Nonprofit Financial Management

Financial Management in Nonprofit Organizations

David P. Lewis

University of Maryland University College

Executive Summary

Financial management in nonprofit organizations tends to be a misunderstood and under researched topic. In this paper, I discuss the financial management of nonprofit organizations and compare the methods to typical for-profit organizations. Among the areas discussed are the different sources of revenue and use of expenses, the use and evaluation of financial statements, corporate structure and management, challenges of nonprofit organizations, and a comparison of general goals and strategies of both types of organizations. Information was gathered from various journals and accounting literature. I discovered the greatest difference between for-profit and nonprofit organizations seemed to be the sources of funds as well as how those funds are distributed. They also differ in nonprofits are not required to follow the same accounting rules as for-profits, resulting in altered financial statements for nonprofits. I discovered that because of the increased competition between nonprofits, they are continually managing their finances more according to how for-profits manage them. I recommend that nonprofits should continue to trend toward voluntarily managing their finances similar to for-profits in order to maximize their revenues and gain governmental and charitable support.

Introduction

The for-profit sector is a widely known and researched piece of our financial knowledge when it comes to accounting. Widely known companies such as Apple or General Electric have their goals of providing a quality service to consumers, increasing sales, and maybe most of all, generating a profit. All for-profit companies share these goals. However, it is less clear what the goals of a nonprofit organization are. If they do not exist to generate a profit, what is the objective of that company? What happens to the revenue they bring in? How do their employees...