FINANICAL MANAGEMENT IN NONPROFIT ORGANIZATION Term Paper

FINANICAL MANAGEMENT IN NONPROFIT ORGANIZATION - Term Paper Example The report is prepared with the sole intent to study the various financial management practices in a non-profit organization. The author of the study will highlight the various financial management practices that ensure smooth operations of the business. It also highlights the difference in the financial management practices between profit and nonprofit organizations. The author of the study will also provide certain inputs which will help in the betterment of the nonprofit organization and help in achievement of goals and objectives. It was essential to conduct this study to understand the impact of financial management practices on the organizational performance of NPO. Introduction: Financial Management in Non-Profit Organization Nonprofit organizations form an essential part of the society and exist to provide certain benefits for the members of the society. They actually vary in size from large to small clubs and the operations are based on receipt of grants, donations, fundrais ing or receipt from members as the principal source of income. In certain instances nonprofit organizations (NPO) supplement income with the trading activities. Although, NPO operate on a nonprofit basis suitable practice of financial management ensures that there are sufficient resources and cash meant for operations of NPO. Attaining profitability is not the main objective of NPO it is necessary to ensure that it is sustainable, capitalized and funded. It should be ensured that the NPOs should have an adequate cash flow to support their technical operations over the duration of the lives and help in contribution to the achievement of goals and objectives. Sound practice of financial management is needed to ensure that the human resource of NPO utilize the resources effectively. The operations and activities of NPO vary and organizations where trading activities are not present stock management practice will not be relevant. Implementation of effective management practices will ena ble in attainment of strategic goals of the organization easily. Implementation of sound financial management practices would require understanding the current financial position of the NPO which is important for the provision of NPO services. Sources of Funds in NPO Gifts and Donations: The donations in NPO usually come from companies, charitable trust, foundations after a fundraising appeal. Gifts and donations are regarded as an important source of income and also attract tax reliefs (Green, 2013). Fund raising activities are time consuming and expensive. Grants: The grants are made by charitable trust and public sector. The donated money is not returned and is usually exempted from tax (KnowHow Non Profit, 2013). Loan financing & equity capital: Loan is the sum of money borrowed to be repaid back with interest and loan financing is potentially used widely in NPO. Equity capital is provided by external investors in return for a stake in the organization (KnowHow Non Profit, 2013) . Contracts: A form of trading activity which involves agreement between two parties and each party has to abide by the terms and conditions failing which will attract penalty or fine (KnowHow Non Profit, 2013). Trading: Many NPO generate income by selling goods and services to the members of the organization (KnowHow Non Profit, 2013). Financial Management Practice in NPO Analyzing the financial position of the organizations will enable the smooth operations of NPO and also help in providing excellent services. Firstly, sound