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Financial management for a nonprofit is as important a function of the top management as in the case of any for-profit business organization. Effective financial management ensures that the nonprofit remains financially sound under all situations, and its operations run smoothly. At the same time, the best utilization of resources and donors’ funds is made when the financial management is effective.

Multiple funding sources
A good financial manager of a nonprofit will have an overriding concern to ensure that the organization receives funds from different sources. It may include both private and public grants, individual donations, and fund generation through various programs and events. Heavy reliance on a single source of funds can be risky in the long run. It can destabilize the organization at any point of time if the single donor is unable to commit funds due to any reason.

Investing surplus funds wisely
To ensure efficient utilization of financial resources, the nonprofit should maintain a minimum cash balance that is required to maintain a normal cash flow. But any amount over and above the cash flow limits should be invested in safe investments that produce a return on the investment as well. This is essential to keep the funds dynamic and offset the impact of inflation on the surplus funds.

Maintaining a healthy balance sheet
The success of financial management is best reflected from the nonprofit’s balance sheet. It must include surplus funds for any contingency expenses, emergency based projects, future debt retirement requirements, and any fixed future expenses such as purchasing new equipment for the office. There must be sufficient working capital to ensure smooth running of the day to day activities. Finally, the balance funds must be invested efficiently in safe and high-return assets.

Effective budgeting for individual programs
A key operational part of financial management is to ensure that each project or program supported by the nonprofit has a sound and viable financial budget. Accurate and detailed budgetary exercise will ensure that the nonprofit does not involve with nonviable or ineffective projects. That will save any unnecessary drain on the valuable financial resources of the non-profit. Secondly, effective budgeting will account for various expenses and overheads associated with a particular program or project. It will ensure that there is no wastage of valuable resources, and overheads are kept under strict check.

It is crucial for the nonprofit managers, directors and the head of the organization to have a good grasp of the basics of financial management. It is the responsibility of the men and women at the top management level to ensure sound financials for the nonprofit organization.