Not for Profit objectives

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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 objectives

  • Another 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 set

    Input driven - Try to get as much out given limited inputs e.g. library

    Output driven - Maintaining standards even when output changes eg Prison service

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