Non profit organizations are institutions that exist for various reasons for instance provision of educational or charity services. The essence of their establishment is usually not profit making but to provide services that are of help to the society.
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The shareholders of these organizations do not benefit from them financially as the funds gained from the organization’s activities are usually retained for its own use for instance to cater for the operational expenses and emergencies. Due to their non-profit making nature, they are mostly exempted from paying taxes.
Just like any other form of business, the non profit organizations face a lot of challenges in the running of their day to day activities and procedures (NSNVO, 2006). This paper discusses the major financial and ethical challenges experienced by these form of organizations.
Major Aspects of Non Profit Organizations Structure
To understand the challenges of the non profit organizations, we have to have an understanding of their general structure. One of the components is governance which is the part responsible for provision of strategic direction and controls which is undertaken by the top management.
Programs is another essential part of the non profit organizations structure which is the means through which resources are organized in order to achieve the organization’s goals. They constitute the inputs, the process undertaken on the inputs, the output obtained and outcome gained.
The final and most important element of the non profit organizations’ structure is the administration. Central administration involves the coordination of the staff and other resources that are important in running the programs.
The cost of central administration in non profit organizations should be kept as low as possible in comparison to the operational cost or the cost incurred in running the programs (Schmidt, 2004).
Challenges of Non Profit Organizations
Helmig, Jegers, and Lapsley, (2004) assert that non profit organizations face a lot of challenges in carrying out their activities and practices. Some of the challenges are major and affect them greatly while others are minor and create less impact on the organizations.
The challenges may either be ethical, managerial or financial depending on their nature.
Some of the common challenges are; funding for their activities, communication of their activities or what they are involved in, staffing, strategic planning or setting of priorities because of uncertainty of their funding, regular changes in funding priorities and also constraints on the utilization of funds, management of donor and grants expectations, establishment of public trust with the organization and outside, technology related issues, and complying with legal requirements.
The most disturbing ones are however about funding, management and communication (Coffman, 2005).
Financial Challenges of Non Profit Organizations
Financial problems in non profit making organization are the biggest challenge as they hinder the progress of almost every process in the organization.
The organizations usually have lots of visions and ideas that ought to be developed but the problem lies in finding adequate funds to facilitate activities that ensure progression and financial sustainability of the organization.
This is because there is stiff competition on the available funds in various states or nation and it becomes hard to secure them and in most cases, only the most aggressive organizations benefit.
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There are several sources of financial assistance that the non profit organizations can rely on for instance grants allocated for specific projects by the government, corporations or foundations, individual donations and also fundraising projects (NSNVO, 2006).
According to Deatherage, (2009), some non profit organizations lack financial support for instance from the government due to lack of recognition as a result of poor branding. Most non profit organizations underrate the importance of branding with the reason that they are not meant for profit making.
A brand name is essential to all organizations irrespective of their nature and the activities they are involved with as it helps hold its clients interest and also that of other institutions that could be of support to them for example the government and other non governmental organizations.
A brand helps sell the experience of an organization and in so doing, it serves the functional and even the social needs of the organization and helps people understand its cause and purpose through the emotional connection that is established.
Just like profit oriented institutions, non profit organizations should build a brand by checking on the personality, messaging and value proposition in the organization.
Lack of expertise or staff who is well versed with fundraising and soliciting for funds from various sources for instances individuals, corporations and foundations also limits the chances of getting funds.
Good programs are also necessary to facilitate fund raising. The programs should meet the important societal needs and demonstrate results that may catch the attention of the contributors.
The sources for funds especially for charitable organizations where most of them are none profit making is usually limited due to competition as a result of an increase in the number of organizations offering similar services.
This has led to many negative changes in the organizations for instance having to lay off most employees as they cannot cater for their basic needs. The donors including the government have also become so strict in allocation of finances and are keen to make sure that any allocated funds are utilized appropriately.
This gives the non profit organizations an extra task of justifying their need for support from individuals, other organizations, corporations and even the government which requires qualified expertise who can persuade the donors.
When the non profit organizations are not competitive enough, they are prone to financial crisis as the most aggressive ones stand the chance of securing the few available funds (Anonymous, 2009).
Change of Environment
The changing of the environment in which the non profit making organizations operate has also led to increased financial crisis in the organizations as the need for provision of services to the community surpass the funds obtained from both the government and other sources.
The reduction of federal funding towards the non profit organizations has also been a negative impact to the organizations.
Other foundations, State governments and even municipal governments have recently been experiencing some financial deficits and hence they find themselves reducing their donations towards social programs for example charitable organizations.
This affects the non profit organizations negatively as they are unable to execute their activities and processes effectively and efficiently.
Accountability Pressures is also another financial issue facing most non profit organizations.
This is because most non profit organizations have not shown high profiles in terms of work done to the community and hence they find themselves facing some accountability pressures as they are expected to prove to the various support groups that their work has positive impacts through the services they provide to the community.
The public and funding bodies are concerned with the details of how effective and efficient the non profit organizations are in carrying out their activities.
Accountability goes hand in hand with attracting and retaining public trust and they both enhance the process of seeking for financial support by the non profit organizations and also accounting for the funds given so as to ensure that they continue to get support even in future.
Failure to provide accountability evidence to the donors and funding institutions limits the chances of the non profit organizations getting financial support.
Most funding institutions including the government are necessitating the formation of inter-organizational interactions for instance partnerships, alliances and collaborations as a basis towards which funding are grounded.
