How to Create and Follow Your Nonprofit Financial Plan

nonprofit accounting nonprofits Feb 13, 2023
Nonprofit financial plan

In order for your organization to be successful, it is imperative that you have a strong nonprofit financial plan in place. 

A financial plan serves as your nonprofit’s guide to making the best decisions possible with the information available to you. 

In this article, we will be taking a look at what a nonprofit financial plan is and how your plan can help you meet your nonprofit’s goals. 

What is a Nonprofit Financial Plan?

A nonprofit financial plan is an analysis of your sources of revenue, expenses, and projected cash flow requirements. 

Having knowledge of these three components allows you to plan with real-world data in mind. Knowing your nonprofit’s cash flow requirements is an incredibly strong decision-making tool and should be consulted frequently.

Benefits of a Nonprofit Financial Plan

  • Financial Stability - your financial plan outlines the steps you need to take in order to monitor and manage your organization’s financial position. This is true for both short and long-term financial planning.
  • Improved Decision-Making - consulting your financial plan frequently allows you to identify potential risks and opportunities and enables your organization to make the best decisions possible for long-term financial success.
  • Increased Transparency - using the information you’ve gained from your financial plan, you will be able to respond to donors and stakeholders with more clarity. By providing the financial plan to those involved, they will be able to see that the organization is working toward the best interests of the nonprofit. 

Creating a Nonprofit Financial Plan

Identify Your Organization’s Goals and Objectives

At the core of your nonprofit, you have your mission statement and the goals that you want your nonprofit to achieve. As you set out to create your financial plan, your goals and objectives should be kept in mind from the very beginning. Having these ideals in place early allows you to build them into your plan from a foundational level and ensures that they are most likely to be adhered to and be successful in the long term.

Determine Your Sources of Revenue

When creating your financial plan, take a close look at all funding sources of revenue that your nonprofit employs. Common examples of revenue producers for nonprofits include:

  • Fundraising
  • Grants
  • Recurring Donations

If your organization makes use of any other revenue sources, those should be included in this section as well.

List Out Your Operating Expenses

After compiling a list of your revenue streams, your next goal is to create a list of all expenses. Some examples are:

  • Rent
  • Program Costs
  • Employee salaries 

Make sure you take the time to include all expenses in this section as it will be important when evaluating further sections of your plan.

Set Your Budget for Both Revenue and Expenses 

In order to set your nonprofit budget for expenses and revenue, you will need to use past data to inform your strategic planning. 

When planning for this, it is important not to overestimate fundraising or underestimate expenses. You need to do your best to evaluate a realistic number for revenue and expenses in order to have the most financial success.

Following a Nonprofit Financial Plan

Track Revenue and Expenses 

Ideally, you should have a system in place to track your nonprofit’s revenue and expenses. 

Being organized is vital for any organization and this is especially true for nonprofits. As you gather more and more data points, you should also look back to see if your numbers match up with what you planned for. 

Make Adjustments Throughout the Year

As you are comparing your actual results to your expected results, you should be aiming to make adjustments as soon as discrepancies are noticed. Stick to your plan, but if your plan becomes an issue, you should have the foresight to make adjustments to the plan itself as well. 

By staying on top of your financial plan and your cash flow requirements, you can ensure your nonprofit continues to be financially healthy.

Monitor Cash Flow

Cash flow is very important for your organization. Oftentimes, a good cash flow indicates a healthy organization. If you notice your cash flow beginning to trend in the wrong direction, this is another key indicator that there may be some changes that need to be made. 

Once again, making the correct changes early can be a game-changer for your organization and ensure that you stay on the right path.

Have Questions About Creating and Following a Nonprofit Financial Plan?

Creating and following a financial plan is of the utmost importance to any business. 

However, this is especially true for nonprofit organizations that rely on unconventional means to stay afloat at times. Having a solid financial plan in place will allow your nonprofit to stay informed on matters such as revenue, expenses, and cash flow requirements. 

If your nonprofit needs help creating a financial plan or would like help analyzing cash flow requirements, consider Morris Verdonk Accounting for your financial needs. 

With years of experience working closely with nonprofits, we will be with you every step of the way toward realizing your organization’s mission. Contact us today to see how we can best help you.

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