WVDO Development Series Backward Budgeting...WVDO Development Series Backward Budgeting: Exploring...

WVDO Development Series

Backward Budgeting: Exploring Best Practices and Real

World SolutionsINSTRUCTOR: AMANDA A. GREEN, MPA

CONTACT: [email protected]

Non-Profit is a tax status not a

business modelAND OTHER FOUNDATIONAL PRINCIPLES

The Iron Triangle

From Nonprofit Finance Fund paper “Linking Mission and Money”

The Iron Triangle

Mission What you do and why you do it

Capacity Your ability to do what you do

Capital Structure (aka Money) What you have and how its distributed The distribution, nature and magnitude of an organization’s assets, liabilities and

net assets. Every organization has a capital structure. Structures vary in size and complexity

and there is no such thing as a correct kind of capital structure.

The Enterprise Platform

The Enterprise Platform is the combination of capital and capacity by which the mission is achieved.

From Nonprofit Finance Fund’s “10 Finance Essentials for Social Sector Leaders”

The Enterprise Platform & Your Strategic Plan

The Enterprise Platform (or business model) is articulated in several areas: Organizational Staffing Structure Funding Mix (where your revenue comes from) Daily Operations Annual Budget

DATA COLLECTION & MANAGEMENT!

Changes to these elements will affect your organization’s programs. These changes, or the way that your organization will handle these

changes should be laid out in your organization’s strategic plan. The plan should focus on how you meet the mission and not the mission itself.

“In this world nothing can be said to be certain, except death and taxes.” In budgeting its communication and data

The Annual Budget Process

“BACKWARD BUDGETING”BUDGETING & STRATEGIC PLANNINGTHE BUDGET CALENDARTHE BUDGET PROCESSBUDGET ROLES

Why “Backward” Budgeting?

Financing not Fundraising (SocialVelocity.net)

Many nonprofits budget by start budgeting with a deficit then ask the fundraising team to fill in the gaps with stretch goals that are often unattainable.

Backward budgeting reverses this narrative by: Basing revenue projections on what the organization can raise, not on what is needed to

fund programs or cover a deficit

Using data to measure return on investment in both program efficacy AND fundraising strategies

Basing the overall budget on the organizations strategic plan rather than on what is needed to fund programs

Not engaging in “zero” budgeting. Nonprofit does not equal no surplus. budget for surplus when possible, you’ll need it for cash shortages, or capital investment, or applications for credit.

What is a Budget?

The budget is an organization’s road map. It is more than monetary goals, it represents the organizations strategic plan in action A sound budget has line items that relate directly to an organization’s strategic

plan.

Most organizations create annual budgets, some organizations create three or even five year budgets. Some organizations make quarterly and monthly budgets.

Budgeting is a management and planning tool as much as it is a financial tool. The budgeting process helps an organization make important decisions.

Budgeting is a collaborative process that usually involves the Executive Director, the Finance Director, the Development Director and key Program Management staff.

Budgeting & the Strategic Plan

An organization’s strategic plan lays out the direction and goals and guidelines for actions to achieve those goals.

The budget should tie directly to an organization’s strategic plan and looks at the money needed to support achieving the goals of the plan. For example: If an organization had planned to launch a new program and hire

new staff, the budget should show the details of how that new program and staff hiring will be executed.

In most organizations I have worked with, Strategic Plans span 3-5 years. The annual budget process is a PERFECT and CONVENIENT way to make sure you are adhering to the Strategic Plan and adhering to goals and timelines.

Who is Involved in Budgeting?

Everyone! No, really! Executive Director (CEO), Board of Directors, Senior Staff

All of the development staff – not just the Development Director

The Finance Director (CFO) (or finance staff for larger organizations)

Program Staff

While roles differ in the mechanics of crafting the budget, all staff should see and understand the final budget of the organization, especially the revenue streams of the organization and the expenses associated with their areas.

Also, your donors! There is a whole sphere donor centered fundraising research that advises you come clean on costs with your donors. If they want to know how much it costs your organization to earn a $, you should tell them.

Who is Involved in Budgeting?

In terms of roles, or who does what, different organizations do it differently. It could be your Executive Director that spear heads the budget, or it could be your Finance Director. In some cases it’s the Development Team that organizes the budget process.

Most organizations have a committee that shares the burden – this is a good idea as it is a long and arduous process.

Your Board of Directors always approves the final budget so it is imperative that they have a sound understanding of your organization’s plan and finances.

Similarly your staff executes the budget, so everyone on your team needs to see and understand the budget and your priorities for the year.


Example Budget Calendar (assuming a calendar fiscal year) September 30 – Budgeting Starts

September 30th marks the end of the 3rd quarter in an organization’s Financial Year and also marks the start of planning the budget for the next year.

October 15 – End of Year Forecast DueAn End of Year Forecast is prepared and used as a baseline for the

next year’s budget The Finance Director prepares the Forecast and submits it to the

Executive Director (and other pertinent staff) for Review


Example Budget Calendar November 1 – Budget Draft Due

The Accountant works with the Executive Director and department heads to gather all pertinent financial information prepare a first draft of the budget. The budget will have several drafts and iterations at this point as all details are worked out.

November 15 – Budget Due to Board for approval at November Meetingan organization's Board meets to review and approve the organization's

Budget.


Example Budget Calendar December 1 – Budget Finalized

By December 1, the Board will have approved a final version of the budget which is then circulated to pertinent staff and recorded in the accounting system for the year’s financial reporting.

January 1 – The Budget year Begins! January 1 marks the start of the new fiscal year and the financial reports will reflect the new

budget. Monthly financial reports are created and shared with key staff to monitor budget vs. actual

May 30 – End of 2nd Quarter – Time to Review and Revise the Budget At the end of the second quarter, the organization has an opportunity to revise the annual

budget if it is varying significantly from the year to date actuals. A good rule of thumb is that if there is more than a 10% difference overall of the budget it should be revised.


