Application of Financial Management to a Non-Profit Organization

Introduction

Application of financial management to a non-profit organization

Financial Management is the operational activity of an organization responsible for obtaining and effectively utilizing the funds critical for efficient operation. The primary goal of non-profitable organization is not to increase shareholder value, but to provide most socially desirable need on an ongoing project (James, 2013). NPO's most lacks the financial flexibility of a commercial enterprise because it relies on the resource from non-profitable organizations. Thus the NPO's must demonstrate its stewardship of donated funds money given for a specific purpose must be used for that purpose. Financial management may be used in NPOs through;

Budgets

Budgets are the organization's working plan for an economic period. They portray, in fiscal terms, the management and staff's decisions regarding how the firm will accomplish its listed purpose (Michalski G. &., 2011). The budget points a direction for allocating resources and maximizing their use. Ideally it also identifies any financial problems that could arise in the coming year. Procedural follow-up and categorization of project expenditures promotes the ability of management to report on service efforts and accomplishments (James, 2013).

The scope and size of an NPO's projects and asset base dictate the complexity of its budgets. In its most cases, a budget is a collection of management plans and objectives that covers all phases of operations for a period (Zadek, 2013). If a goal or objective of an organization is to build a working capital then it may want to anticipate a budget discrepancy of income over the expenses.

The budget, once accepted, should be used by the workers as a management tool to measure operational performance. The accountability of management and the staff is an aspect of budgeting, and should be a responsibility for those who are capable of realizing the goals.

Asset Management

An NPO's or assets are correctly managed from the going concern perspective, which assumes no limitation on the firm's future existence (Michalski G. &., 2011). Management should ensure that the firm has adequate liquid assets which are available in financing the current business operations. The goal of maintaining the optimum balance of the available business assets and invested in extra assets. After the budget is made, the NPO's must try to focus on funding current projects by making use of current or liquid funds, and by maximizing available and obtainable resources to promote return on the resources (Zadek, 2013). To maximize resources involves the analysis of the costs and benefits of various sources of NPO's income.

Cash flow planning

Cash