FINANCIAL MANAGEMENT AND FINANCIAL SUSTAINABILITY

Financial management is essential to the ability of an organization to sustain financial resources in order to continue to provide key services to clients over time, regardless of external financial circumstances. Financial management is the management of financial resources in order to achieve the goals and objectives of a business or an organization. As indicated

TABLE 8.3 Sample of Financial Stakeholders' Roles in Financial Management Systems

Stakeholder

Roles

Board director

Responsible for the overall acquisition and management of funds in an organization.

Chief executive officer

Serves as chief administrator of all operations based on delegation of authority received from the board.

Chief financial officer

Oversees the overall financial management of an organization.

Chief operating officer (COO )

Oversees the daily operations of an organization.

Treasurer

Serves as steward for an organization's financial assets.

earlier, financial management requires adequate financial planning, which includes the forecasting of cash flow (inflows and outflows of cash in monthly or quarterly periods), short-term (revenues, costs, and expenses for 1 year or less) and long-term (revenues, costs, and expenses for a period of 5 or 10 years) financial needs. Forecasting allows an organization to anticipate financial resources that are necessary for the organization to continue to provide services over time. Nonprofit organizations should ensure that they have the best possible forecasting at their disposal. Failure to do so can put an organization at risk of unforeseen dissolution. This would be unfortunate, because the clients would be the people to be most severely affected. Forecasting not only helps anticipate the future financial needs of a nonprofit organization, but also provides the support to generate funding from potential donors. It is better to make a case when you know what the needs are. And donors like donating to an organization that knows what it is doing and that is going to be around for some time.

In addition to forecasting, financial planning involves the development of operating budgets (allocation of funds to costs and expenses), capital budgets (purchase of property, buildings, and equipment), cash budgets (monthly or quarterly cash balance), and a master budget (all the organizational budgets). A budget is a translation of the organization's goals and objectives into financial terms. The execution of a budget should signify that an organization is serious about the words in its vision and mission statements. Being serious about the vision and mission statements also means that the organization has truly set a higher purpose, whose sustainability is critical. That sustainability will depend in large part on key aspects of financial management, such as forecasting and budgeting.

It is not enough to forecast financial needs and develop budgets. The appropriate execution of the budget is as important, probably even the most important function of financial management that can help an organization ensure that adequate financial resources will be available over time to continue to provide services to clients. The budget is implemented through the management of daily business operations, accounts receivable, obtaining of funding and financing, and other financial decisions. Financial control helps monitor and compare actual revenues, costs, and expenses with the projected ones to ensure that the financial planning is being executed properly. Financial control provides opportunities to uncover warning signs and take corrective actions in time. Adequate financial control is not only critical for effective management, but it also makes a statement to donors that an organization is being a good steward of its financial resources. An organization that is accountable to its stakeholders through sound financial management practices is more likely to retain existing donors and attract new ones. The opportunity to attract new funding over time is essential to continue to provide services over time.

 
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