Importance of Budgeting and Financial Management for Not-For-Profit Organizations

Surname 1
Name
Management Accounting
Professor
Date

Surname 2
Question: Do you think not-for-profits need to be as concerned with budgeting as do
for-profit organisations? Explain the rationale for your answer.
Not-For-Profit Organisations (NFPOs) are important to every community. They are
formed to offer benefits and communal services to the community members. RSPCA was
formed to provide services for small and great creatures like dogs in Australia. Just like
RSPCA, other NFPOs rely on community support, grants, donations, and fundraising to fund
their operations. When faced with financial difficulties, an NFPO might be forced to engage
in trading activities to raise more funds. Therefore, financial management practices are
important in ensuring that NFPOs remain solvent, continue supporting communities and have
adequate resources to fulfil their respective goals and objectives.1
Although NFPOs are not profit-oriented, they should be sustainable, through proper
funding and capitalisation. An NFPO should ensure that it has enough cash flow to finance its
activities during its operating period.2
There are several reasons why NFPOs should take budgeting process and financial
management serious like the For-Profit Organisations (FPOs).
First, Budgeting allows NFPOs to fulfil both their short and long-term strategic
objectives. Budgeting is directly connected to timing and availability of funds when required.
NFPOs cannot realise their highest potentiality with poor budgeting.3
Second, prior budgeting can help NFPOs to develop financial controls by setting
spending limits. It would be easier to keep expenditure in line with the income. Appropriate
financial management helps non-profit organisations to avoid overspending and make
beneficial decisions based on the available funding.4
Third, Donors and financiers of NFPOs want to know how their money is spent, who
spends their money as well as the beneficiaries. No one is ready to give their money without
surety that it will be used for a good cause. Sound financial management and budgeting
1 Dropkin, Murray, Jim Halpin, and Bill La Touche. 2011. The Budget-Building Book for Nonprofits: A Step-by-
Step Guide for Managers and Boards. New York: John Wiley & Sons.
2 Ibid., 97.
3 Weikart, Lynne A., Greg G Chen, and Ed Sermier. 2012. Budgeting and Financial Management for Nonprofit
Organizations. Sydney: CQ Press.
4 Ibid., 113.