Financial Planning for Your Non-Profit

Introduction

“Double Bottom Line”

Mission Bottom Line

Progress of Mission Meeting needs of communities

served

Financial Bottom Line

Meeting budget targets Secure funding Effective Operational Infrastructure

Why plan?

Long term financial planning gives you a guide for your organization’s fiscal health.

If an organization is fiscally healthy, it can better meet its programmatic goals.

Fiscal Health

Strategic Business Plan Budget Integration

End of Introduction

Module 1:

Long Term Strategic & Financial Planning

Module Objectives

Importance & Objectives of a long term financial plan

Common Components of a Business Plan

Methodologies & Strategies for creation of long term business plans

What is a Business Plan?

Business Plan

Road Map to your organization’s future

Financial data integrated with programmatic data

Upfront thinking Growth Goals

Why create a business plan?

Importance of a Business Plan

Reduce risk in decision making Aid in fundraising efforts Aid in allocation of resources Gives your organization a clear

financial direction Sets revenue goals

Components of your Business Plan Goals, Results & Challenges Market Conditions Revenue & Expense Projections

Goals, Results & Challenges

Where does your organization want to be in 3-5 years?

What are the expected accomplishments?

What are the hurdles to accomplishing these goals & results?

Market Conditions

Who are you serving? What portion of the general market

are you trying to reach? Who is doing similar work in your

area? Why are you different and/or better?

Revenue Projections

What are your funding sources? Identification of new sources of

revenue What resources will you need to

complete your goals?

Expense Projections

What are your staffing & infrastructure needs?

What will new programs and objectives cost?

Will there be expansion and what is its impact?

Practical Steps

Decide time frame covered (3-5 years) Identify stakeholders Identify person responsible for

creation of the document Create a timeline for completion and

STICK TO IT

Forecasting Methodologies

Qualitative Quantitative

Qualitative Forecasting

“Gut Instinct” based on knowledge of market

Opinions Forecasting is an art Challenges?

Quantitative Methodology

Uses historical data to project Identifies previous trends Uses statistical models Challenges?

Mixture of the two methodologies Use qualitative methods to adjust

quantitative models You know your market but gut

instinct will not get you there alone Use qualitative methods to support

and verify your expertise in your field

More Practical Steps

Get input from program staff Do not let “group thinking” influence

the outcomes Present to Board of Directors for

approval

End of Module 1

Module 2: Budgeting

Module Objectives

Importance of Annual Budgeting Potential Structure(s) of Annual

Budgets Methodologies for creating an Annual

Budget

What is an Annual Budget?

Tool – A means to an end

Budget - Purpose

Annual plan to allocate resources in order to meet program objectives

Sets balance between revenue and expense

Conforms to long term plans Primarily an internal document

Budget types

Capital Budget Operating Budget Program Budgets

Budget Structure

Should conform to existing systems and objectives

Reflect organizational structure Reflect funder sources

Main Elements

Chart of Accounts Cost Centers/Program Areas Revenue & Cost

Chart of Accounts

Natural expense structure Reflects Accounting system structure

Examples include salaries, fringe benefits, rent, office supplies, professional services

Cost Centers/Program Areas

Budget should be divided according to organizational structure and activities

Program activities divided in a way that makes sense for your organization

Examples: General & Administrative, Fundraising, Education Program, Community Outreach, etc.

Revenue & Cost

Budget should reflect areas of revenue & costs associated with each program activity (if relevant)

Sub-Divisions

Departmental Budgets Grant Budgets Program Budgets

Creating your budget

Create a timeline for completion of the budget

Choose a structural template Identify staff roles & responsibilities

Staff Roles Identify one staff member to coordinate the budget

process (finance staff if available) Creation is a group effort – Include Program staff

in process Make program directors responsible for specific

budget areas Organization Head (Executive Director) makes

final staff decisions Submit to Board of Directors for final approval

Goals & Objectives

Clearly identify the year’s major goals, objectives and activities

Identify continuing activities Any new activities? Any activities eliminated?

Identify Major Assumptions

What overarching assumptions impact the whole organization of multiple components/departments?

Creation Methodologies

Line Item Budgeting Program Budgeting Zero Based Budgeting Grant Budgeting

Line Item Budgeting

Uses previous year’s data with changes based on percentage changes for each expense

Program Budgeting

Focuses on Program expenses and income results

Zero Based Budgeting

All activities are returned to zero each year and justifications given for each item each year

Grant Budgeting

Budgets created for funders with restrictions on ways funds can be spent

Annual Operating Budget

Usually consists of a mixture of these four methods

Additional Thoughts Delegation of budget authority to staff

increases ownership of program and financial activities

Make the internal budget as detailed as possible – write down ALL assumptions

Presentation to Board of Directors need not include every detail

Have budget approved 1-2 months before beginning of fiscal year

End of Module 2

Module 3

Integration of Financial Planning

Module Objectives

Integration of Financial Plans into Accounting & Financial Systems

Methodologies of supporting & fostering budget accountability & reporting

Typical roles of management & financial staff in financial planning

Financial Systems Integration

Accounting System Financial Processes

Accounting System/Software

Choose an Accounting System that can integrate all data points needed to track your budget

Enter all budgets into the system – This will facilitate reporting.

Cross check accounting systems with other sources (member/fundraising databases)

Financial Systems Structure

Clearly define roles of staff Code all revenues & expenses in a

consistent format with your budget Require consistent coding methods

Roles of Staff

Executive Management Finance Management Program Staff Board of Directors (Finance

Committee)

Executive Management Responsible for overall fiscal health and delivery of mission Often has check signing authority (final control of systems) Assigns financial responsibility where appropriate Makes final changes/decisions to submitted staff budgets Takes action where/when appropriate Reports to Board of Directors Understanding & Awareness of Finance is essential

Board of Directors (Finance Committee/Treasurer) Responsible for big picture fiscal

health Approves budget Reviews oversight reports including

Budget to Actual reports Authorizes amendments to budgets

Program Management Staff

Codes/Authorizes payment of invoices

Responsible for oversight in assigned budget categories/cost centers

Reviews periodic budget reporting and acts accordingly

Finance Staff Enforces & implements all financial internal

controls Directs program & executive management staff in

approved fiscal management procedures Produces reports for staff and board of directors Oversees operation of accounting system

including proper coding of costs & revenues Coordinates Financial and Annual Budget

planning processes

Reporting – Why?

Forecasting Analysis for changing course Accountability

Reporting Structures

Budget to Actual Reports Dashboard Reports A-133 & Independent Audits IRS 990

Budget to Actual Reports

Tracks revenues & expenses and correlates the data to budget numbers

Provides a detailed picture of organizational and program health

Provided to all staff with budget responsibility

Dashboard Reports

“At a Glance” internal reports Includes key metrics in fiscal health

of the organization to assess current fiscal health

A-133 & Independent Audits

Assesses fiscal position of the organization

Includes “Schedule of Functional Expenses”

IRS 990

Divides expenses into 3 categories:

1. General & Administrative

2. Fundraising

3. Program Activities

What to do with these reports?

Meet periodically as a group to review reports

Use reports as a guide to change organizational goals/behaviors

Additional Thoughts

Make sure your staff has a clear understanding of the financial systems and goals

Use reporting to adjust behavior – Sometimes more oversight is necessary

End of Module 3