The Importance of Planning: How Financial Management Competencies Affect the Performance of Nonprofit Organizations

Abstract

Financial management is vital to the survival of nonprofit organizations and their ability to fulfill their mission. Financial management is composed of a diverse range of tasks which require specific competencies for the success of an organization. This study explores different financial management competencies and their effect on nonprofit financial and organizational performance. Based on survey data from Swiss nonprofit organizations, a set of six distinguishable financial management competencies are derived and applied within a structural equation model. The study finds that self-assessed financial management competencies have significant effects on both the perceived financial and perceived organizational performance of nonprofits. The findings reveal that strategic financial planning competencies have the strongest effect on financial performance, and budgeting competencies have the strongest effect on the organizational performance. The study adds to the understanding of the role of different financial management areas and underlines the importance of administrative capacities for organizational success.