Is it necessary for not-for-profit organizations to worry about the profitability of proposed projects? If so, how do they assess a project’s profitability?
The primary goal of a not-for-profit organization is to provide some service to society, not to maximize shareholder wealth like investor-owned firms. However, not-for-profit organizations require financial management skills similar to those of investor-owned firms.
Not-for-profit organizations must allocate limited funds among numerous projects by considering factors besides the project’s profitability. Non-economic factors, such as the well-being of the community must be taken into account, and these factors often outweigh financial considerations.
Even so, good decision making, designed to ensure the future viability of the not-for-profit organization, requires that the financial impact of each project be recognized. Profitability, or positive net cash flow, is necessary for the organization to avoid bankruptcy or closure. A bankrupt organization cannot meet community needs.
Jerry Stai, NRS, Minot
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