Financial Management in Nonprofit Organizations - Discuss financial management in nonprofit organizations and write an essay that compares and contrasts the application of financial management techniques in nonprofit and for-profit organizations. Sources of funds, use of debt, performance evaluation (efficiency in use of contributions and meeting the organization’s objectives), governance mechanisms in non-profits, etc. would be good topics/issues for discussion in the essay.
In order for any organization to be successful, it is imperative that a very strong financial management program exists and be managed properly. In nonprofit organizations, a strong financial management program is the most critical step in success of the organization. Before we can discuss why a financial management program is necessary in a nonprofit organization, I must first define what a nonprofit organization (NPO) is. A Nonprofit Organization is a tax-exempt organization that has been put together with a common goal and/ or purpose in mind. This organization is formed to provide service to the public without obtaining or making a profit. In order for an organization to be classified as a nonprofit it must be charitable, religious, educational or scientific. Nonprofit Organizations do not distribute excess funds to its shareholders or owners, instead they reinvest all surplus funds to the organization in an effort to continue meeting and pursuing its goals and missions. "Legally, a nonprofit organization is one that does not declare a profit and instead utilizes all revenue available after normal operating expenses in service to the public interest. These organizations can be unincorporated or incorporated. An unincorporated nonprofit cannot be given federal tax-exempt status or the designation of being a 501(c)(3) organization as defined by the Internal Revenue Service. When a nonprofit organization is incorporated, it shares many traits with for-profit corporations except that there are no shareholders" (Nonprofit and Fundraising Resources, n.d.).
Financial Management in Nonprofit Organizations
Financial management in nonprofit organizations is fundamentally the same as financial management within a profit organization with the exception of several key aspects that need to be specialized for the advancement and success of nonprofits. For-profit organizations tend to place much of their focus and emphasis on making a profit and growing their shareholder base. Nonprofit organizations are labeled as organizations that do not have stockholders, the entities where rights and authorities remain the responsibility of the members or financial supporters of the organization. Because they do not have stockholders and are not driven by a profit mission, they stand apart from for-profit organizations. When it comes to financial management, nonprofits generally do not have the financial flexibility like that of a profit organization. The reason for this is because nonprofits generally have to place much of their dependency on donations, and with the strict guidelines that nonprofits face when it comes to their finances, they have to show its accountability and responsibility of all donated income; thus insuring that all money donated is utilized for that specific purpose only. Many nonprofit organizations tend to be lacking in many of the necessary requirements and steps of the financial management process, which is the foundation and basis for the success of the organization. Many do not have the proper management tools in place, are negligent in following appropriate procedures, and negligent in the proper training and experience of financial management for their managers. It is important that the leadership in nonprofit organizations understand and practice basic skills in financial management. Although busy and performing in several roles, it...
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