Financial Management in Non-Profit Organization

Financial Management in Non-Profit Organization

Introduction

Financial management is an organization management mechanism that is very essential to every organization whether profit based or non-profit based. The two kind of organization obtain their funds from different sources and they also have different ways of utilizing their obtained funds. However, they all require proper management and budgeting of their funds to ensure that they cater for the intended purpose. Financial management in profit based organization is basically meant to ensure effective learning of the organization, tracking of returns from different operations and determining the organization financial performance. However, in non-profit organization, financial management is basically done to ensure effective utilization of the obtained funds to ensure proper accountability to the donors (Bolton & Mehran, 2006). This paper focuses on comparing and contrasting financial management strategies for non-profit and profit based organizations.

Financial Management

Financial management involves controlling, directing, organizing and planning the financial activities that include fund utilization and procurement of an organization. It involves employing general principles of management to the organization financial resources. Financial management in for profit organization is based on three elements. They include investment, dividend decision and financial decision. Investment decision involves deciding on to make a current asset or fixed asset investment. Financial decision involves establishing ways of raising funds based on the investment. Here the financial managers decide on the source, financing period, financing cost and future returns. Dividend decision regards the decision taken regarding distribution of the profit. The organization net profit is divided into shareholders dividend and profits retained.

However, the situation is different is a bit different in the non-profit organization. They basically focus on two financial elements that include the project to be undertaken and the source of financing. Therefore, the non-profit making organization decide on the best project to undertake to solve the problem at hand or to improve the life of the intended group. Once that is done, the organization evaluates the possible cost of the project. This is then followed by defining the possible sources of funds to ensure that the project is accomplished. In this case, the organization does not focus on the profit made or the asset returns. Their investment is not based on the level of the returns but on the benefit it will bring to the community or group in question (Kotloff & Burd, 2012).

Sources of Funds

Profit making organizations are more flexible when it come into deciding on where get their funds. Some of the most possible choices include utilizing the organization net income to make investment. A profit organization can also manage more funds by equity where the company sells its shares to the public to raise enough funds to make future investment. It can also get a loan either short-term or long-term loan based on the company’s financial need or the security it can manage to present to the bank or any other financial institution. For profit company can also acquire funds from friends, family members or liquidation of an asset.

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