Financial Management in Non- and For-Profit Organizations

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Executive Summary

The primary mission of any entity is to show effectiveness in management to attract resources and transform them into worthwhile products. There has been an evolution of numerous methods to determine the performance of a for-profit organization, as well as that of not-for-profit organizations. In these two forms of enterprises, economists and financial analysts play critical roles in studying how the organizations manage their factors of production and scrutinizing varied analytical tests to aid in business forecasting.

The management of the bottom line and the creation of public value are two roles that NFPO executives have to balance. Just like, for-profit organizations, NFPOs have to adopt sound financial management systems. Based on the general financial principles that apply in all enterprises, top executives should be in a position to interpret financial reports, as well as ask relevant questions regarding strategic business decision-making. Currently, not-for-profit enterprises have emulated several practices of commercial enterprises to determine their current and future performance. Notably, NGOs or NFPOs are currently making significant impacts on the global economy.

The financial and economic techniques have different effects on the performance of the two entities. These effects have plagued the analysis of the enterprises. The operations of any entity rely on financial support. The report analyzes the similarities and differences in the financial management of the two entities. Considering that the mentioned areas have great effects on the management of both entities, it is imperative to discuss their management systems and the impacts that the practices have on their performance. All organizations need good financial management systems to realize their goals and objectives.

Moreover, the research paper compares and contrasts the application of financial management techniques in for-profit and not-for-profit organizations. Succinctly, the intrigues involved in the management processes of the two forms of organizations are worth discussing. An in-depth comprehension of financial management concepts and resource allocation and budgeting are necessary for any organization. To enhance trust among stakeholders, organizations have to apply good financial management options. In this aspect, employees of such enterprises should have a good command of financial management.


Not-for-profit organizations (NFPOs) play important roles in every society. Their existence helps in providing services that benefit members of the targeted society. They differ in size, from small community clubs to international bodies. Members’ contributions, donations, and grants are their main sources of funds in running their activities. Markedly, these organizations engage in trading activities as a way of supplementing their income.

Even though the operations of NFPOs are not aimed at making a profit, they have to apply good financial practices to meet their goals and objectives of supporting the community (Financial Management of Not-for-Profit Organizations, 2012). Appropriate financial management practices are fundamental for the sustainability of the NFPOs. Recently, the demand for more accountable, efficient, and effective services has not only been the issue with financiers but also with the public as well. There are high expectations for NFPOs to use the limited resources creatively and consider economic realities when making programmatic resolutions.

Comparison between Non-Profit Organization and for-Profit Organizations

Entrepreneurs with the intent of establishing small businesses have a broad range of options in decision-making to kick start their businesses. Perhaps what forms the most in deciding the scope of any enterprise is whether ply a for-profit or non-profit route. Non-profit and for-profit organizations compare and contrast in many ways. Familiarizing one’s self with these forms of organizations could be instrumental in deciding the direction to take in establishing an entrepreneurial career choice (Ingram, 2014). Perhaps the greatest vital dissimilarity between FPOs and NFPOs is their aim for existence.

The basis of for-profit organizations is to generate income for the companies’ employees and their entrepreneurs, while nonprofit organizations seek to serve humanity and provide environmental needs. Therefore, NFPOs tend to direct their energies into services that aim to meet the lacking needs of the people, for example, shelter, clothing, water, education, and food. Apart from that, Keller (2011) observes that they champion the society towards the realization of other issues pertinent to environmental consciousness such as deforestation and preserving the endangered species of both plants and animals.

Funding for the Non-profit organizations

For non-profit organizations to function optimally and reach their objectives, they must have proper funding mechanisms to ensure effective implementation of their functions. Now and again, new and emergent ways of raising revenue for the running of non-profit organizations spring into existence (Fritz, 2014). Non-profit organizations, unlike profit-making organizations, which capitalize on profit as a source of their revenue to help in the continuity and management of a business, non-profit organizations have to devise ways and means of funding to operate optimally.

