Leaders and managers in a non-profit making organization have no option but to acquire some basic financial management techniques for which without it the daily operations of their companies are at risk. Planning, budgeting and cash flow operations are essential skills that the staff should acquire so as to run the daily operations of the non profit company with a lot of ease.
In the US, various non-profit making organizations have to produce financial statements; this is a document that tells the general running of the organization. This document is kept and produce by the management and they produce it as they engage in their annual planning and analysis program. The cash flow statement shows the variations in the finances annually (McMillan, 2010, p. 134). There is also the statement of activities that is kept by the management together with the financial statement. This is a document that shows the changes that have taken place to the equipment in the company within the past one year. The two documents play a very critical role in determining both income and expenditure of the company. It also voices some points of concern within the company so that the management can note and take the necessary action.
Financial planning in a non-profit making organization plays a key role in a good business plan. This is because it helps the company to look into the requirements of the organization. It helps in identifying the amount of resources that the company requires to facilitate its daily operations. It also looks into how the company will be able to develop the necessary resources to be able to run its daily laid down programs and achieve its objectives. Planning will eventually lead to the achievement of objective and realistic budgets. In planning, there are various ways in which the company may be able to create achievable goals for the non-profit organization. First is through strategic planning, which is a determinant of the company’s long-term goals (McLaughlin, 2009, p. 205).
It establishes the targets of the company within some period of time say one year or more. It also shows how the target will be reached and what will be used to determine whether the initial objectives that were laid down were achieved. Second is through the use of business planning, which is a general overview of the company’s operations. It shows the type of business, the market opportunity. It identifies the type of clientele for the company and determines whether the beneficiaries or targeted individuals for the business are genuine. It also looks at the people, who will be involved in the general operations of the organization so as to ensure its success. Business planning also seeks to lay down the complete implementation process for the company’s operations. It looks at the start up process, marketing, how the company operates and the financial matters in the company. Business planning also looks into the possibility of the company encountering various crises, which may be due to some various factors. It determines how the management team is prepared to respond and provide solutions to such kind of looming issues. The company, therefore, has in its reach all the essential information that they may require to make a business plan following their own desired format.
Budgeting and planning are two essential elements of financial management that are very essential in a non-profit making organization. The organization has to look carefully into its ability to provide the necessary services to its clientele. This is done by looking into the available funds to keep the organization going. The organization has to ensure that the available funds are planned and managed in the right manner so as to meet the targets and objectives that have been laid down by the company’s management. There are various sources that have been established as the major sources of non-profit organizations funding. These sources range from donations from well wishers, grants, individuals, who form the largest part of the contributors according to Giving in the US, corporations also offer funding with an intent of gaining publicity and market share and their funding normally revolves around specific events and projects that the organization is undertaking. Federal states and governments also form a larger part of the contribution to non-profit making organization.
This is mainly because those who benefit from the projects undertaken by the companies are beneficial to the state at the end. Various foundations that are being established have also been found to be one of the major sources of these non-profit companies’ funding. It has also been found that since the non profit organizations do not expect a regular income, they have adopted some various budgeting ways to ensure that their services run without any interruption from lack of finances to carry on their daily activities. Some of the ways in which they deal with these issues are, first, the company management raise reserves in the company. This refers to the act where the company management, after realizing that the amount they have in the company cannot meet all its needs, it opts to lower its expenses and embark on generating more income. Secondly, it is essential to opt for the break-even budgets as compared to one that leads to total failure in the company. The other option is to go for a deficit budget, where it decides to spend its surplus income in advance before time elapses.
It has been established that most non-profit companies find it difficult to foretell its cash flow. This is mostly because of the fact that most of its donors do not expect any much gain from the organization. As a result of this, others may not be very committed to their pledges. It is also found that an increase in the need for the services offered by a not for profit company may bring about various management problems. It is the hardest part to tell the amount that the company may be able to accumulate every year, which makes planning a very hard task to go by (Renz & Herman, 2010, p. 552). Since the issue of planning is a task, the organization does not have an option but to comply with the budgeting technique. Budgeting refers to the plan of how the company will operate for a certain period of time. It is normally an expression of the company’s management on how the company will be operational throughout a certain specified period of time. The governing council make a decision on the nature of programs to be undertaken in a certain time.
Cash flow on the other hand is an essential financial technique required in the management of a not for profit making company. Cash is a very essential commodity that the non-profit making organizations have to deal with. To be able to sustain their financial capability, the organization has to ensure that it accumulates enough income to be able to run its daily operations. Annual financial statements can account for excess revenue collected as compared to the total expenditure but the fact remains that this may not be a predictor that there is cash available in the company’s account. Repetitive and yearly fluctuations that occur may have a great impact on the organization’s finances.
