What Every
Nonprofit Bookkeeper Needs to Know
by Debra L. Ruegg and Lisa M.
Venkatrathnam, published by Fieldstone
Alliance. Explains all aspects of developing and
successfully managing systems to track and spend
nonprofit finances. This is an easy-to-reference
resource that is useful to new or established
nonprofits. Today, nonprofits have to be more
accountable than ever before about planning,
managing and explaining their finances. This
accountability now extends beyond just the Board
treasurer -- other Board members no longer can
expect just one person to handle the finances.
This book helps everyone meet their
responsibilities about finances!
The following books are recommended because of their

highly practical nature and often because they include a
wide range of information about this Library topic. To get
more information about each book, just hover your
cursor over the image of the book. A "bubble" of
information will be displayed. You can click on the title of
the book in that bubble to get more information, too.
Budgeting


Bookkeeping Basics -- What Every
Nonprofit Bookkeeper Needs to Know
by Debra L. Ruegg and Lisa M.
Venkatrathnam, published by Fieldstone
Alliance. Explains all aspects of developing and
successfully managing systems to track and spend
nonprofit finances. This is an easy-to-reference
resource that is useful to new or established
nonprofits. Today, nonprofits have to be more
accountable than ever before about planning,
managing and explaining their finances. This
accountability now extends beyond just the Board
treasurer -- other Board members no longer can
expect just one person to handle the finances.
This book helps everyone meet their
responsibilities about finances!
The following book is recommended because of its highly

practical nature and often because it includes a wide
range of information about this Library topic. To get more
information about each book, just hover your cursor over
the image of the book. A "bubble" of information will be
displayed. You can click on the title of the book in that
bubble to get more information, too.
Cash Management


Also See
Taxation (Nonprofit) -- Recommended Books
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basics,role of treasure,

getting an accountant or bookkeeper,

cash flow manager

Basic Guide to Non-Profit Financial Management

Sections in This Topic Include:

Basics and Getting Started

Activities in the Yearly Accounting Cycle

Bookkeeping and Controls:

Managing Program Finances

Financial Statements and Analysis:

Lease Versus Buy

•Nonprofits Assistance Fund - Various tools for financial management

BASICS AND GETTING STARTED

Getting an Accountant, If Needed

Buy a Software Package to Automate Your Financial

Getting a Bank and Banker

To matter your finances as effectively as possible, you should at least have an

Now, to Expand Your Learning of the Basics ...

Nonprofit Bookkeeping (in Accounting)

answers to a variety of questions about accounting in the Nonprofit FAQ

CRITICAL ACTIVITIES IN YEARLY ACCOUNTING CYCLE:

Managing Operating Budgets

Managing Cash Flow

Basics of Cash Flow Management -- articles specific to nonprofits

What is cash flow and how should we manage it?

Note that cash management activities, whether nonprofit or for-profits, are

Basics of Cash Management

Preparing a Cash Flow Statement

Preparing Cash Flow Projections and Forecasts

Annual Cash Flow Projections

Managing Your Bank Account

Credit and Collections

Budget Deviation Analysis

ACTIVITIES IN YEARLY ACCOUNTING CYCLE: Financial

Managing Program Finances

ACTIVITIES IN YEARLY ACCOUNTING CYCLE: Financial

Statement of Activities (Income Statements)

Statement of Financial Position (Balance Sheets)

Financial Analysis (individual statements, ratios, break-even

How Do We Interpret Our Financial Statements? (scroll down)

Financial Planning and Analysis -- Ratios

Financial Planning and Analysis -- Break-Even Analysis

What financial statements are nonprofits required to issue?(scroll down)

Tips for Creating a Good Annual Report

Nonprofit Resource Center

Lease Versus Buy

Assessments and Audits of Nonprofit Financial Management

Various Types of Resources

Resources for Nonprofits

Software to Help Manage Your Finances

Software for Nonprofits

Getting and Using Banking Services

Setting up Your Bank Accounts

Getting and Using Accounting Services

Ways in Which an Accountant Can Help

Have a Treasurer to Help You?

Does a nonprofit organization need a treasurer?

Fiscal Sponsorship -- To Help Get Your Finances Started ...

Fiscal Sponsorship (Wikipedia)

Financial Calculators (many kinds)

Major Sites of Online Information

For the Category of Financial Management (Nonprofit):

Related Library Topics