Introduction
Financial management is essential for accomplishing an organization’s goals and achieving success. While each company should manage its finances appropriately, non-profit organizations (NPOs) deserve particular attention. A financial manager needs to understand a non-profit organization’s sustainability, as NPOs can produce a profit but cannot distribute the profits to organizations’ leaders (Zietlow et al., 2018). An NPO’s financial management and sustainability are closely connected and can impact several organizational processes.
Financial Management of Non-Profit Organizations
Financial managers have to understand the relationship between financial management and sustainability. Financial management (FM) can be defined as operations required to handle finances and make business decisions. FM is affiliated with an NPO’s financial objective and financial policies (Zietlow et al., 2018). Sustainable financial practices rely on monetary policies, and one can define financial sustainability (FS) as an organization’s ability to generate economic resources and have sufficient capital (Zietlow et al., 2018). NPOs need to align their strategic plans with financial policies and decisions to achieve FS (Zietlow et al., 2018). Although FM and FS refer to an organization’s economic procedures, the difference exists. FM concentrates on collecting data and producing reports based on specialized education and experience, but FS is guided by financial leadership, which directors cannot delegate to an expert (Zietlow et al., 2018). For instance, while FM can involve tax reporting, FS concerns activating the annual budget and prioritizing cash flow (Springfield College; Zietlow et al., 2018). Financial management and sustainability help NPOs succeed, as the former regulates the monetary process and ensures economic viability.
Following that, financial sustainability accounts for an organization’s long-term success and is associated with liquidity management (LM). LM comprises managing cash flow and operating toward a preferred cash position (Zietlow et al., 2018). Liquidity is an important component of FS and is responsible for meeting current and future tractions on cash without sabotaging an organization’s mission or decreasing its financial health (Zietlow et al., 2018). LM assists in handling credit, selecting bond ratings, predicting bankruptcy, and addressing other processes that participate in meeting resource needs (Zietlow et al., 2018). For example, a study conducted on LM in faith-based donative organizations suggests that cash flow projections and a cash forecast are valuable for LM, which warrants an organization’s solvency and survival (Zietlow et al., 2018). Two implications concerning financial policies can characterize LM. The first prioritizes reinvested surpluses for financing assets, and the second implies that LM is significant for short-term solvency and long-term FS (Zietlow et al., 2018). Liquidity management plays an important role in achieving financial sustainability, as it refers to maintaining cash reserve that corresponds with an organization’s goals.
Conclusion
To summarize, non-profits present organizations with unique monetary practices that require managers to focus on finances. Financial management gathers data and helps make decisions about an organization’s economic state and policies. Financial sustainability applies the collected data to assess recourses and capital and develop ways to enhance viability. Financial sustainability is related to liquidity management, which concentrates on cash flow and its connection to the organization’s mission. Liquidity aids in being financially independent over time by using tools and exercises like a cash forecast. Together, the three contribute to NPOs’ victories by estimating financial risks, creating resources, and preserving monetary assets.
References
Springfield College. (n.d.). Intro to Nonprofit Finance: Part 1 [Online Lecture]. Web.
Zietlow, J., Hankin, J. A., Seidner, A., & O’Brien, T. (2018). Financial management for non-profit organizations: Policies and procedures (3rd ed.). John Wiley & Sons.