Not-for-Profit Budgeting and Financial Management, Fourth Edition

214 Pages·2010·7 MB·English

by  Edward J. McMillan(auth.)

NOT-FOR-PROFIT
BUDGETING AND
FINANCIAL
MANAGEMENT
Fourth Edition
NOT-FOR-PROFIT
BUDGETING AND
FINANCIAL
MANAGEMENT
Fourth Edition
EDWARD J. M MILLAN, CPA, CAE
C
John Wiley & Sons, Inc.
Copyright © 2010 by John Wiley & Sons, Inc. All rights reserved.
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Library of Congress Cataloging-in-Publication Data:
McMillan, Edward J., 1949-
Not-for-profit budgeting and financial management / Edward J. McMillan. — 2nd ed.
p. cm.
Includes index.
ISBN 978-0-470-57541-3 (pbk.)
1. Nonprofit organizations—Finance. 2. Nonprofit organizations—Accounting. 3. Corporations—Finance.
4. Corporations—Accounting. 5. Budget in business. I. Title.
HG4027.65.M364 2010
658.15'4—dc22
2010003131
ISBN-13 978-0-470-57541-3
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1
To my lovely wife, Nancy
About the Author
Edward J. McMillan, CPA, CAE,has spent his entire career in not-for-profit financial
management. He has served as the controller of the national office of the Associated
Builders and Contractors and as the finance and membership director of the
American Correctional Association. In 1993, McMillan was appointed faculty chair
for finance for the United States Chamber of Commerce’s Institutes for Organization
Management program.
McMillan has written several books on not-for-profit financial management. His
publishers include the American Society of Association Executives, McGraw-Hill, the
U.S. Chamber of Commerce, and the American Chamber of Commerce Executives.
McMillan now concentrates solely on speaking, writing, and consulting on finan-
cial management topics for associations and chambers of commerce. He lives near
Baltimore, Maryland. In his free time, he enjoys coaching youth sports and motocross
racing. You may contact McMillan at P.O. Box 771, Forest Hill, MD 21050; phone/
fax: [phone]; e-mail: [email protected]. Also see his Web site at www.
nonprofitguru.com.
vii
Contents
Preface xiii
Disclaimer xv
Chapter 1
Budgeting and Financial Operation 1
Chapter 2
Cash vs. Accrual Accounting 13
Chapter 3
Basic Accounting and Financial Operations 45
Chapter 4
Effective Use of Footnotes and Financial Ratio Calculations for the Statement
of Financial Position 51
Chapter 5
Controllable and Uncontrollable Expenses 57
Chapter 6
Controllable, Semi-Controllable, and Fixed Expenses 61
Chapter 7
Noncash Expenses 65
ix
x Contents
Chapter 8
Effective Footnotes for the Statement of Activity 69
Chapter 9
Natural and Functional Statements of Activity 77
Chapter 10
Internal Financial Statements 81
Chapter 11
Converting Accrual-Method Financial Statements to Cash-Method
Financial Statements 89
Chapter 12
Budgeting Philosophy 99
Chapter 13
Continuous Budgeting System Overview 101
Chapter 14
The Executive and the Budget Process 105
Chapter 15
Executive Summary 109
Chapter 16
Comparative Financial Statements 113
Chapter 17
Expense Reduction Plans 117
Chapter 18
The Monthly Budgeting Process 121
Chapter 19
The Cash Flow Budget 135
Chapter 20
Getting the Budget Approved 139
Contents xi
Chapter 21
Suggested Format of Budget Documents for an Approving Body 141
Chapter 22
The Role of the Budget Coordinator 157
Chapter 23
Accounting and Budgeting for Fringe Benefits 161
Chapter 24
The Capital Budget and Depreciation 163
Chapter 25
Inventory Purchases and Calculation of Cost of Goods Sold 167
Chapter 26
Accounting and Budgeting for Dues 169
Chapter 27
Capital Assets: Lease-or-Buy Decisions 175
Chapter 28
The Long-Range Plan 177
Chapter 29
Financial Ratios 179
Chapter 30
Zero-Based Budgeting 183
Chapter 31
Putting It All Together 185
Glossary 203
Index 207
Preface
Typically, not-for-profit organizations view the budget process as an annual exercise
in drudgery, tying up valuable staff time that could be spent on other activities. It
doesn’t have to be that way!
This handbook provides you with a new concept in budgeting that is easy to
implement and monitor, and that significantly reduces staff time spent on budgeting,
while ensuring true fiscal accountability. The method is called continuous budgeting.
You should review this handbook in its entirety before you implement your
financial management system. The processes and forms herein are interdependent
and must be understood by management before the advantages of this system can
be realized. This handbook is a guide to help managers customize the forms and
procedures described herein for use in their own organizations—it is not a reference
manual on taxes, depreciation, capitalization procedures, and other technical areas.
There are other sources for that information. Here you will find a discussion and
format that is both nontechnical and understandable. The program that this hand-
book teaches allows management to direct and control the organization, not be
controlled by an outdated, cumbersome, and often inaccurate budget and financial
management system.
Edward J. McMillan, CPA, CAE
June 2010
xiii
Disclaimer
The contents of this book should not be construed as legal advice, and in that respect
the publisher and author assume no liability or responsibility accordingly.
Before implementation, the internal controls, accounting standards, policies, and
forms suggested in this book should be reviewed by a competent attorney and inde-
pendent CPAto assure compliance with federal, state, and local laws.
xv