Nonprofit organizations must be willing to consider financial planning which entails financial management. By and large, when making financial management decisions, nonprofits must evaluate the short-term and long-term goals of the organization. Likewise, all types of financial decisions tend to impact an organization’s revenue.

• Money management is at the heart of all key organizational decisions.
• the goal of financial management is to make efficient financial decisions.
• Financial management provides a great way for nonprofits to plan, organize, and govern all financial activities

What is financial management?

Financial management is the specialized practice of managing money to meet corporate objectives. Primarily, the senior management team handles the planning, directing, monitoring, and regulating aspects of the organizational funds. This can be carried out by the chief financial officers (CFOs) or vice presidents of finance, among others.

Essentially, the goal of financial management is to make efficient financial decisions. Money management is at the heart of all key organizational decisions. As a result, competent financial management spans sectors, industries, and business types, making it one of the most crucial tasks of corporate executives and directors.

Also, senior management must closely monitor and supervise the nonprofit’s finances to ensure the organization continues to thrive.

What are the four major areas of financial management?

In this section, we will consider the four key areas of financial management for nonprofit organizations.

1. Planning

Financial planning helps in efficiently allocating finances to ensure the organization stays afloat. Also, nonprofits that carry out profit-making activities can develop new products or services by ensuring positive cash flow even during difficult times or unforeseen events.

The planning process examines previous expenditures, such as capital spending, travel and entertainment (T&E) expenses, workforce expenses, operational expenses, and indirect expenses.

2. Budgeting

The financial manager is responsible for creating budgets for the organization’s expenses. This may include rent, salary, raw materials, and travel and leisure. However, budgets must be kept in balance so it does not take up all available finances. It is best to make room for issues such as an emergency or an opportunity.

For the most part, budgets can be static or flexible. Flexible budgets come with some discretion and are quite a popular option. Also, larger organizations tend to have a master budget that is supported by other documents that cover areas such as cash flow and activities, among others.

3. Risk management and assessment

Risk management will impact both investment planning and budgeting. Hence, financial managers should identify and implement compensatory controls for risks such as liquidity risk, market risk, credit risk, and operational risk. We will provide a brief explanation of each of these areas.

a. Liquidity risk:

This entails the process of tracking current cash flow, forecasting future cash demands, and strategizing on ways to free up working capital if necessary.

b. Market risk:

One example of a risk that cannot be eradicated is market risk. Hence, nonprofits that have investments (endowments or stocks) will need to regularly monitor market risks to mitigate the danger of financial loss due to market movement.

c. Credit risk:

A line of credit can help address a short-term cash-flow crisis. Likewise, nonprofit organizations are recognizing that a line of credit is a vital tool to have. Credit is significant since it affects the organization’s capacity to borrow at favorable rates.

d. Operational risk:

This comprises risks like cyber-attacks and the measures of prevention or response. Also, it could entail office closures due to harsh weather occurrences or terrorist attacks, among others. To assess these risks, there is a need to develop distinct insurance policies and catastrophe recovery and nonprofit continuity plans.

4. Procedures

Policies and procedures enable the seamless operation of financial management systems and other corporate processes. Also, procedures create stability by providing details on how the finance team securely communicates financial data. This can include invoices, payments, and reports. Likewise, it also entails how these details are communicated to who is accountable for the final approval of those decisions.

Conclusion

To sum up, financial management provides a great way for nonprofits to plan, organize, and govern all financial activities. By and large, the goal is to ensure that the organization’s operations and earnings are all healthy. In addition, financial managers are critical to the decision-making of the organization.

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