Financial Management in Nonprofit Organizations Research Paper - 1

financial Management in Nonprofit Organizations - Research Paper ExampleIn fact, such regulative provisions aim to encounter that the compositions funds ar properly used for the stated purpose. As equivalenced to for-profit organizations, a nonprofit enterprise is not allowed to keep huge totality of surpluses with it. Since a nonprofit organizations financial perplexity is not liable to take any level of risk, it can operate freely with greater degree of certainty. In contrast, for-profit organizations bear some levels of business risks including debt financing. Generally, both nonprofit organizations and for-profit organizations use the incremental budgeting technique. Undoubtedly, restricted financial attention operations can tame nonprofit organizations probability of failure. Introduction The term financial management simply refers to the process of planning toward the future of an individual or a business organization so as to ensure a positive inflow and outflow of ca sh. To be more particularised, financial management pertains to the optimal sourcing and utilization of financial resources of a business enterprise and the two key processes including resource management and finance operations constitute this process (Sofat & Hiro, 2011, p.20). Theoretical frameworks suggest that the application of financial management techniques in non-profit organizations is entirely different from its application in for-profit organizations. This paper will discuss the financial management practices in nonprofit organization. It will also compare and contrast the applications of financial management techniques in nonprofit organizations with that of for-profit organizations. Core Concepts of Financial Management Core concepts of financial management encompass capital budgeting, cash management, make up of capital, capital structure planning, and dividend policy. Capital budgeting is a financial tool used to analyze whether an organizations long term investment s like new plants, machinery, enquiry and development projects, and other new products are worth pursuing. Cash management activities try to maintain an effective balance between inflow and outflow of cash. From the management view point, cost of capital represents the cost of a firms funds including debt and equity. The concept of capital structure refers to the way an organization uses particular combinations of equity, debt, and crossbreeding securities. Dividend policy refers to a strategic measure that an organization uses to decide the level of returns to be paid to its shareholders. The application of these financial management concepts depends on a exit of factors in addition to the size and nature of the organization. Among them, the firms efficacy in applying these concepts is vital in order to exercise a control over the organizations future cash flows. Therefore, firms usually establish separate finance departments so as to deal with their day to day financial operati ons. Financial Management in Nonprofit Organizations Unlike for-profit organizations, the primary goal of a nonprofit organization is not shareholder value maximization instead, it intends to meet specific socially desirable needs. As Griswold and Jarvis (2011) point out, nonprofit organizations lack financial flexibility as such institutions heavily depend on resource providers that are not engaged in exchange transaction. The resources provided are