The increasing number of nonprofit organizations has raised the concerns regarding the financial management procedures and accounting standards followed in these organizations. In this essay the different financial management practices of profit-for and nonprofit organizations…
wn that different objective of for-profit and nonprofit organizations are the major factor which requires the change in financial management processes. It has also found that financial management techniques may vary across for-profit and nonprofit organizations because of different governance mechanisms, tax treatment, stakeholders and accounting requirements. Therefore, for the financial health of nonprofit organizations and to facilitate them in achieving their aims, such changes have become necessary.
A nonprofit organization offers public services without any intention of achieving any personal gain or self interest and these organizations are exempt from paying federal taxes (Zietlow, Hankin, & Seidner, 2007). Under the selection 501(c) (3) of the Code, the described organizations are charitable organizations and they are eligible to get tax-deductible contributions and earnings of organization may not inure to private shareholders or individuals (Credit Infocentre, 2006). Actually the number of nonprofit organizations is increasing vary rapidly and it is becoming important to control and monitor the financial practices of these organizations. Although these organizations can earn money however, the money earned has to be used for public service purpose only. Therefore, the differences in financial management techniques appear right from the difference in financial objectives of the two kinds of organizations. The primary financial objectives of nonprofit organizations found through a survey in 2002 highlight that most nonprofit organizations aims to achieve breakeven point, followed by those which aim to maintain a significant level of cash reserves and financial flexibility. Moreover, the other primary objectives identified include maximizing cash flow, net revenues, net donations and surplus and reducing costs (Zietlow, Hankin, & Seidner, 2007).
Because of these financial objectives the financial management techniques of not-for-profit and for-profit ...
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