Nonprofits and finances – in practice, these two words should fit together well for organizational flourishing, reflecting capable stewardship and stability. But all too often, financial aspects of nonprofit operations can prove intimidating, overlooked, or otherwise mismanaged. CPA Michael Batts of Batts Morrison Wales & Lee has recently published a stand-out resource, entitled Nonprofit Finance: The Field Guide for Financial Operations of Ministries, Schools, and Other Public Charities. This easy-to-digest book is chock full of worthwhile pointers, helpful instructions, and advice well worth following closely, all to help nonprofit leaders achieve optimal success and integrity in financial administration.
Batts starts with perhaps the most important question: What is the organization’s purpose? Mission should drive budgeting, and vice versa. Consequently, time and energy devoted periodically to reviewing an organization’s mission, and perhaps refining it (or adjusting the budget), may prove beneficial. Likewise, smart nonprofit leaders regularly assess their markers of excellence – what identifiable, observable, and potentially measurable attributes are carried out well (or not so well)? Correspondingly, how do the answers jibe with budgeting priorities and decisions? Great questions, with many insights to be gained!
Batts dives next into core areas for accounting and financial reporting, which are essential to any well-run nonprofit. Contributions – and how to handle them – constitute the critical lifeblood for a nonprofit’s financial viability. Don’t forget alternative revenue sources like investment income and potential rental income, which in turn may raise legal complexities like unrelated business income tax liability.
On to compensation, which Batts notes is “more than a number in the budget.” Compensation can be philosophical, deeply personal, and integral to a nonprofit’s success (or failure). Compensation thus warrants “very special attention,” including the related areas of employee benefits and potential bonuses. Due diligence determinations for “reasonable” compensation may also prove important for highly paid nonprofit executives, to protect the executives, their nonprofit boards, and even the nonprofit itself against any adverse tax consequences related to “excess benefit transaction.”
Additional financial considerations addressed in Nonprofit Finance include managing liquidity and financial position (i.e., how much money should be kept on hand), sound internal controls (aka “checks and balances”), appropriate staffing to ensure sufficient controls and related segregation of duties, and of course audits (everyone’s favorite!). Batts finishes by covering the nonprofit financial waterfront, wrapping up with tax compliance and risk management recommendations.
Through this highly readable book, Batts’ useful guidance, illustrative anecdotes, and accompanying recommendations score high marks for successful nonprofit financial management. Nonprofit Finance can be purchased directly from the publisher (Christianity Today) online here. For more information about Michael Batts, please click here.