Managing Your Nonprofit Like a Business – Part 1

This will be the first in a series of posts on operating a nonprofit organization like a business. We will try to dispel some of the common misconceptions related to nonprofit organizations that have taken root in the public consciousness.

Recently, I had the pleasure of attending a lecture by former President Bill Clinton in Philadelphia. The President spent quite some time discussing his Foundation (a nonprofit organization). During Mr. Clinton’s opening comments, he tossed off a comment that almost had me rise up out of my seat. The former Chief Executive, said that unlike a for profit enterprise, a nonprofit merely has to “balance its books!”

The President’s comments have perpetuated the long-time myth that non profit organizations need not generate profits.  For that reason, the term Community Benefit Organization is becoming more accepted. Simply put, the nonprofit can be viewed as an organization formed specific purpose other than intending to earn a profit and distributing its surplus funds to owners and shareholders, but instead using them to help further its goals for the public benefit.

Operating a nonprofit organization like a business ultimately means managing the organization with the goal that resources (support and revenue) exceed costs of operations, and that all such excess resources are restricting from inuring to the economic benefit of any person or persons connected to the organization.

Managing your nonprofit organization like a business will improve the likelihood of accomplishing the organizational mission.

The Realities of Life in the Nonprofit World

Managing your organization is made more difficult because nonprofits:

  1. Function on smaller operating budgets
  2. Are dedicated to “doing good” as much as possible
  3. Devoted to fund raising as time allows

Common Objective of Both Nonprofits and For-Profit Entities

Both the nonprofit and for profit entities have:

  1. A mission
  2. Short-term objectives
  3. Long-term Objectives

Both types of organizations require an action plan.  The for profit entity has a business plan, and the nonprofit organization has a strategic plan.

Accountability

Both a business and nonprofit organization have a need for accountability. In business, accountability is to the shareholders. For the nonprofit, the stakeholders are:

  1. Donors
  2. Beneficiaries
  3. Volunteers
  4. Public

Performance Measurement

Both a business and nonprofit organization must decide how they measure progress in accomplishing their stated missions. For both, this is an ongoing process and is supported by the entity’s accounting system. Performance measurement is necessary in order to:

  1. Assess the progress of accomplishing mission goals
  2. Inform the board of trustees and other stakeholders
  3. Make updates to the operating plan and budget as required
  4. Manage cash flows
  5. Motivate Staff

Effective and Efficient Management

The areas of managing a business and nonprofit organization are:

  1. Structure
  2. Policies and Procedures
  3. Systems
  4. Cash Flow Management
  5. Budgeting
  6. Financial Plan
  7. Cost Consciousness

Information and Accounting Systems

Both types of entities need information and accounting systems so that management can operate efficiently.

  1. There is a need for communication from top down and bottom up.
  2. Management must be able to assess where it is and what is happening .
  3. The accounting system must be capable of providing management with financial statements.
  4. The results of operations can be compared to plans and budgets.
  5. The information system should enable management to create, gather, classify and use data.

Internal Controls

There is a defined need for management to achieve the following objectives with respect to internal control.

  1. Safeguard assets
  2. Promote efficient operations
  3. Give confidence that reliable data is used in the preparation of financial statements
  4. Ensure compliance with laws and regulations

Managing Resources

Being able to provide products and services involves managing these three factors:

  1. Human Resources (personnel)
  2. Capital (money)
  3. Time

Money must be available to pay the bills, personnel to perform tasks involved in the mission, and time to get everything done.

Conclusion – Part I

This concludes the first part of our discussion on managing your nonprofit like a business. In following posts we will discuss strategic planning for success, budgeting, understanding the financial language of nonprofits, managing the mission and human resources.

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