This chapter provides an overview of the nonprofit organization in the United States, the main characteristics of nonprofit organizations, and the reality of the nonprofit sector today. It describes the differences between a nonprofit and a for-profit corporation. Nonprofit organizations have existed for many centuries, especially through religious groups or religious-based activities. The nongovernmental sector is growing throughout the world. Increasingly, these organizations are playing key roles in the economic and social contexts of their countries. Unlike private-sector organizations concerned primarily with making a profit, nonprofit organizations are focused on carrying out a specific public-service mission. Successful nonprofit organizations require substantial capability in key areas of management: developing strong boards of directors, recruiting and motivating talented staff and volunteers, creating plans to focus resources on relevant goals and innovative programs, winning the support of diverse stakeholders, raising funds, and wisely managing fiscal and human resources.
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This chapter discusses the term “service delivery” and describes a service delivery system in the context of a nonprofit organization. Servitization is the process whereby an organization develops creative and innovative ways to create a product-service system that integrates value-based products and service offerings. The chapter discusses the roles of client-centeredness, decision making, scheduling, priority setting, effective and efficient flow of services or activities, quality assurance, and continuing quality improvement, and how these factors contribute in their own context to influence positively or negatively the financial sustainability of a nonprofit organization. A customer-centric service design is a service delivery system that focuses on providing the best quality service possible to customers or clients or the service target, based on a service concept, a service decision path, service sustainability, and service quality. The chapter explains the relationship between service delivery and financial sustainability.
This chapter defines the term “grant” and examines potential funding sources for nonprofit organizations. A grant is a monetary fund disbursed by an institutional or organizational donor to a recipient, which does not have to be paid back. The chapter discusses the overall grant-seeking process and describes the items of a generic grant proposal or application. A grant proposal is a written document or application submitted in response to a call for proposals issued by a grant-maker agency or as a result of opportunities for funding or an invitation received by an applicant. A generic grant proposal includes: cover letter, cover page, table of content, abstract, problem or needs statement, goals and objectives, project description, timeline, organizational capability, evaluation, references, budget, and appendices. The chapter focuses on how grant seeking can serve as a strategy to generate revenues that may ultimately contribute to financial sustainability of a nonprofit organization (NPO).
This chapter defines the term “budget” and explains the importance of the budget for a nonprofit organization. It describes the different types of budgets and provides the most common budget approaches. The most common types of budgets are an operating budget, a cash budget, and a capital budget. The chapter also describes the process of developing a budget in a nonprofit organization and presents the relationship between the budget and financial sustainability in nonprofit organizations. Budget techniques are central to the successful operation of all organizations. A budget enables organizations to allocate scarce resources, control operations, and manage performance. A budget is the translation of an organization’s plans and priorities. The chapter helps the readers to learn the basic concepts and practices of budgeting in nonprofit organizations. It also explains the essential role played by budget approaches and techniques in the successful and sustainable operations of a nonprofit organization.
This chapter explains the purpose and benefits of information systems for nonprofit organizations. Information technology refers to the means of access to information and related services that combine various support and devices, such as telephone, computer, software, and the Internet. Information technology includes all computer-based information systems and related technology used by organizations in the operation of their programs, activities, or services. The chapter discusses the dimensions of information systems and also discusses the most common types of information systems in organizations. Some organizations develop and maintain: executive information systems, management information systems (MIS), and transaction processing systems. Effective information system must meet at least five criteria such as accuracy, completeness, consistency, relevance, and timeliness. The chapter presents the relationship between information technology and the financial sustainability of nonprofit organizations.
This chapter defines the concept of leadership and describes the most common leadership theories. Most scholars agree that leadership is a key component of organizational effectiveness. The very range of definitions of leadership and the absence of consensual agreement between the definitions make the concept of leadership an issue in itself. The chapter examines leadership from various perspectives with an emphasis on the influence of particular leadership styles on the financial sustainability of a nonprofit organization. It integrates theory-based and practice-based approaches, and thus provides tools to better understand and influence the leader-follower dynamic in the nonprofit setting. Early leadership theories include: Great man theory, traits theories, behavioral theories, contingency theories, and attribution and charismatic theories. The chapter explains the relationship between leadership and community relations and discusses the role of leadership in strategic planning. It also explains the relationship between leadership and financial sustainability of nonprofit organizations.
This chapter defines the terms community relations, outreach, and partnership in relationship to nonprofit organizations. Community relations combine an organization policy and process used to develop and implement community outreach and awareness about programs and activities in order to promote the organizational vision and mission in a community-oriented manner. As a policy, community-relations programs and activities are intentional. The chapter also defines the terms advocacy and public relations. Public relations involve the communication of intentional messages to the public in order to influence the opinion or perception of an organization by the public at large. Public relations are a key communication practice for organizations, including nonprofit organizations. The chapter describes the different facets of community relations and discusses community outreach, partnership, advocacy, and public relations as facets of community relations. It explains the relationship between community relations and financial sustainability.
This chapter describes a financial sustainability plan and explains the importance of a financial sustainability plan for nonprofit organizations. It discusses the elements of a financial sustainability plan. A financial sustainability plan should include an executive summary, financial sustainability analysis, financial ratios analysis, strategic goals and objectives, action plan, benchmark and outcomes, continuing quality improvement strategies, and budget. Many nonprofit organizations are faced with a constant challenge to match financial sustainability with their vision and mission statements. Some of the challenge may have to do with how much money they can successfully raise. This aspect can be manipulated by greater fund-raising efficiency and effectiveness. The chapter suggests approaches and best practices in developing a financial sustainability plan for a nonprofit organization. It includes a step-by-step process to use to develop a financial sustainability plan.
The term “fund-raising” can be used for any activity whose primary purpose is to raise money to support the activity of a nonprofit organization. The meaning of the term “fund-raising” can change based on approaches used by a particular nonprofit organization. This chapter discusses why people donate to nonprofit organizations. The literature suggests that people donate to nonprofit organizations based on compassion, altruism, values, tax deductibility, corporate social responsibility, stewardship, and solicitation. The chapter identifies some common effective fund-raising strategies used by nonprofit organizations in the United States and describes the items in a fund-raising proposal. An effective fund-raising proposal requires effective planning. The planning of fund-raising activities should start with a fund-raising proposal that sets clear justification, goals, objectives, and overall approaches and strategies. Finally, the chapter provides conceptual frameworks and approaches to organize fund-raising activities that can generate alternative funding for financial sustainability.
This chapter introduces the concept of financial sustainability in relation to the use of financial statements. It also introduces selected financial ratios to assess the profitability, liquidity, solvency, efficiency, and effectiveness of a nonprofit organization. Profitability is the surplus of revenue over expenses. Profitability used to be a forbidden word in the nonprofit world. Many nonprofit organizations are faced with the challenge of undercapitalization and do not have enough cash or liquidity to pay their regular bills. The liquidity of an organization can be measured by the current ratio, the net working capital, and the acid test or quick ratio or liquidity ratio. Solvency is different from liquidity because it deals with the long-term ability of an organization to continue to exist and expand. The debt ratio and the debt-to-equity ratio are two common measures of organizational solvency.