Analysis of Non-Profit Organization Financial Management Issues Introduction A non-profit organization is an association, charitable organization or other voluntary organization that is formed with the sole purpose of furthering a particular social cause; such as education, poverty eradication, gender equality, youth empowerment and child protection. Unlike businesses, the objective of an NPO is not to generate profits but to ensure that it promotes the society’s wellbeing. NPOs obtain funding from the national and foreign governments, the general public, private institutions, and well-established NPOs and foundations. However, it is often a challenge for NPOs to obtain adequate funding to run their programs, because the revenue generated from donations varies from year to year. Yet, in essence, it is not possible for NPOs to attain their objectives without an income. NPOs therefore have to seek methods of ensuring that they create reliable revenue streams.
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Why Sufficient Funding is Important to NPOs Non-profit organizations serve the community in various ways without expecting any profit in return (Agard, 2010). However, being a non-profit does not exempt the organization from financial requirements. To sustain their activities, they require money to pay for utilities, transport, rent among other operational expenses (Parmenter, 2012). Additionally, NPOs also require sufficient monetary resources to facilitate the successful achievement of their objectives. When the NPO has enough money, it is more likely to become high functioning and impactful in attaining its purpose and objectives. Non-profits that are well funded are able to widen the scope of their operations, achieve greater goals and hire qualified employees to increase the quality and quantity of work done. Sufficient funding also makes nonprofits sustainable; poorly funded NPOs are vulnerable to closure. Reasons Why Insufficient Funding Occurs Non-profits often find themselves with a high number of objectives to achieve and declining revenue and funding. Most non-profits rely excessively on the government, donors and well-wishers to contribute the money they need for their operations. However, this is usually not a reliable source of income because the amount of funding that donors give NPOs varies from year to year. This is especially true for small NPOs that are yet to become well-established. A large number of non-profits do not exercise strategic thinking and planning because they do not think of themselves as businesses. This causes financial challenges especially when the NPO begins its projects and operations before securing funding, with the hope that it will secure funding in the course of the project. This strategy is prone to failure since it is not guaranteed that donors will provide their resources on time to sustain the project. Funding
challenges are also caused by periods of financial downturn where corporations, governments and other well-wishers are forced to cut down their expenses to avoid collapse. What Happens if the Issue is Not Properly Addressed Obtaining sufficient funding determines the performance and success of a non-profit organization. Non-profits that do not have ample resources are considered to be weak and unsustainable. Weak organizations have a lower chance of attracting funding from donors since they often depict a picture of financial imprudence, lack of strategic planning and ineffective management (Kotloff, & Burd, 2012). It is essential for non-profits to be well-funded to be able to increase the scale of their operations and meet its objectives. Nonprofit organizations grow, expand, develop better solutions and fulfill their missions effective when they have sufficient funding from both internal and external sources. Best Practices to Address Funding Challenges To address funding challenges, the non-profit should develop more effective and creative fundraising strategies. Corporations, well-wishers and government are more willing to fund lts project for which there is a clear strategic plan and demonstrated viability through tangible results. The NPO should develop a manifesto stating its intended goals and objectives and what it has already achieved. It should also clearly state the amount of money it requires to attain its desired level of growth. Additionally, the NPO should ensure that it sends it requests for funding from organizations and groups that have a vested interest in its cause. Just like a for-profit business, NPOs need to develop effective marketing and branding plans. The NPO should engage the interest and attention of its stakeholders through marketing activities through advertising campaigns. Some of the most effective media for the campaigns include; social media, email, television, newspapers and brochures. The campaigns should
communicate to stakeholders what the organization has achieved so far and what more they can achieve through additional funding. Non-profits that rely solely on funding from donors are at a higher risk of facing funding challenges than NPOs which engage in business activities that enable them to generate revenues. NPOs should seek business opportunities to reduce their overreliance on external sources of funding. Unlike for-profit businesses, NPOs should not aim to make maximum profits from its business activities and therefore should charge lower prices. NPOs can also address this challenge by developing better financial management strategies such as reducing unnecessary overhead expenses as well as implementing more effective financial monitoring and forecasting strategies (Kotloff, & Burd, 2012). Example Of NPO That Has Been Effected By Funding Challenges AHERF, a non-profit that provides healthcare and education, was established in 1983 in Pennsylvania. It grew rapidly in the 1980s and mid-1990s by acquiring universities and medical facilities (Keith, 2014). However, by 1998, it had incurred heavy debts as a result of its rapidexpansion plans, financial misappropriations and low revenues, and subsequently had to file for bankruptcy. Conclusion Non-profits are essential to the society since they offer goods and services that advance positive change and facilitate societal wellbeing. By developing more effective fundraising strategies and revenue-generating activities, non-profit organizations can increase their ability to make an impactful contribution to the society and thus achieve their objectives. NPOs should aim to become more sustainable by diversifying their sources of income to avoid relying excessively on one source of income.
Reference Agard, K. (2010). Leadership in nonprofit organizations. Thousand Oaks: SAGE Publications. Keith, S. (2014). Bankruptcy 101. Austin, Tex.: State Bar of Texas. Kotloff, L., & Burd, N. (2012). Building Stronger Nonprofits Through Better Financial Management. Public/Private Ventures. Parmenter, D. (2012). Key performance indicators for government and non profit agencies. Hoboken, N.J.: Wiley.