Revenue : A Important Topic For Nonprofit Organizations

ReferencesRobert D. H. & Associates (2005). THE JOSSEY-BASS HANDBOOK OF NONPROFIT LEADERSHIP & MANAGEMENT (2nd ed.). San Francisco, CA: John Wiley & Sons, Inc.

The contribution ratio of XYZ Non-Profit Corporation for the years 2002 through 2004 are shown in Table 3. In all three years the largest revenue source for the XYZ Non-Profit Corporation was grant income. Grant income may be subject to federal, state, or local government budget funding availability; it also may be subject to deadlines or eligibility criteria which may change from year to year. In 2002 and 2003 the ratio was above 0.5 figures that it should be below, however in both 2003 and 2004 the number decreased. By 2004, the ratio was at 0.49 and if the decreasing trend continues over time then it will give the agency more financial flexibility in the event that the grants become unavailable in the future.

The major economic forces that have affected and will continue to affect nonprofits’ liquidity are economic growth, consumer confidence, equity, housing and credit housing market conditions, as well as present and future local, state, federal and global economic policy (Zietlow, 2010).

When Zoot Velasco looks at American nonprofits, he sees a sector that is struggling, in spite of limitless potential for innovation and impact. Noting that 22.3% of the country’s GDP is in the nonprofit sector, yet only 20% of such organizations have a budget exceeding $1 million, Velasco hopes to lead a transformation in the industry.

The variety of resources available for financing nonprofits may seem overwhelming and unmanageable, especially to someone looking in form the outside. The publication Financing Nonprofits: putting theory into practice (Young, 2007) addresses not only the variety of resources that are available but also the challenges of managing multiple revenue sources. This paper presents a brief reflection on some of the ideas presented in the publication.

A nonprofit analysis helps nonprofit executives and board members understand their organization’s underlying fiscal health and readiness for change and growth. The analysis is a critical tool for Northeast Health Council planning for program expansion, organizational restructuring and/or realignment, financial and fundraising challenges, new executive and board leadership, a new capital project, or acquisition or merger with another nonprofit organization (such as the local health clinic).

Net assets are defined as “the difference between an organization’s assets and liabilities.” For nonprofit organizations, net assets are related to an organization’s ability to borrow funds. Tuckman and Chang (1991) found nonprofit organizations less likely to alter their programs and mission, following a financial shock, if they can leverage their net assets. An operating margin, or surplus, is “the difference between an organization’s revenue and expenses, divided by its total revenue.” A Nonprofit organization holding a great surplus can readily operate at a reduced surplus following a financial shock – allowing it not to alter any programs. The third factor for nonprofit financial vulnerability is revenue concentration. Revenue concentration is “the proportion of income an organization receives from its various sources of revenue.” Nonprofit organizations who receive many sources of revenue can better withstand the impact of a financial shock than those with little sources of revenue. After a financial shock, nonprofit organizations, along with all businesses, will try to cut down expenses. Woronkowicz (2016) states “administrative costs are preferred to those to program

This paper was originally written for Financial Management for Nonprofits 380, taught by Professor Zelhart.

In this week’s lesson we are looking at the importance of having a chart of accounts in our nonprofit business. At HOPE which is the business that I support. The main focus is to house and provide support to those who are homeless, mentally ill and may be struggling with dual issues. Because there is a need in a nonprofit to show measurements to determine success in each area. Charts are created for every service area the HOPE supports ( Margolis, S. (2014, 11).

1. Connors, T. D. (2001). The Nonprofit Handbook. New York: John Wiley & Sons, Inc. [US].

When one talks about ‘Nonprofits’ many things come to mind; People often use phrases such as 501c3’s, charitable, ambassadors of the poor, and tax free organizations to umbrella the whole nonprofit sector. However, what large portions of our country fail to note is that there are differences within the nonprofit branch. There are two man categories of Nonprofits: Public, and Private; within those categories there are differing distinctions that allow for the separate identities of these organizations to in function and scope.

The nonprofit sector faces many challenges that make it more difficult to measure its financial performance. Young (2007) states that the survival of nonprofit businesses depends upon receiving financial funding from outside donors such as donations from charities, government contracts, endowments et cetera, and the necessity for having several different revenue sources is a challenge for nonprofit management. In addition, he points out that securing capital for operating is also much different than in the traditional business world. Fortunately, scholars have provided tools and information that will help nonprofits manage and measure their unique financial performance so they may make informed decisions and guide their organizations to sustainability (Young, 2007).

The challenges involved in accounting for charitable activities revolves around many special factors that distinguish the two types of organizations. First, charitable activities are always given to a single set of beneficiaries using resources that are donated by unrelated parties. The stewardship element of financial reporting becomes quite vital because the donor wants to get the assurance that their gift was put to the intended purpose (Burks, 2015). Financial reporting is the conduit through which transparency is created for donors and the nonprofit organization is held publically accountable. It is only through financial reporting that they get the assurance that may encourage them to donate more funds when they find out that their money or resource is put to the right use and managed well (Reheul, Van Caneghem, & Verbruggen,

When considering a budget, it is said that the value of money must play a significant role in this dialog. As money of one sum today will rise to a greater value tomorrow. Even if the nonprofit organization does not look at things from a stand point of inflation which is always in effect. Money is a tool that if we use it and the sooner we do in a productive way. The nonprofits money will produce value in the future. It is not by coincidence that the most successful nonprofit watches their finances very carefully. And often look at the progress of their financial goals (McLaughlin, T.A. 2002).

Financially healthy nonprofits use income-based, rather than budget-based spending which allows them to have income projections that are realistic and helps to determine realistic costs (Zietlow, Seidner, 2014). The most successful nonprofit should have an operating reserve to finance shortfalls and hopefully allows them to have a positive cash flow at the end of the year (Zietlow, Seidner, 2014). However, most nonprofit organizations fight to manage cash flow due to how income and the expenses often may occur at different times, so that there may not be enough cash to pay for the expenses as they become due and payable (Zietlow, Seidner, 2014).