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NONPROFIT FINANCIALPLANNING MADE EASYJody Blazek, CPAJohn Wiley & Sons. Inc.ffirs.indd iii12/13/07 12:56:56 PM

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NONPROFIT FINANCIALPLANNING MADE EASYJody Blazek, CPAJohn Wiley & Sons. Inc.ffirs.indd iii12/13/07 12:56:56 PM

This book is printed on acid-free paper. Copyright 2008 by John Wiley & Sons, Inc. All rights reserved.Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultaneously in Canada.No part of this publication may be reproduced, stored in a retrieval system, ortransmitted in any form or by any means, electronic, mechanical, photocopying,recording, scanning, or otherwise, except as permitted under Section 107 or 108 ofthe 1976 United States Copyright Act, without either the prior written permissionof the Publisher, or authorization through payment of the appropriate per-copy feeto the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923,978-750-8400, fax 978-646-8600, or on the web at Requests tothe Publisher for permission should be addressed to the Permissions Department,John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201-748-6011, fax201-748-6008, or online at of Liability/Disclaimer of Warranty: While the publisher and author haveused their best efforts in preparing this book, they make no representationsor warranties with respect to the accuracy or completeness of the contents ofthis book and specifically disclaim any implied warranties of merchantabilityor fitness for a particular purpose. No warranty may be created or extendedby sales representatives or written sales materials. The advice and strategiescontained herein may not be suitable for your situation. You should consult witha professional where appropriate. Neither the publisher nor author shall be liablefor any loss of profit or any other commercial damages, including but not limitedto special, incidental, consequential, or other damages.For general information on our other products and services, or technical support,please contact our Customer Care Department within the United States at800-762-2974, outside the United States at 317-572-3993 or fax 317-572-4002.Wiley also publishes its books in a variety of electronic formats. Some content thatappears in print may not be available in electronic books.For more information about Wiley products, visit our Web site at of Congress Cataloging-in-Publication Data:Blazek, Jody.Nonprofit financial planning made easy/Jody Blazek.p. cm.—(Wiley nonprofit law, finance, and management series)Includes bibliographical references and index.ISBN 978-0-471-71527-6 (pbk.)1. Nonprofit organizations—Finance. 2. Nonprofit organizations—Accounting. 3. Nonprofit organizations—Management. I. TitleHG4027.65.B553 2008658.15—dc222007044832Printed in the United States of America10 9 8 7 6 5 4 3 2 1ffirs.indd iv12/13/07 12:56:57 PM

ContentsExhibitsxiAbout the AuthorxvPrefaceChapter 1:xviiIntroductory ConceptsHow to Use this BookAttributes of NonprofitsCan Nonprofits Profit?Meaning of ProfitProfit ProhibitionsWhy Seek a Profit?Difference Between Nonprofits and For-ProfitsCapitalization: Philanthropists versus InvestorsRevenues: Constituents versus CustomersFor-Profit ToolsPursuit of Financial Success: Some ObservationsBe Realistic about ExpectationsMake Use of Intangible ResourcesNonprofit Mentality Is Often “Penny Wise andPound Foolish”Financial Accounting for Nonprofits Is DifferentProducing an Audit Trail Benefits the Organizationin Many WaysEnhancing Computer Capabilities May Not CureFinancial IllsRespect the Organizational Structure or Change It13688910111112131414141515161617vftoc.indd v12/13/07 8:29:33 PM

viContentsChapter 2:Know Who’s in ChargeEconomic Conditions Must Be AnticipatedLong-Range Planning Is IndispensableKnow Why the Nonprofit Organization HasTax-Exempt StatusComprehensive Financial Planning Checklist171818Structuring the Organization for Fiscal Strength27Establishing the HierarchyThe Role of the BoardStandards for DirectorsImpact of Sarbanes-OxleyA Director’s DutiesReviewing Financial ReportsFilling Board PositionsFinding ProspectsStaff Representation on the BoardCompensation for Board ServiceNumber of DirectorsRoles of The Treasurer and The CFOInside and Outside AccountantsFinancial Management TeamDefining Inside and Outside AccountantsSelecting Financial Reporting ServicesUnderstanding the Auditing ProcessWhen to AuditReview and Compilation ProcessesRequests for Proposals for Accounting ServicesConflict-of-Interest PolicyChapter 3:Financing the DreamBalancing Mission and FinancesDefining the MissionMission StatementPrioritizing GoalsAssessing the ResourcesMaking Micro Resource DecisionsMacro Resource AnalysisChapter 4:BudgetingBudget-Planning ndd 5759596061616267676868686912/13/07 8:29:34 PM