Already, known and established traditional pathways of revenue for the non-profit organizations exist, although new and emergent ways of funding keep on emerging to meet the needs of these organizations. Non-profit organizations, according to Fritz (2014), finance their programs through income streams such as corporate philanthropy, self-generated fees for services, charitable contributions, grant-making community charities, and foundations.

Corporate philanthropy

Corporate philanthropy has always been one of the greatest financers for the non-profit organizations and this is normally by leaning towards corporate social responsibility aligned to environmental consciousness. Corporate funding to these organizations according to Fritz (2014) can be either long-term or short-term depending on the scope of engagement they have with the non-profit making organizations.

Normally, this engagement applies to certain causes and charities that are pertinent to their ideals. In some cases, Fritz, (2014) opines that corporate philanthropy can be somewhat episodic or market-driven in the sense that their proclivity revolves around certain projects, promotions, or events. Corporate philanthropy can thus be a robust source of revenue for non-profit-making initiatives, programs, campaigns, and events.

Non-profit organizations, therefore, seek to enhance opportunities for partnership programs to endear them to philanthropists for sponsorships, campaigns, and developments. Companies that feel that these non-profit organizations champion the ideas of their causes may voluntarily step into grans sponsorships and further veto their employees to offer their charities to the prospective non-profit partners (Keller, 2011). Employee volunteer programs are increasingly becoming very popular among the companies that endear themselves to the ideals of the non-profit organizations, some of which may be in kind, such as the services rendered to a non-profit organization by a company.

Self-generated fees for services

While some of the funding for the non-profit organizations may come directly from donations from charities, a greater chunk of the revenue that runs the affairs for these non-profit organizations comes from the levies accrued from the services rendered although some are directly from the products they sell. Usually, the services rendered to various individuals and institutions such as hospitals may result in directing insurance funds in aid of the non-profit making organizations to go about their duties (Fritz, 2014). Others sources, according to Ingram (2014), might be directly from the governmental contracts, fees, and legitimate support from the taxpayers.

Moreover, non-profit making organizations may roll out campaigns with various products and services that aim to generate money to assist in the management of non-profit making organizations. In addition, consultancy services, as Fritz (2014) notes, are very direct engagements where these non-profit organizations may embrace to generate fees to support them in delivering their objectives.

Charitable contributions

Although non-profit organizations have many avenues for funding of which contributions are primary, individual contributions and charitable donations continue to be very effective sources of funding for the non-profit organizations. According to Fritz (2014), charitable funding for the non-profit organizations in America from charitable donations alone hit $ 300 billion in the year 2011. Fritz (2014) notes that of this amount, 73% was directly from individual donations, the rest of the philanthropic pie is usually from grants by foundations, through bequests, and corporate philanthropy.

Grantmaking community charities

These are direct, charity from a public utility, private and community foundations that typically get financial aid from the government, private foundations, and the public. These bodies may engage in public service while seeking to raise funds and extend grants for the non-profit organizations to further their objectives.


Virtually in all societies, foundations are the greater contributors to the lifeline of non-profit organizations. Usually, they are in different types and sizes, although their grants are substantial are effective. Corporate foundations are very effective in this area and they have their staff that guarantees effective coordination of the activities rendered by the non-profit organizations. Family foundations, on the other hand, get donations either from relatives or from people, though they may not be too big. Family foundations function mostly locally and may have none or little professional staff. Perfect examples of the grant-making community charities prevalent in the public domain include the Rockefeller, Gates, and the Ford Foundations.

Use of debts

Usually, debts have been such a tricky experience for the non-profit organization to navigate. According to Financial Management of Not-for-Profit Organizations (2011), non-profits can usually contract their banks although their interaction with the banks will greatly depend on their past historical records with the banks. Obtaining unsecured debt may depend largely on an organization’s profile as well as the funding institution. Management for the non-profit organizations may be an uphill task if there is no proper mechanism for debt advantage, this is because there is sparse capital, and cash reserves are typically hard to accrue (Financial Management of Not-for-Profit Organizations, 2011).

