Abstract
Woods Bowman’s book, Finance Fundamentals for Nonprofits: Building Capacity and Sustainability, is an excellent resource and guide for nonprofit financial management that is presented from a hybrid perspective of business and public service. While the book is intended to be useful for both nonprofit practitioners and academics, members of the former group with at least some underlying knowledge of finance and accounting have most to gain from it. That being said, one of this book’s greatest strengths is its focus on how scholarly concepts and actual practices are interrelated, which makes the book a more comprehensive source of information than can be found elsewhere. In the first chapter and throughout the book, Bowman explicitly highlights the uniqueness of nonprofits not only in comparison to for-profit businesses but also within the sector itself where differences among nonprofit types are also important to understand. In doing so, the author is better able to explain how and why the tools suited for private sector financial analysis and management are either useful for or must be adapted for use within nonprofits. In addition, this book consistently emphasizes the important concepts of financial capacity and sustainability, which the author rightly argues are critical considerations for nonprofit managers. As Bowman advises, it is necessary for nonprofits to develop the financial capacities necessary to carry out their missions and to sustain such capacities over time to ensure their continued existence. With this ultimate goal in mind, this book provides essential information and offers lots of good, practical advice for nonprofit managers and board members.
In chapter 1, Bowman begins the book with a clear articulation of its framework and purpose as well as definitions of key terms and concepts like financial capacity and sustainability. In this chapter, the author explains what nonprofit organizations are and why they exist, paying particular attention to comparing and contrasting nonprofits with proprietary businesses and explaining the pros and cons of nonprofit status.
Chapters 2 through 5 lay the groundwork necessary for measuring and analyzing an organization’s capacity and sustainability by focusing on accounting, investing, budgeting, and taxation. Bowman emphasizes how these practices and management tools differ for nonprofits. Specifically, chapter 2 identifies, defines, and explains fundamental accounting concepts to assist those without an accounting background to understand the information presented on the financial statements and to use such information to assess the financial condition of an organization. Of course, this is a big task to accomplish in one book chapter, so readers without an accounting background will probably need to consult additional resources to become fully knowledgeable on this topic. The chapter continues with a useful explanation of specifically what to look for when examining financial statements. In this regard, the book works as a “how to” guide in many parts. Most importantly, this chapter begins to develop a roadmap to connect organizations’ financial statements, typical budget practices, and the IRS Form 990s—one of the first of its kind to do this. This approach is an invaluable tool for nonprofit managers and board members. As an extension, chapter 3 provides information in tabular format on assets, liabilities, revenues, and expenses according to how the values would be reported on an organization’s financial statements versus its Form 990 filing. By explicitly illustrating the differences between the two types of reporting, this comparison is especially helpful to show why it is important to know the differences between how items are reported on an organization’s financial statements versus its IRS Form 990. The only drawback is that these discussions are limited to the pre-2008 Form 990, which is when the IRS made major changes to this form required of tax-exempt organizations to submit financial information annually. So, while the explanation pertaining to the pre-2008 990 form is helpful for academics conducting retrospective research on nonprofit finances, it is less useful for nonprofit managers with prospective analytical needs. Although the author reassures the reader several times that translating the information in the book from the pre-2008 to the post-2008 Form 990 is relatively straightforward, no explanation for actually doing so is offered. Yet, individuals with at least some knowledge of accounting basics will surely find the discussions of IRS Form 990 in this and subsequent chapters to be an excellent resource. In particular, the templates in chapter 4 pertaining to nonprofit types with increasing complexity are especially useful and allow a nonprofit manager to choose a template that fits their organization and to apply the book’s concepts in the correct context. Chapter 5 covers essential information pertaining to federal tax law, which is presented in a very readable and accessible format. Although I found the vignettes at the beginning and end of most chapters a bit too generic and vague to be of much use, I personally found the information in chapters 2 through 5 very practical and useful. For example, while I was reading the book for this review, I happened to be setting up a new chart of accounts for a nonprofit in which I serve as treasurer. The information provided in these chapters gave me several ideas for reconciling the new chart of accounts with the organization’s previously adopted budget and what it will need at year-end for IRS reporting.
Chapters 6 through 10 are what Bowman considers the heart of the book. These chapters focus on analyzing nonprofit finances and measuring both financial capacity and sustainability. The chapters are differentiated by nonprofit type with emphasis on the unique characteristics of each one and the necessary variation in the applicability of measurement tools. For example, in chapter 8 he offers a description of primarily endowed organizations by comparing and contrasting endowed nonprofits with the ordinary service provider types presented in chapter 6, and discussing why it is important to consider these types of organizations differently. In fact, the entire book is effective in highlighting major issues for the type of nonprofit being discussed. In addition, Bowman consistently points out where he follows and differs from extant research to allow the reader familiar with existing approaches to determine if Bowman’s methods are superior. Also in chapter 6, Bowman introduces the accompanying web site, which contains Excel spreadsheets to aid in calculating the ratios covered in the book and used for assessing an organization’s financial condition. This is an especially helpful analytical tool but has the drawback that the spreadsheets will only produce valid calculations for organizations using accrual accounting to record their receipt of gifts. Of course, this is the recommended accounting basis for nonprofits; however, many grassroots organizations still use a cash basis of accounting and therefore will not find much use of these spreadsheets even though these organizations probably need the most help with analyzing their financial condition. Throughout these chapters, however, Bowman is careful to explicitly state his assumptions and caution against the application of concepts if readers’ particular circumstances are different. There are many connections drawn to business practices with explanations of the relevance for nonprofits or discussions of how nonprofits are different. Where appropriate, the author provides rules of thumb, industry standards, and targets to shoot for when analyzing financial capacity and sustainability of nonprofits, but also explains the situations in which such benchmarks might not be useful.
The book concludes with a discussion about board governance and responsibilities, including conflicts of interest and other topics, and offers some valuable advice for nonprofits. In doing so, Bowman synthesizes the book into what he believes is its most important lesson to be learned—the one of stewardship—which is not an explicit focus of the book per se, but is a concept that I can certainly see underlies Bowman’s approach to presenting the information within each chapter and, most importantly, to his advice offered throughout.
Overall, I think this book serves as an excellent source of information for nonprofit managers and board members and will certainly help these individuals develop the tools necessary to evaluate their organization and help to ensure its longevity. In addition, I think graduate students and scholars new to the field of nonprofit finance have a lot to gain from this book and should consider it a valuable resource as well.