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Not-For Profits (NFP)

Not-For Profits (NFP). Is a Not-For-Profit a Real Business?. Absolutely They are classified by the US Tax Code as 501 C 3 This status is critical A problem a lot of NFPs have is that many people do not realize this fact

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Not-For Profits (NFP)

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  1. Not-For Profits (NFP)

  2. Is a Not-For-Profit a Real Business? • Absolutely • They are classified by the US Tax Code as • 501 C 3 • This status is critical • A problem a lot of NFPs have is that many people do not realize this fact • They think that because they get funding from different sources that they are not a business • NFPs normally cannot survive if they do not use sound business practices

  3. Who Do NFPs Deal With? • Usually they have paid staffs and employees • They have customers (the people they are trying to help) • They have suppliers • Private Benefactors • Government Agencies

  4. Can an NFP make a profit? • Yes • But they are called NFPs so how can they make a profit and is that appropriate? • Most call their profits budget surpluses • Any profits / surpluses must be put to use in the NFP • They can pay their employees but they cannot have stockholders who are paid or receive dividends • Why would they have a surplus • Because they are trying to expand and provide more services to their constituents • Because funding varies • Because they run efficiently

  5. Do they use the same accounting procedures as for-profits? • Similar but different • In the U.S. they use General Accepted Accounting Practices (GAP) • However, they may have different funding categories and accounts than for-profits • Often they are required to have Annual Audits

  6. Cash Flow • Must have enough cash to pay bills • Accrual basis can report an excess of revenues • Typically fluctuate throughout the year • Need to plan for cycles • Time lag between billing for services and payment • Often government programs experience delays • Committing to donate and actually delivering can result in delays • Need to plan for capital reserves • Must use gifts for purpose donated • Need to track these issues

  7. Endowment Management • How many years must they remain restricted • How are the endowment funds defined • Original funds only • Original funds plus dividends • Can donated assets be sold for cash • Need to retain purchasing power in times of inflation • Many states have regulations Uniform Management of Institutional Funds Act (UMIFA)

  8. Use of Fund Accounting • Method to monitor funds restricted by donors • Unrestricted • Temporarily Restricted • Permanently Restricted • Operating Funds (Unrestricted)

  9. Source • Blackbaud Financial Management of Not-for-Profit Organizations October 2011 solutions@blackbaud.com www.blackbaud.com

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