ContentsZero Basis versus IncrementalForecastingTypes of BudgetsAdvantages and DisadvantagesWho Participates in Budgeting?Selling the BudgetBudget Policy ManualCommunicating the ProcessScheduling Budget ProcessChanging Budget MidyearTiming DilemmasPreparing ForecastsDonations and MembershipsService Delivery FeesGrants and ContractsInvestment IncomeExpensesStatistical Operational DataSample Customer SurveyUseful StatisticsCapital Additions BudgetMonitoring VariancesModel BudgetsProposed Overall 20XX Budget Comparedto 20XX ActualFunctional Revenue and Expense BudgetMember Services Budget WorksheetBudget Increases (Decreases) Projectedfor 20XXPersonnel BudgetProgram Cost AnalysisOther Reports and AnalysisA Budgeting ChecklistChapter 5:Asset ManagementMaximizing ResourcesGetting ResourcesForming AlliancesBusiness IncomePlanned GiftsCash Flow PlanningUnderstanding CPAs’ Cash Flow StatementsCyclical FluctuationsDesigning Cash Flow BudgetsBeyond Cash Flow Imbalancesftoc.indd 712/13/07 8:29:34 PM

viiiContentsMore Money in the BankTo Borrow or NotPrudent Investment PlanningFacing the UnknownRisk versus ReturnInvestment CyclesMeasuring Investment ReturnRestricted GiftsIsolating Restricted GrantsAdministrative CostsEndowmentsWho Gets the Appreciation?To Mark It to Market?How Income Is MeasuredEndowment and Restricted Fund ChecklistChapter 6:Nonprofit AccountingWhat is Accounting?Cash Receiving SystemsCash Disbursement SystemsPayroll Disbursement SystemOther Useful Ledgers and Financial FilesFund AccountingComputerized AccountingChart of AccountsNational StandardFunctional Expense CategoriesWhy a Double Entry?Choosing a MethodAdvantages of Cash MethodWhy Use the Accrual Method?Design of the FinancialsFASB, GAAP, and NonprofitsSpecific Standards for NonprofitsOther Nonprofit ReportingInternal ControlsChapter 7:Special Financial ToolsFinancial Indicators to Critique PerformanceEconomies of ScaleBreak-Even AnalysisPerformance StatisticsCost Accountingftoc.indd 16416616717917918518618618612/13/07 8:29:34 PM

ContentsTechniques for Capturing CostsCost Allocation MethodsPurchasing ProceduresApproval SystemsHow Much Paperwork?Measuring Lifetime CostTo Lease or to BuyAffiliations and Agency AgreementsWho’s an Employee?Chapter 8:ftoc.indd ixix187189190191192194195197201Obtaining and Maintaining Tax-Exempt Status207Characteristics of Tax-Exempt OrganizationsTheoretical Basis for ExemptionCategories of ExemptionTax DeductibilityUnderstanding the Nonprofit’s Legal FormCorporationTrustUnincorporated AssociationTesting Suitability For Tax ExemptionWhy a New Nonprofit?What Category of Exemption?How Is Money to Be Raised?Will Insiders Benefit?Where Will Assets Go?Maintaining Recognition of Exempt StatusRole of Internal Revenue ServiceForms 990Other 18219220221Resources223Index22712/13/07 8:29:35 PM

