Financial Management in Nonprofit Organizations - Essay Example

Several performance measure indicators are also discussed and they have a deep co-relation with how the initial funds are generated. Performance indicators of both the types differ slightly but this is the only aspect in which most general finance principles can be applied to both. Finally, we looked at how corporate governance is ensured for nonprofits yet they lack in strong monitoring as the real focus of government, agencies and creditors is on how for – profits are performing. Financial Management in Nonprofit Organizations Financial Management for nonprofit organizations has many similarities with the financial management practices being adopted by profit organizations yet it differs in some respects.

Maximization of Shareholder’s wealth and return on investment are the key performance indicators for a ‘for-profit’ organization. However, as far as a not for profit organization is concerned, the key emphasis is on developing the welfare projects of the society by contributing in one form or the other. Major stakeholders of a not for profit organization are not entitled to any wealth maximization. . This actually leads to the definition of the mission statement of a not for profit organization (Blackbaud, 2011).

The disclosure and administration activities of a nonprofit organization must be scrutinized; therefore the working staff must be accountable for every incoming dollar. This is for donor’s satisfaction and for the transparency of the management processes (Cass, 2010). Fund accounting system has become even more critical considering an increasing shift in the importance of external financial reporting (McFarlane, 2012). Therefore, budgeting and cash flows management are of immense importance in a not for profit organization’s financial management setup.

Liquidity and asset management is important too since commitments of servicing are to be continued over an extensive period of time. Cash Flow prediction becomes challenging due to two main factors. Primarily, operational cash flows are negative and financial cash flows are not certain. Another reason for this unpredictability is the fact that cash flow donors aren’t the ones who are receiving services or any other advantage on their investments. Severe management crisis can be an outcome of a demand increase in the resources of the nonprofit organization.

Accounting control also becomes important since the forecasted revenue is unreliable and that’s the reason why not for profit organizations are not inclined in servicing newer clients until they have done a thorough research on that. With control comes budgeting, thus, a not for profit organization requires risk averse financial managers and tactical marketers. Sources of Funds Nonprofit organizations utilize a method known as fund accounting for maintaining books pertinent to the received resources by