Financial Policies Applied to Nonprofit Organizations

Derry Gadson Elkhart's opinion, a finance policy is a system for allocating finances to accomplish a specified goal or target. Conservative financing, as the name indicates, places a premium on long-term financing while minimizing short-term financing. It is a financing technique that is used to fund both current and long-term assets, with a portion of the money borrowed from short-term sources going toward long-term aims. Several financial policies are shown below:

A sound finance policy should spell out the processes for approving new suppliers and establishing procedures for new consumers. Along with developing standards about money management, financial policies should ensure that the business's funds are sufficient to meet costs. At all times, accounting standards should be followed. Financial policies, like other aspects of any firm, should be examined and modified on a regular basis. If the issue is complicated, financial professionals should be engaged to create an appropriate strategy.

Financial policies should be evaluated on a regular basis to ensure they remain relevant and align with corporate goals. During the yearly budget process, a comprehensive policy assessment should be done by an impartial authority. Additionally, it should include future objectives and requirements. After that, it should be implemented by all stakeholders. A complete policy may be required to ensure that the organization receives the best service available. However, there is no such thing as a one-size-fits-all approach to financial policy. If you are considering developing a financial policy for your nonprofit organization, it is critical to follow the procedures indicated above to ensure that it fulfills all of your requirements.

A non-profit organization's financial policy should be created in such a way that it maintains a healthy balance between revenue and costs. In other words, the financing system should make the NGO more responsible and transparent to its constituents. Additionally, it should include protocols for financial data release and reporting. Additionally, the finance policy should detail the NGO's whole functioning. The data should be correct and up to date. There should be no hidden agendas here, and the financial policies should reflect this.

The Federal Reserve Board's founding papers specified that the Fed's mission would be to boost financial system liquidity. This, however, did not avert the banks' downfall. The RFC's function was to issue senior loans to weak banks. However, these loans were not made to assist banks in avoiding insolvency. Rather of benefiting the institutions that received them, they harmed them. Additionally, these loans increased the risk associated with deposits, creating a new incentive for withdrawal.

Derry Gadson Elkhart pointed out that, while many nonprofit organizations have a finance policy, others do not. Oftentimes, small NGOs ignore the importance of having one. A written financial policy establishes the board of directors' power, functions, and obligations. If the board does not have a policy, it is doubtful that the financial records will be transparent. Even charities with a consistent income flow may periodically face cash flow difficulties and deficits. Having a strong policy in place is critical, since funders and grant makers will search for organizations that are fiscally prudent.

The global economy entered an economic crisis in 2007 when the mortgage market collapsed. The global crisis that ensued had a ripple effect on economies worldwide, affecting private spending, international commerce, and production. Governments responded to the crisis by combining fiscal stimulus with automatic stabilizers. Stabilizers are programmed to intervene automatically when tax revenues fluctuate. By contrast, fiscal stabilizers work in conjunction with the economic cycle.

The Undistributed Profits Tax is one example of a successful fiscal policy implementation. The Roosevelt administration instituted this in 1936 and repealed it in 1938. Due to the levy, businesses increased their debt levels in order to reduce their tax liability. This phenomena has a long-term influence on enterprises' financial health, as Blanchard et al. (1996) and Frank and Goyal (2004) shown by examining the effect of different financial regulations on firms' debt ratios.

According to Derry Gadson Elkhart, the multiplier's magnitude is determined by the government's fiscal space, or capacity to reallocate spending. While some governments reaped the benefits of the stimulus, others were unable to. Creditors anticipated that further expenditure would result in inflation, slowing recovery and pushing out the private sector. Fiscal policy, then, should be focused, timely, and transitory in nature in order to accomplish a goal. The more effective and long-lasting the stimulus measures, the more beneficial they are to the economy.