The relationships are expected to enhance the effectiveness of the non profit organizations. The organizations therefore spend a lot of time and resources in trying to form the relationships and in most cases they experience barriers to unite with other organizations for example due to interfering with their culture, lack of trust between the organizations and autonomy levels.
Failure to form the relationships automatically disqualifies the non profit organizations as eligible beneficiaries for donations or funding.
According to Donshik (2008), achieving sustainability is a major challenge faced by most non profit organizations.
It is the desire of any organization to have some level of financial security at any given time but since non profit organizations rely on others as sources of funding, their sustainability is reliant on the economic status of the funding institutions.
When the income levels of the funding organizations are high the non profit organizations tend to benefit much as opposed to when the income levels are low.
It therefore becomes very difficult to achieve sustainability throughout the year making it difficult to keep their services and activities working efficiently. The non profit organizations are left with the option of looking for alternative sources of funding to cater for their needs.
Ethical Challenges of Non Profit Organizations
Ethics entails the rules of conduct that are established in regard to a given group or organization (Dictionary.com Unabridged, n.d)). It involves values that should be followed in human conduct basing them on the rightness or wrongness of a deed and the motive behind a certain behavior.
Most non profit organizations find themselves facing ethical challenges especially while making various decisions regarding their activities and practices. The ethical challenges include; management issues, communication issues, sourcing for funds and mission drift and utilization of funds among others.
Management entails organization and coordination of the practices and activities of an organization in regard to some set policies and in manner that will enhance attainment of the organization’s aims and objectives.
It is a practice that requires commitment and innovation as poor management leads to failure of the organization’s processes and can in the long run cause the fall down of the organization.
It involves processes such as planning, organizing, directing, and controlling the organization’s resources with an aim of achieving its objectives. It is usually difficult to get qualified and good staff to take the sensitive posts of management in non profit organizations.
Most of them use unethical means to carry out their managerial activities putting the organization in problems as it try to fight the unethical and corrupt deals.
The issues include staffing where the recruitment of new staff may not follow the stipulated procedure for instance the qualification and experience leading to poor performance and limiting the organization’s chance of progressing (Schmidt, 2004).
Most non profit organizations find themselves in difficult situations regarding dissemination of information regarding their products and services. Some issues also seem difficult to publicize as they are not common among the public.
Some media also do not find some issues necessary to cover and it may require the organizations to put much effort in making sure that they are well known to the public.
Lack of expertise also limits the process of publicizing. Due to this problem the non profit organizations may find themselves carrying out unethical processes aimed at ensuring that they are well known to the public and also to the funding institutions.
Sourcing For Funds and Mission Drift
As a result of the financial constraints facing the non profit organizations, they are susceptible to drifting their mission and operating in a more business-like manner with the main aim of meeting their financial needs.
They mostly find themselves tailoring their programs in a manner that meet the requirements of the funding organizations. This may make them violate their policies that regard service to the community as opposed to profit making.
Utilization of Funds
The non profit organizations are expected to be just in their utilization of the funds they either receive from the funding organization or from the revenue earned through their activities.
There is however instances of abuse of the funds for instance through use of the money to cater for personal expenses or excessively compensating the executive of the non profit organizations.
Although all organizations should adhere to ethical standards in their activities especially in fund utilization, the non profit organizations should be more careful due to the consequences faced for instance, damage of public perception or view towards them, loss of public trust, and penalties and fines imposed by the government.
Public trust is very essential to the non profit organizations as it is the source of their support from clients and contributors (Theuvsen, 2004).
Under all circumstances non profit organizations should pay a lot of attention to ethical issues so as to maintain the trust of the society towards them and hence hold the interests of the public and the contributors and most importantly protect the name of the entire non profit organizations’ sector.
Use of a good and clear code of ethics also ensures that the non profit organizations adhere strictly to their mission and provide their services as stipulated in their policy and objectives (Anonymous, 2005).
Just like the profit oriented organizations and businesses, the non profit organizations are very essential to the community due to the services they offer and their existence and importance can not be under emphasized. They offer unique services that are not offered in other private and public institutions hence proving to be very helpful to the society.
They are however faced with a lot of challenges due to their nature and the fact that they are not profit oriented. Despite the challenges, there has been increased interest and participation in non profit and voluntary organization world wide as people become more inclined in helping the less fortunate or the needy in the society.
Anonymous (2005). Ethics and Nonprofit Organizations. Web.
Anonymous (2009). 2010: Daunting Challenges Face the Nonprofit World. The chronicle of philanthropy journal. Web.
Coffman, E. S. (2005). Nonprofits’ Three Greatest Challenges. Web.
Deatherage, J. (2009). The Importance of Nonprofit Branding. Philanthropy Journal. Web.
Dictionary.com Unabridged. Ethics. Web.
Donshik, G. S. (2008). Achieving Sustainability: One of the Challenges Facing Non-Profit Organizations. Web.
Helmig, B., Jegers, M. and Lapsley, I. (2004). Challenges in Managing Nonprofit Organizations: A Research Overview. International Journal of Voluntary and Nonprofit Organizations, Vol. 15, No. 2, p. 101-116.
NSNVO (2006). Financial Challenges of Nonprofit and Voluntary Organizations. Imagine Canada. Web.
Schmidt, E. (2004). How Ethical Is Your Nonprofit Organization? Web.
Theuvsen, L. (2004). Doing Better While Doing Good: Motivational Aspects of Pay-for-Performance Effectiveness in Nonprofit Organizations. International Journal of Voluntary and Nonprofit Organizations. Vol. 15, number 2, 117-136.