Title: Streetsmart Financial Basics for Nonprofit Managers (Second Edition)
Author: Thomas A. McLaughlin
Publisher: John Wiley & Sons, NY
Reviewer: Joanne Fritz
Streetsmart Financial Basics for Nonprofit Managers (Second Edition), Thomas A. McLaughlin. John Wiley & Sons, NY, 2002. ISBN 0-471-20570-2, $34.95 U.S.
How many accountants become executive directors of nonprofit organizations? I don't know any.
Managers and executives of nonprofits almost invariably come from the program side of the organization. They know how to design and deliver programs and services, curate art shows, heal patients, do academic research, perhaps even how to raise funds. What they are almost always weak on is finance. And, in the age of accountability, finance is too important to just trust to the accountant. It is a management tool that, when used well, can make or break an organization.
Streetsmart Financial Basics for Nonprofit Managers is a must-read for new nonprofit executives, the new board president, or even a large donor who wants to understand the organization he is entrusting his money to.
Thomas McLaughlin learned his financial smarts the hard way. He has been a nonprofit manager, a board member, and now a consultant. He is not an accountant. That means that he understands the confusion and lack of financial knowledge so many nonprofit managers bring to their position. He also has the ability and talent to explain complex financial material to the layperson.
Streetsmart Financial Basics is not a how-to book as much as it is a philosophical, historical, and leadership look at how nonprofits are set up and operated. It is less about bookkeeping than about strategic planning.
Among the many useful aspects of this book is a chapter entitled "Accounting as a Second Language - a Nine-Point Program." MacLaughlin leads the reader through the basics of nonprofit finance without overwhelming us. He explains concepts and principles with broad brushstrokes that allow us to remain above the fray of double entry bookkeeping. We learn the why more than the how.
After that grounding, the reader tackles balance sheets. The author explains what they are and why they are important and takes us through a 990 (that is the nonprofit's tax return). Since the 990 is the most easily accessible nonprofit financial document, McLaughlin wisely uses it as the basis for his explanations.
Once the reader understands the 990 and the concept of the balance sheet, McLaughlin provides a chapter on financial analysis. He provides simple-to-do methods to find out what makes a nonprofit tick and ways to determine how well it is ticking. Relatively simple ratios are provided and explained. We also learn what is normal and what are red flags. Such terms as cash flow to total debt, debt to net assets and total margin are demystified and made relevant to the manager's work.
We learn about audits, how to read one, and how to purchase audit services. We also engage in a serious discussion of nonprofit profits, why they are important, and why we should have them. We also investigate cash flow management and learn why capital is not evil but good, even for a nonprofit. We dip into risk management, setting up good financial controls so fraud will not eat into our precious resources, and how planned giving vehicles work.
Finally, McLaughlin introduces us to a new world of nonprofit management...that of performance management. He suggests ways that financial systems can look forward rather than backward and help the organization fullfill not only its accountability requirements but also boost and support performance.
This book will not be the last one you read on financial management but it is a very good start. You will learn enough to start to communicate with your finance people and to ask the right questions. I am pretty math-phobic and I found the book quite understandable and fascinating enough to keep me reading late into a couple of nights.
As a manager, or an adviser, or a donor, you are a consumer of financial information. McLaughlin's book will make you a smart consumer.