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EXHIBITSExhibit 1.1Exhibit 1.2Exhibit 2.1Exhibit 2.2Exhibit 2.3Exhibit 2.4Exhibit 2.5Exhibit 2.6Exhibit 2.7Exhibit 2.8Exhibit 2.9Exhibit 3.1Exhibit 3.2Exhibit 3.3Exhibit 3.4Exhibit 3.5Exhibit 3.6Financial Management Activities in NonprofitOrganizationsFinancial Planning Checklist for NonprofitOrganizationsState Association of Nonprofit ManagersOrganization ChartEndowed Educational Institution InvestmentManagement OrganizationSHAPE Organizational Structure for Stabilizationand PreservationA Board Member’s Checklist of Fiduciary DutiesInventory of Financial ReportsRoles of the Treasurer and the Chief FinancialOfficerRequest for Proposal for AuditConflict-of-Interest Questionnaire forBoard MembersIRS Version of Conflict-of-Interest PolicyFinancial Planning CyclesThe Balance Between the Mission andFinancial ResourcesPrioritizing Organizational ObjectivesChart for Weighing Choices: Financial Solutionsfor Tight BudgetsHoly Spirit Church Statement of Financial Position(December 31, 20XX)Prioritizing Macro Resource Goals519282829353843495152585960636465xiftoc.indd xi12/13/07 8:29:35 PM 7.3Exhibit 7.4ftoc.indd xiiWho Works on the Budget When?Interoffice Memo on Annual BudgetingResource Assessment ChecklistService Delivery EvaluationTypical Nonprofit Organization Membership HistoryProposed Overall Budget Compared to ActualFunctional Revenues and Expense BudgetMember Services Budget WorksheetBudgeted Increases (Decreases) Projected for 20XXPersonnel BudgetProgram Cost AnalysisCapital Acquisition BudgetInsurance Coverage ReportShort-and Long-Term Budgeting ChecklistResource Flow for Business LeagueResource Flow for Academic InstitutionStatement of Cash Flows for the Year 20XXBusiness League’s Cash Flow, Version 1Business League’s Cash Flow, Version 2State Association of Nonprofit Managers Version 1:Charted Cash FlowState Association of Nonprofit Managers Version 2:Charted Cash FlowChurch Cash FlowInvestment AlternativesClassic Investment RatiosInvestment Risk PyramidInvestment PhasesEndowment and Restricted Fund ChecklistBookkeeping and Accounting ProcessMinimal Financial Record Keeping for a NonprofitOrganizationSelecting Suitable Accounting SoftwareStandard Chart of AccountsFunctional Classification of ExpensesSample Accrual Basis Financials for Business LeagueSample Cash-Basis Financials for a ChurchInternal Controls for NonprofitsPublic Fund Solicitation ControlsUsing Ratio Analysis to Test Fiscal HealthHometown Education Center: Purchase ProcedureReference ChartHometown Education Center: Petty CashReimbursement RequestHometown Education Center: Petty Cash 19119219212/13/07 8:29:35 PM

Exhibit 7.5Exhibit 7.6Exhibit 7.14Exhibit 8.1Exhibit 8.2ftoc.indd xiiiExhibitsxiiiHometown Education Center: Petty Cash RequestHometown Education Center: Purchase Order#Hometown Education Center: Major PurchasePlanning MatrixDeciding Whether to Lease or BuySample Fundraising Event Sponsorship AgreementSample Fiscal Sponsorship AgreementSponsor or Agency Record-Keeping RequirementsEmployer Tax ChecklistEmployee versus Independent Contractor Status:A Comparison ChecklistMinimal Independent Contractor AgreementSuitability Checklist for Tax-Exempt StatusAnnual Tax-Filing Requirements for 0621622112/13/07 8:29:35 PM

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About the AuthorJody Blazek is a partner in Blazek & Vetterling LLP, a Houston CPA firmfocusing on tax and financial services for exempt organizations and theindividuals who create, fund, and work with them. BV provides tax compliance, auditing, and planning services to over 500 nonprofit organizations,including schools, churches, museums, human service organizations, business leagues, private foundations, garden clubs, fraternities, research institutes, civic associations, cultural organizations, and others.Jody began her professional career at KPMG, then Peat, Marwick,Mitchell & Co. Her concentration on exempt organizations began in 1969,when she studied and advised clients about the Tax Reform Act that completely revamped the taxation of charities and created private foundations.From 1972 to 1981, she gained nonprofit management experience as treasurer of the Menil Interests, where she worked with John and Dominique deMenil to plan the Menil Collection, the Rothko Chapel, and other projectsof the Menil Foundation. She reentered public practice in 1981 to found thefirm she now serves.She is the author of six books in the Wiley Nonprofit Series: IRS Form1023 Preparation Guide (March, 2005), IRS Form 990 Tax Preparation Guidefor Nonprofits (2001, online version, 2004), Tax Planning and Compliance forTax-Exempt Organizations, 4th edition (2004), Financial Planning for NonprofitOrganizations (1996), Private Foundations: Tax Law and Compliance, 2nd edition(2003), and The Legal Answer Book for Private Foundations (2001), coauthoredwith Bruce R. Hopkins.Jody serves on the Financial Accounting and Transparency Group created by Independent Sector to support the Panel on the Nonprofit Sector’sreports to the Senate Finance Committee. For that project, she also workswith Foundation Financial Officers’ Group to provide technical assistanceand support to the Form 990-PF Reform Committee.xvfbetw.indd xv12/13/07 12:56:01 PM