With all these disadvantages, Ingram (2014) opines that the lifeline for non-profit organizations depends on their capacity to approach debts with a lot of care thoughtfulness. If anything, non-profit organizations must embrace a fair degree of financial literacy as well as discipline to manage their debt situation. Moreover, non-profit organizations, according to Ingram (2014), must continue to veto philanthropists to invest in their organizations to provide financial aid for the non-profits to pursue their objectives.

Performance evaluation

The capacity of organizations to add value to their performance is by effective use of all the endowments they have at hand to accomplish their objectives. For non-profit organizations to perform optimally there is a need to place greater priority on exercising adequate management skills capable of beckoning and retaining reliable volunteers and employees who can effectively champion the ideals of the non-profit organizations.

Just as the profit-making organizations, non-profit organizations too, have a duty to adhere to the acceptable employment laws that guarantee a productive and safe work environment (Management and HR resources, 2014). The evaluation of these non-profit organizations, therefore, depends on their ability to establish specific procedures and roll out practices that seek to promote working towards advancing the organization’s mission to achieve the set objectives.

Governance mechanisms in non-profits

For-profit organizations, on the other hand, deals in goods and offer services that have value in the marketplace while aiming to capitalize on profit-making for the continuity and the lifeline of the organization (Management and HR resources, 2014). Taxing for for-profit companies is mandatory and this may differ from one company to another depending on the modes of operation. Small business organizations, for example, usually channel their market scope to sole proprietorships or partnerships.

Profit-making organizations treat the revenue from their sources as dear for the continuity of business growth, and the management is usually accountable for any business mishaps. Non-profit organizations too may choose to register for tax exemption as guaranteed under certain sections of the constitution (Ingram, 2014). The tax code may also extend tax incentives to funding for the non-profit organizations and their donations. Non-profit organizations just as profit-making organizations are legal entities for levy considerations, thus making both types of organizations liable for their operations.


Clearly, for NFPOs, financial strength does not form their key judgment parameter, rather how they deliver their services, as well as meet their goals and objectives form the key judgment parameters. The evaluation of non-profit organizations, therefore, depends on their capacity to establish certain procedures while rolling out specific practices that seek to promote their working towards advancing an organization’s mission to achieve the set objectives. From the discussion, all the forms of enterprises need good financial management practices to assure of their continuity in meeting their objectives.

Accountability and transparency in organizations enhance sustainability in the delivery of services. In retrospect, financial management in the two sectors has similarities and differences. As a for-profit organization focusing on profit maximization and increasing shareholder value, a not-for-profit organization’s fundamental objective is to offer some socially anticipated needs in society. Since not-for-profit organizations engage resource providers who are not interested in exchange transactions, the enterprises lack strong financial flexibility. The sources of finance, governance mechanisms use of debt, and performance evaluation is critical issues worth discussing in this report.

For non-profit organizations, budget and cash management remains exceptionally vital to their operations since the financiers do not expect to benefit from the services as opposed to for-profit organizations. Finally, the need to deliver effective services does not necessarily require concrete funding from the financiers, but sound management practices are key to the achievement of the missions. Therefore, by implementing adopting, and executing good financial management practices, NFPOs will meet their objectives in a financially sound way.


Financial Management of Not-for-Profit Organizations. (2011). Web.

Financial Management of Not-for-Profit Organizations. (2012). Web.

Fritz, J. (2014). Where do non-profits get their revenue? Multiple streams of income. Web.

Ingram, D. (2014). Non-profit organization vs. profit organization. Web.

Keller, G. (2011). Comparing The Effects Of Management Practices On Organizational Performance Between For – Profit And Not – For – Profit Corporations In Southeast Wisconsin. Journal of Business & Economics Research, 9(3), 29-38.

Management and HR resources. (2014). Web.

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