Q1. Why is a budget important for a nonprofit institution?
Even if an institution is a charitable nonprofit, it must still adhere to a budget. Nonprofits must be accountable to donors and shareholders for the ways in which they spend their funds. Additionally, although nonprofits are not run for the purpose of making a profit, this does not mean that they can be spendthrift and sink into insolvency. Like all institutions, they must make do with scarce resources and budget them accordingly. In fact, given that nonprofits often are short of funds if donations and other sources of funds are scarce, budgeting may be even more essential.
Nonprofits also employ workers who expect to be paid. Workers do not all work for charities out of the goodness of their hearts, and professional employees are almost always necessary for a nonprofit to be effective. Nonprofits are not necessarily barred from making a profit in the sense that they may run successful fundraising campaigns. But all of the funds are invested back into the organization to pursue its charitable mission.
Q2. Are there any differences between for-profit and nonprofit’s budgets?
Perhaps the most significant difference between the different entities is that a nonprofit organization is not required to produce a balance statement...
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