xviAbout the AuthorShe is past chair of the AICPA Tax-Exempt Organizations ResourcePanel and a member of the 990 and 1023 Task Forces. She serves on thenational editorial board of Tax Analysts’ The Exempt Organization TaxReview. She serves on the Community Service Committee of the HoustonChapter of Certified Public Accountants and is a founding director of TexasAccountants and Lawyers for the Arts and the Houston Artists Fund. She isa member of the board of the Gulf Coast Institute, the Anchorage Foundations, and the Main Street Coalition Council. She is a frequent speaker atnonprofit symposia, including those sponsored by the Conference of Southwest Foundations; Association of Small Foundations; AICPA; Arizona, NewYork, Washington, Maryland, and Texas Societies of CPAs; the University ofTexas School of Law; United Way of the Texas Gulf Coast; Professional Education Systems, and Nonprofit Resource Center, among others.Jody received her BBA from the University of Texas at Austin in 1964and took selected tax courses at South Texas School of Law. She and herhusband, David Crossley, nurture two sons, Austin and Jay Blazek Crossley.fbetw.indd xvi12/13/07 12:56:01 PM

PrefaceFinancial planning contributes significantly to the success of a nonprofitorganization and allows it to better accomplish its mission. Planning tasksare challenging and too often are overlooked. In this time of shrinkinggovernmental support for nonprofit organizations, astute use of availableresources following a well-developed financial plan may be the key to anonprofit’s survival.The concepts and techniques presented in this book can simplify theefforts of financial managers and board members to be fiscally responsible,or accountable, to the organization’s private and governmental funders, toits clients, to the community in which it operates, and to the society benefiting from its work.The nonprofit world to a great extent embodies selfless groups of persons working to help others in a wide context. The groups through whichthey work are clustered in three distinct types:1. Charitable organizations: churches, soup kitchens, universities, museums, and research institutes.2. Associations and community organizations: civic leagues, businessleagues, labor unions, and social clubs.3. Public sector: governments, municipalities, agencies, and publicboards that work with nonprofits.Hopefully, many people working in this broad range of nonprofits willfind in this book a good prescription for their organization’s fiscal health.My experiences as an accountant serving nonprofit organizationsinspired me to develop checklists and forms to encourage the use of financialxviifpref.indd xvii12/13/07 12:57:26 PM

xviiiPrefaceplanning. When my firm is engaged to perform traditional accountingservices for a nonprofit organization, such as preparation of the annualForm 990 or performance of an annual audit, we often find that the organization needs financial management assistance beyond the specific task weare engaged to perform. Also, when our help is sought to help overcomeunexpected financial problems, we often find the nonprofit managers couldhave averted the crisis with adequate advanced planning.In Chapter 1, I seek to dispel myths that can hamper a nonprofit’sfinancial success. Nonprofits can profit, or accumulate revenues in excess ofexpenditures, so long as such resources are devoted to improving the fashionin which the nonprofit accomplishes its exempt purposes. While surplusesshouldn’t exceed that amount reasonably needed to assure financial stability,funds can be saved to finance future plans. A nonprofit can set aside fundsto expand programs, self-insure risks, build a new building, establish a newlocation, or simply provide adequate working capital. The primary distinction between a for-profit and a nonprofit is that the latter has no owners. Thenonprofit does not distribute its profits, if any, to any private individuals—itscreators, insiders, or those who govern it. It can, however, and should accumulate sufficient working capital from surplus income to assure uninterrupted and viable program delivery.In pursuit of financial stability, a nonprofit can conduct its financialaffairs in a business-like fashion as long as its managers understand the waysin which it is different from a for-profit business. Both need strategic plansbased on clearly defined goals, with a focus on accountability, productivity,and profitability. To be fiscally successful, both need skilled financial managers. In evaluating a nonprofit’s staffing budgets, it is interesting and canbe useful to observe whether the organization considers financial personnelequally as important as its program officers. Seeking pro bono volunteerfinancial services is not always cost effective in the long run.The fiduciaries of a nonprofit have special responsibilities. Whetherlabeled as directors, trustees, elders, or commissioners, they are the financial stewards ultimately accountable to those constituents the nonprofitis organized to serve. The common denominator for this stewardship role isselflessness. The beauty of the U.S. philanthropic community is its extensivenetwork of generous volunteers who expect no monetary compensation inreturn for their efforts. The challenge, however, is to design an organizational structure for the nonprofit within which this great human resource canefficiently function.Chapter 2 explores the roles of the board members, the staff, and thevolunteers. The objective is to define tasks clearly and establish an adequatefinancial management structure with checks and balances and built-in warning signs to spotlight problem areas. A checklist of issues a fiduciary shouldconsider in fulfilling his or her duty to oversee and guide the organizationand its managers is provided. Also, the important distinction between insidefpref.indd xviii12/13/07 12:57:26 PM

