Financial Management Differences: Non-Profit and Profit Essay

This essay delves into the critical aspects of financial management within non-profit organizations, contrasting them with profit-driven entities. The introduction highlights the core difference in objectives, emphasizing the non-profit sector's focus on social impact versus the profit sector's emphasis on shareholder value. The essay then explores the key roles of financial management in non-profits, including budgeting, cash management, and asset management, which are essential for resource allocation and operational sustainability. It also examines the importance of financial resources, the challenges in cash flow estimation, and the legal and ethical considerations surrounding fund management, including tax exemptions and regulatory compliance. The essay concludes by summarizing the key takeaways, underscoring the significance of effective financial strategies for the success and long-term viability of non-profit organizations.

Running HEAD: Financial Management
Financial Management

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Introduction
Financial management in a nonprofit organization is significant to effectively run the business
operation. It is identified that the main goal of profit organization is to earn a profit and increase
the value of their shareholders. But, the main purpose of the non-profit organization is to
facilitate the socially desirable requirement on an enduring basis. In current business practices,
profit organization depends on exchange transaction between businesses and B2C. However, the
non-profit organization depends on the money that is donated with a specific intention (Hudson,
2017). This essay discusses the financial management difference between nonprofit and profit
organization. It also presents the role of Financial Management in not- for profit organizations.
Role of Financial Management in Not- For Profit Organizations
According to the Finkler et al. (2016), financial management is essential for both profit and non-
profit organization. A non-profit organization must demonstrate the activities regarding donating
resources. The workforces of the organization could be able to demonstrate their expenses
activities by assessing the financial records. Furthermore, two essential areas of financial
management play important role for not-for-profit organization named budgeting and cash
management. Therefore, these companies focus on the utilization of reserved cash. It can be
stated that estimation of cash flow is challenging for the organization because the organization
heavily depends on the resource providers.
In support to this, Renz (2016) evaluated that management and protection of financial resources
are essential for the not-for-profit organization because, without adequate resources, the
company may not attain its mission and survive in the industry. Financial resources comprise
goods and services, and money. Money includes the checking, securities, investment, cash and
savings that organization has required to run its business operation. Goods contain the supplies,

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merchandise, and equipment. Services are the program and activities which are delivered to the
customers. These resources could be managed by financial management because it will decline
the risks related to business. Furthermore, it will enhance the value and gain the financial
resources.
Bryce (2017) discussed that financial management plays important to manage the asset in the
nonprofit organization. Therefore, it is essential for an organization that it should have adequate
assets to fund their existing operations. They have to be competent to make stability between
available and growing resources. Moreover, not for profit organization should be able to pay
debts in a well-timed manner, and should accomplish other financial obligation. After creating
the budget, a company can pay attention on financing the existing operation and gain resources
to increase their return on capital and assets. Assets management is also required to maximize the
resources. It also manages the cash inflows and outflows which help the not for profit
organization to provide more benefits to communities. Consequently, it will gain significance of
budgeting because the nonprofit organization would be able to attain the financial obligation.
McKinney (2015) argued that nonprofit organization is distinguished from profit organization in
a different manner. In this way, it stated that the main aim of profit organization is to increase the
profits and transfer this profit to the director of the company and shareholders while the key
purpose of the nonprofit organization is to fulfill the needs of societies. Together with, the
nonprofit organization has no director and employees act with the purpose of increasing the
revenue and minimizing the costs because it will ensure that company is providing benefits to
societies.
In favor to this, Maier et al. (2016) stated that profit organization pays tax on their earnings
however nonprofit organization does not pay taxes due to not getting profit. Government helps

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the non-profit organization to minimize their costs because the key intention of this organization
is to act with respect to the welfare of the society. Moreover, there are two kinds of organization
that affected each kind of accounting practices. In case, tax exempted nonprofit organization
submits their financial statement to IRS then it will only assess the sales tax and real estate tax.
Arvidson and Lyon (2014) argued that financial management plays important role in appropriate
managing the funds. Hence, the non-profit organization has to pay attention to the mission of the
company. Further, it should monitor the progress of the company and also focuses on how
capitals are being used. There are different restriction and limits that must be followed by the
company during managing the funds. Since, the inappropriate use of funds can cause an
extraction of money, having to reimburse the money and not getting a future return. Another
cause is a loss of exempted tax and other legal problems.
In support to this, Chikoto and Neely (2014) opined that a budget is an operating plan for the
company. Hence, the decision regarding accomplishing the mission of the company is made by
staff and board members. They have to choose the agenda that will create positive effects and
then assign the resources as per the plan. The budget facilitates the steps to staffs to achieve their
objectives. The budget also enables the nonprofit organization to assess how funds will be
assigned and how to make optimum utilization of resources. It also helps to address the potential
financial issues of the business in future.
Conclusion
From the above discussion, it can be concluded that financial management is beneficial for a
non-profit organization to manage the finances on daily basis. Further, it enables the company to
assess where donated resources are invested. It can be also summarized that there are two
essential areas of financial management that are to be focused on the nonprofit organization

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named cash management and budgeting. Along with this, it can be evaluated that fund and asset
management is significant for the nonprofit organization because it enables the company to
distinguish the donated money by time and intention. Not for profit organization should do a
self-assessment to evaluate the company’s position because it will help to make continuous
growth.

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References
Arvidson, M., & Lyon, F. (2014). Social impact measurement and nonprofit organizations:
compliance, resistance, and promotion. VOLUNTAS: International Journal of Voluntary and
Nonprofit Organizations, 25(4), 869-886.
Bryce, H. J. (2017). Financial and strategic management for nonprofit organizations. UK: Walter
de Gruyter GmbH & Co KG.
Chikoto, G. L., & Neely, D. G. (2014). Building non-profit financial capacity: The impact of
revenue concentration and overhead costs. Nonprofit and Voluntary Sector Quarterly, 43(3),
570-588.
Finkler, S. A., Smith, D. L., Calabrese, T. D., & Purtell, R. M. (2016). Financial management for
public, health, and not-for-profit organizations. Australia: CQ Press.
Hudson, M. (2017). Managing without profit. USA: Directory of social change.
Maier, F., Meyer, M., & Steinbereithner, M. (2016). Nonprofit organizations becoming business-
like: A systematic review. Nonprofit and Voluntary Sector Quarterly, 45(1), 64-86.
McKinney, J. B. (2015). Effective financial management in public and nonprofit agencies. UK:
ABC-CLIO.
Renz, D. O. (2016). The Jossey-Bass handbook of nonprofit leadership and management. USA:
John Wiley & Sons.