Financial Management in Nonprofit Organizations

Topics: Non-profit organization, Voluntary association, Tax Pages: 6 (1891 words) Published: June 23, 2011
Running head: Financial Management in Nonprofit Organizations

Financial Management in Nonprofit Organizations

Executive Summary
Successful management of a not-for-profit organization requires providing high-quality service, but at the same time, careful administration - to reduce expenses and automate processes are ongoing requirements. Each type of not-for-profit organization has unique management needs. For example:

• Social service and government agencies require meticulous reporting practices, essential for meeting regulatory compliance and securing future funding.

• Professional and trade associations are tasked with managing business events as well as maintaining education and certification records.

• Civic, fraternal, and religious organizations have complex membership relationship issues and vital fundraising projects.

The leaders and staff of nonprofit organizations must ensure that accounting records and financial statements are accurate and comply with regulatory requirements. For a manager of a nonprofit organization, managing the organization’s finances is especially challenging. A nonprofit organization’s revenue sources are frequently subject to changes in both economic forces and political climate. Yet, it has to compete for labor and other inputs just like any other organization.  Accurate recording and reliable reporting of financial information are the preconditions for financial management. Public accountability also requires a high degree of accuracy and reliability of financial data.  The financial statements of a nonprofit organization provide a useful overview of the organization’s fiscal health.  Financial management entails both planning and implementation.  A nonprofit manager will need to be able to analyze and interpret historical and current financial information in order to prepare financial plans that will make certain operations of an organization are efficient and effective.  Financial management may entail both short-term day-to-day operation and long term capital investment that require advance planning.   Essential to the breakdown is an consideration to the cost structure of the organization.  Gradually more, innovative revenue strategies are solicited in order to balance shrunken public funding sources in repeated economic downturns.  A financial plan is seldom implemented as is.  Changes in circumstances or lack of perfect foresight require frequent financial adjustments that may have significant operational implications to the overall fiscal wellbeing. What is a Nonprofit Organization

An organization can be defined as an assembly of resources mainly capital arranged to accomplish an overall goal. Nonprofit organizations (NPOs) are melting pots combining mission, members and money (Abraham, 2006). Unlike most privately held companies most organizations acting as a nonprofit or not-for-profit organization are formed to accomplish the objective or goal is to provide a basic service or need in a community. Nonprofits seek to define this goal specifically through very detailed mission statements and organizational goals that underscore the conception that the organization that does not distribute a profit. Nonprofit organizations can typically be structured and housed as advocacy groups in the areas of human service, arts, civic, health, and education.

Nonprofits can range in sizes from extremely large to extremely small organizations that have very few or no full-time employees, or personnel only operating on a volunteer basis. However, like corporations large and small nonprofit organizations also have the ability to incorporate themselves as legal entities in order to: own land and property; exist or continue operations after founders have died or retired; and to protect personal assets from the organization.

Value setting is a critical driving force in the overall effectiveness of a nonprofit organization, and the main objective...
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