Prefacexixand outside accountants is explained to aid in understanding the need forseparation of their roles to achieve suitable fiscal oversight and controls.This book should prove particularly useful to the many well-meaning volunteer accountants, lawyers, and other professionals who have little or noexperience with nonprofit organizations.For some years, I have collected examples of poor financial planning bynonprofit organizations. Fundraising events are perfect specimens for suchanalysis. My favorite example, found some years ago in a now yellowed andundated newspaper clipping, is the story of a small college in Massachusetts.The school spent 40,000 printing 10,000 copies of a cookbook with recipescontributed by local and state politicians; the idea being to raise moneyand bring some attention to the college. Instead of selling the hoped-for10,000 copies, only 3,000 copies were sold and the college reportedly wasforced to curtail its academic programs to cover deficits from the publishingprogram.How could financial planning have improved this situation? First andforemost, the college could have applied the concepts discussed in Chapter 3—it should have prioritized its mission and balanced its available resources. Itallocated funds needed for academic programs to “invest” in a risky publishingventure. One can imagine its budgeting procedures were inadequate so that nomarketing feasibility study or forecast was conducted in advance and no followup promotions were budgeted, as suggested in Chapter 4.Too many times, I see fundraising events run by well-meaning volunteers with little or no advance planning for financial feasibility. Considerwhether fundraising events would actually show a profit if the value of thevolunteer time devoted to organizing and presenting such events was quantified. Recently, I saw a group lose money on an event because they werenot allowed to serve donated food or drinks as was their past custom. Eventplanners entered into an agreement to hold the annual gala in a museumwithout realizing they were required to use approved (and very expensive)caterers. It is often amazing to see, based on the value of fundraising eventsthat the IRS requires the nonprofit to estimate, the narrowness of the marginbetween the cost of such events and the gross proceeds.Poorly planned expansion plans can also wreak havoc with a nonprofit’sfinancial situation. A good example of this problem occurred some years agowhen the American Center in Paris announced that it was forced to close itsdoors 19 months after the opening of a new 41 million building designedby American architect Frank Gehry. The building costs used up the Center’sentire endowment, leaving too little for running the literature, language,and dance classes that had made the center the preeminent showplace forAmerican artistry in Europe.Investment of the organization’s savings, working capital, and permanent funds is a significant, and often troublesome, issue for nonprofitmanagers and board members. Chapter 5, entitled “Asset Management,”fpref.indd xix12/13/07 12:57:27 PM

xxPrefaceaddresses the questions involved when a nonprofit accumulates resourcesbeyond its immediate operating needs. In seeking restricted funding andlonger-term endowment gifts, a nonprofit must be prepared to respect thecovenants and safeguard the property. The prudent investor rules can beapplied to safeguard the assets. Luckily, financial returns on investments inthe past few years have been positive, but it remains to be seen how hedgefunds and other alternative investments will fare during a downturn in thefinancial markets. If one doubts the need for diversification of investments,the subprime mortgage debacle rocking the investment community during2007 should be recalled.In addition to checklists and models to be used in setting financialpriorities and allocating precious resources, the reader will find a brief, butthorough, description of the elements of an accounting system in Chapter 6.This chapter should be required reading for all new board members andtrustees. To meet their fiduciary responsibility to judge the organization’sfiscal condition means they must be able—at least once a year—to read thefinancial statements. It is not sufficient, in my opinion, for the board treasurer to simply report to the assembled board members that “everythingis okay, so you need not read the auditor’s report.” Post-SOX policies thatrequire an audit committee and thorough review of financial reports to theboard are not required for nonprofits, as discussed in Chapter 2, but prudent nonprofits now adopt such governance practices.I understand that many nonprofit managers and volunteer boardmembers lack financial training and have a fairly high level of avoidance ordenial of their ability to understand a balance sheet or cash flow report. Todispel this lack of basic knowledge, Chapter 6 explains the fashion in whichfinancial information is accumulated and presented. Understanding basicterms like accrual method, restricted funds, and receivables can lead to improvedfinancial decisions. I’ve noticed that the attitude of persons newly trained tounderstand financial statements is similar to the mood of clients who delivertheir annual income tax data to the firm—a necessary evil has been conquered and overcome.Beyond basic accounting lies financial analysis applied with the special financial tools explained in Chapter 7. Before approving the cookbookproject mentioned above, for example, the board or finance committeemembers will ask to see the projected sales analysis and marketing plans tohopefully recognize it was grossly inaccurate. When asked to approve a proposed increase in the annual tuition, a private school trustee will ask whatthe direct per-student cost is and want to know the amount of unappliedvariable overhead costs that must be covered. After studying Chapter 7, afinancial planner will know why cost accounting is useful in answering suchquestions. Once one knows how to read the financial statements with anunderstanding of what makes up each category, ratio analysis can be appliedto compare and analyze the numbers. Some financial disasters can be avertedwhen more board members know how to measure the nonprofit’s acid testfpref.indd xx12/13/07 12:57:27 PM

