Question

Name and describe the primary financial objectives for nonprofit organizations.

Answer 1

The primary financial objectives of non profit organization are Break even financially , Maintain a targeted level of cash reserves and financial flexibility , Maximize cash flow , Minimize costs, Maximize net revenue , Maximize net donations, Make a small surplus, Avoid financial risk

Meet Operating Costs

One of the first economic objectives of a nonprofit is to raise enough money to meet its operating expenses. These might include staffing needs, rent, utilities, insurance, furniture, computers and the other normal expenses of running a business. Some nonprofits are staffed with employees, while others use an association management company or a contract executive director and vendors. If most of the nonprofit’s income goes to paying salaries of key executives, the IRS might revoke the organization’s tax-exempt status.

Fundraising

A key economic goal of charities is to raise funds for fulfilling their charitable purposes. The process of fundraising goes beyond holding events or sending out mailings. A complete development effort includes creating a database of regular donors, applying for grants, seeking individual and corporate donations and holding events such as balls, auctions, raffles and sporting events. The cost of fundraising efforts can outweigh the total money spent on an organization’s charitable purpose at new or smaller organizations.

Related and Unrelated Business Income

Some nonprofits, especially trade associations that are not nonprofits, seek to raise money by charging for dues, selling newsletter advertising, sponsorships, educational materials, logoed items, holding events, seminars or a conference or holding a trade show. If the sales don’t relate directly to the organization’s purpose, this is known as unrelated business income and is taxable. Unrelated business income is often a major financial objective of organizations with low dues and contributions. Dues are considered related business income. Advertising revenue that covers the cost of an educational publication is related business income, while profits from ads might be considered unrelated and taxable income.

Endowment

Not all of the money a charity raises goes toward administration or service. Many nonprofits have an economic objective of creating an endowment, which is a financial account that generates enough interest each year to fund charitable activities. Some nonprofits set an objective of a dollar amount for their endowment, such as creating a $1 million endowment. Once the fund is fully endowed, the organization sets an annual spending objective for the interest earned.

Compliance

The IRS sets target qualified distribution, or charitable spending, levels for some tax-exempt organizations, and these organizations set objectives to meet their requirements. Fo