The expenditure and income for most non-profit making organizations vary annually. The nature of the cash flows in a non-profit making company raises the essential nature of budgeting process since the operations have to be carried out in the company consistently. The company has to make forward plans for the times when the income in the company will be less as compared to the required expenditure. They may have two options to deal with the crises. First, some of the expenses can be postponed depending on their urgency, and the other can be speeding up constituent payments. After when the yearly operating and capital budgets have been put down, their can be conversion into cash flow budgets so as to verify the amounts of cash that is available in the company’s account. The company has to look into a model cash flow budget, which shows the company’s decision to keep a certain minimum level of cash in their account. A non-profit making organization has to learn from the time it starts its operations to develop a working cash reserve that is equal to the expense that the company uses for a certain period of time for example one year.
In the US, the board and the committee for a non-profit making organization play a very critical role in the daily running of the organizations operations. The board helps in putting up and approving the rules and regulations that governs the company’s daily operations. The treasurer of the board has been entrusted with various responsibilities to look into the coordination of the board’s activities.
Similarities and Differences
There are various similarities that exist between the non-profit organizations and the commercial organizations with regard to financial management. Despite this, there are a few differences that may be noted in a non-profit making institution as compared to the commercial sectors. These differences and similarities are seen in the section of operations, funding and even establishment of these organizations. First, both organizations cannot be set up without money. Cash, therefore, forms the basis of the operations for both for profit and the non-profit organizations. Before the initial set up of any kind of the organization, it is essential for the stakeholders to accumulate enough cash for its operations. It has also been established that in both the profit making and the non-profit making companies, it is not a guarantee that the end result will be a success. Both the organizations have the ability to develop and reach its greater heights, they are also able to transform to the changes in the surrounding and they also may sustain its operations if handled with care. The fate of the two organizations lies on the management team. The two organizations have proven its worth to the society. It has been found out that both the non-profit and commercial organizations that are set up in the US offer very essential services to the society.
The other similarity between the two organizations is the fact that they require good management and leadership so as to be able to undertake its daily activities. Quick and effective service delivery, good and inspiring staff and taking up changes for its growth are the most essential aspects for both organizations (Coe, 2011, p. 165).
For both the non-profit making and the profit making organization, financial techniques are essential to their daily operations. Planning, budgeting and use of cash flow are the most critical features that determine their success. Both organizations also face some various problems while trying to integrate the subject matter to the generalist framework of ideas.
Some of the notable differences that exist between the two types of organizations include the fact that a for-profit organization focuses mainly on its profit making capacity and its ability to raise the number of shareholders. This is contrary to the main goal of a non-profit making organization bases its operations on the need in the society and not on its ability to increase its profits. The other difference comes from the sources of finances for both companies (McMillan, 2008 p.78). A non-profit making company depends highly on people, individuals and state organizations that do not expect anything in return at the end. The cash that they get from various sources are geared towards meeting the needs of their target population. This fact contributes to its nature, as it does not have financial freedom that is enjoyed by a profit making company. Stewardship of the collected resources is not shown in the non-profit making companies as compared to their profit making counterparts that demonstrate full stewardship of the contribution of the shareholders, who are part of the profits the company enjoys.
There exists both the profit making and non-profit making organizations in the US. The non- profit making enterprises have been forced to apply basic financial management techniques in order to survive in a world, where the profit making organizations are looming at a faster rate. These organisations form a basic part of the society and they vary in size and level of their operations. They do not expect regular sources of funding. According to Jan Barned, therefore, not for profit organisations should strive to put up a good financial management system so as to reach their desired goals (McLaughlin, 2009, p. 245).
Various financial management techniques have to be sought in a not for profit organization so as to achieve its desired goals. Some of these techniques are;
This is the initial stage in the setting up of business operations. It is essential in a non-profit making organization as it enables it to manage the available funds. It starts by an analysis of the financial statements of the company, which makes it easy to determine the cash that the company has and the viability of the projects already undertaken.
This is the allocation of resources to meet all the companies operations. Since the non profit organizations do expect a regular source of income it is necessary to spread the available funds to meet the needs of its clients
Non-profit organizations take care of both its income and expenditure so as to achieve their goals. They determine both their income and expenditure within a period of time and lay down procedures to work on the excesses. Cash flow statements in a not for profit enterprise clearly shows the impact of that the contributions made as compared to contributions which were received.
Similarities and differences
In the US and other parts of the world, there are notable differences and similarities that exist between a profit making and a not for profit making company. These similarities mainly focus on the cash in the organization, management strategies, and the application of those financial management techniques in their daily operations.