Prefacexxiand other financial ratios explained in the section Financial Indicators toCritique Performance.Financial pressures on nonprofits will continue. Undoubtedly, in thenext few years, Congress will be looking for ways to reduce budget deficits resulting from the Iraq war while providing funding for health care forthe uninsured. Unfortunately, some federal programs will be reduced, withconsequential reduction of many state and local government programs. Asnonprofits begin to search for alternative sources of funding, some may becaught in the crossfire. Income-producing activities designed to replacefunding cutbacks may be subject to constraints and taxes by the governments that need to raise funds.Those who govern and manage a nonprofit organization must alwaysbe cognizant of the reasons why the nonprofit is permitted tax exemptionsfor federal and local tax and other purposes. Chapter 8 explains the rationale behind granting tax exemptions and requirements for maintaining thespecial status. Some associated with a nonprofit organization might want toregularly use Exhibit 8.1, Suitability Checklist for Tax-Exempt Status, to testfor ongoing qualification. Before undertaking income-producing programssuch as those described in the previous paragraph, the impact of the activityon tax status should be examined.In completing a marketing questionnaire for this book, I was asked tochoose my favorite parts of this book and to describe those that could provemost useful to a nonprofit’s financial managers. My answer is that the mostunique information is contained in Chapter 1—the notion that a nonprofitorganization must “profit” to be financially successful. This concept alonecan improve the fiscal health of a nonprofit. Adopting the attitude that theorganization can function in a business-like fashion with efficient fiscal systems, well-paid personnel, and balanced resources and vision can improvethe results. Certainly, to defend against what some call the “ War on Nonprofits,” the organization’s managers can arm themselves with the tools andtechniques of financial planning presented in this book.Some readers know that this book is essentially a second edition of a1995 Wiley book called Financial Planning for Nonprofit Organizations. I am particularly grateful to my audit partner, Kay Walther, for updating the accounting and auditing concepts of Chapter 6. My thanks also go to David Nelson,tax principal in my firm, for his updates for Chapter 2. Finally, I marvel atthe continued quality of John Wiley & Sons personnel. I thank my editor,Susan McDermott, for encouraging me to update the book, and NatashaAndrews-Noel, production editor, for bringing it to fruition and making ita useful tool.Jody BlazekJanuary, 2008fpref.indd xxi12/13/07 12:57:27 PM

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1Introductory ConceptsThe key to the financial success of a nonprofitorganization is the use of traditional managementtools—forecasts and budgets, well designed andtimely financial reporting system, good governance,clearly defined line of business (mission), cash flowplanning, fiscal controls, and a lot of goodwill.Financial planning for nonprofits, like a nonprofit’s very purpose for existence, is based on the philosophical aspirations of persons joining togetherto accomplish mutual goals. The very purpose for existence of a nonprofit isbased on hope, sometimes on prayer, and almost always on dreams. Dreamscan be unrealistic and can make financial planning a risky venture. Thechallenge is to stretch and balance precious resources to best accomplishthe dream. Together, the two functions—

Exhibit 4.6 Proposed Overall Budget Compared to Actual 87 Exhibit 4.7 Functional Revenues and Expense Budget 89 Exhibit 4.8 Member Services Budget Worksheet 90 Exhibit 4.9 Budgeted Increases (Decreases) Projected for 20XX 91 Exhibit 4.10 Personnel Budget 93 Exhibit 4.11 Program Cost Analysis 93 Exhibit 4.12 Capital Acquisition Budget 94

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