ACCA FM Syllabus A. Financial Management Function - Not for Profit objectives - Notes 1 / 2
Their mission permeates the way they do business
Primary goal is NOT shareholder wealth
A not-for-profit organisation’s primary goal is not to increase shareholder value; rather it is to provide some socially desirable need on an ongoing basis.
A not-for-profit generally lacks the financial flexibility of a commercial enterprise because it depends on resource providers who often gain no tangible benefit themselves.
Stewardship of resources given to it is more important
Thus the not-for- profit must demonstrate its stewardship of donated resources — money donated for a specific purpose must be used for that purpose.
That purpose is either specified by the donor or implied in the not-for-profit’s stated mission.
Budgeting and cash management is very Important
Budgeting and cash management are two areas of financial management that are extremely important exercises for not-for-profit organisations.
The organisation must pay close attention to whether it has enough cash reserves to continue to provide services to its clientele.
Cashflow and funding is unpredictable
Cash flow can be extremely challenging to predict, because an organisation relies on revenue from resource providers that do not expect to receive the service provided.
In fact, an increase in demand for a not-for-profit’s services can lead to a management crisis.
Funding is therefore a key objective.
Objectives hard to quantify
The non financial objectives are often more important in not for profit organisations.
However, they are harder to quantify
eg Quality of care
Value for money as an NFP objective
Economy – Buy goods at minimum cost (still paying attention to quality)
Efficiency – Use these goods to maximise output
Effectiveness – Use these goods to achieves objectivesAnother way of looking at these is:
Economy - ‘doing things at a low price’
Efficiency - ‘doing things the right way’
Effectiveness - ‘doing the right things’A final way of looking at these is as input - process - output
Inputs - Economy - get as cheap as possible given quality
Process - Efficiency - perform the process as efficiently as possible
Outputs - Effectiveness - These match the objectives setInput driven - Try to get as much out given limited inputs e.g. library
Output driven - Maintaining standards even when output changes eg Prison service