Example Budget Calendar June 15 – Revised Budget Finalized and Adopted

The Finance Director and Executive Director will prepare a budget revision for the Board to review and adopt at the June Board meeting.

September 30 – The Budget year Begins! (again!)

Budget Process Birds Eye View

Step 1: Evaluate Evaluating the current year (and past years). Review current year income and

expense compared to budget. Forecast to the year end. Analyze and understand any variances.

Note, this is an ongoing process. Really, it’s a monthly process, When you receive your organization’s monthly financial reports you have the opportunity to see what is going great and what needs improvement.

Hot tip! I like to keep a folder on my desktop where I record budget ideas throughout the year as I evaluate programs and processes so that I can draw on these thoughts when it comes time to create the budget


Step 2: Gather Information Determine roles in the budget process. Who’s doing what?

Review strategic plan to clarify annual goals

Determine costs to reach all program and organizational and strategic goals

Meet with your key staff! What are their needs? Develop an understanding of their programs. The Finance Director often asks them to submit department budgets.

Step 3: Draft and Cut The budget usually goes through several drafts. First budget iterations often times

have a large deficit. During this time priorities are weighed and the development department is asked to cover gaps.

The budget is built from the bottom up.


Step 4: Prepare and Annotate Preparing the final budget is more than just numbers. Every number needs to be

tied to your story and your plan.

An annotation should be prepared along side the budget. This is a narrative, or dashboard, that walks the budget reader through the numbers and provides a glimpse into how they were derived.

Step 5: Approval and Adoption Selling your Budget to the Board of Directors by tying income and expense line

items to the strategic plan. Your BOD will LOVE this.

The Fundraiser’s Role in Budget Making

The Budgeting Team Larger organizations often times put together a budget committee or team to

take on the task. Teams usually include: Executive Director

Finance Director (CFO)

Development Director

Program Director

Note – for larger organizations these functions are usually represented by multiple staff so the team would be larger.


Revenue Projections Funding Mix Gift Charts, Prospect Lists Evaluating Current Programs – ROI on Investment

Development Department Expenses Staffing & Benefits Materials / Supplies / Software Donor Retention Travel Events Conferences / Training


Meetings, Meetings, Meetings…Decisions, Decisions, Decisions A large part of the budget process is weighing priorities and making

organizational decisions. A good tool for decision making can be very helpful

RAPID Decision Making Tool (easily found on the internet)

Be patient and make a good case for your budget items A well researched proposal goes over well with everyone

Get people involved! Work with your Finance Director on your numbers. Get quotes from your vendors.


Preparing the Development Budget In addition to the overall budget, a fundraising budget should be

prepared separately.

By having a separate fundraising budget, you can track the ROI (Return on Investment) of the fundraising program

This also allows the Development Team to become better at predicting revenue and understanding the real costs of fundraising.

Budgeting for Fundraising Expenses

Getting Started on your Budget

Getting Started Gather Materials

Current year financial reports and End of Year Forecast

Last few years actual expenses

Strategic Plan

Meet with your CFO / Finance Director Review current year actual and End of Year Forecast with Finance director to see where you are

over/short

Meet with your ED Go over the strategic plan and goals for next year with your ED so you can be sure to budget for all

the appropriate expenses

If you have staff on your team involve them in budgeting so that they are fully aware of the development team’s plan for the year

Building a Fundraising Expense Budget

List all unavoidable costs. Estimate them as accurately as possible based on research, historical and comparable information. Salaries & Benefits Contract/ Professional Services

Event planner

Artists / Designers (for campaign materials)

Postage Letterhead / Mailing Supplies Donor database software Subscriptions Memberships / Subscriptions (WVDO, AFP, Chronicle of Philanthropy, etc)

Always pad the expense budget with contingency funds


Is your Staffing to Projects Ratio Realistic? You must be sure that you have sufficient staff to carry out your plan. A good

rule of thumb is a 3:1 ratio – i.e. you should be spending approximately 75% of your budget on staff. If you go much higher than that you might have an inefficient staff. If your ratio is much lower it could result in overworked staff.

This is just a guiding principle. Your staff could have a lot of things in place already and might be able to work at higher efficiency, so this ratio should always be taken into context.


Justifying your Expenses / Making the Case for your budget Preparing the final budget is more than just numbers. Every number needs to be

tied to your story and your plan. You will be asked to justify your budget request and to defend the figures that

you are proposing during a process of scrutiny from your organizations Executive Director and CFO, and eventually (after the budget is finalized) to your Board of Directors.

It is essential that you understand and can explain how you have reached your numbers and that you can justify your requests for your expense line items. The links between your budget request and your strategy should be evident, and the potential ROI (short- and long-term) clearly explained. This can be shown in your cost per $ raised calculation which we will cover shortly


Justifying your Expenses / Making the Case for your budget An annotation should be prepared along side the budget. This is a narrative, or

dashboard, that walks the budget reader through the numbers and provides a glimpse into how they were derived: Use a separate document to provide a narrative that the reader can read along side

the number

Use comments in the cell boxes in your excel spreadsheet to talk about the number

Use a separate “notes” column on your budget spreadsheet

Have separate tabs on your in your budget workbook with “schedules” that break down expenses into individual items


Justifying your Expenses / Making the Case for your budget After you submit your budget to the Executive Director and CFO, you might

have some changes to your expenses, so be sure to anticipate that. For example raises are often times not factored in until later in the budgeting process

so your salaries and benefits line items can change.

If you are in a new role in your organization, be aware of the historical context of your proposal. Have previous development staff been able to meet their goals?

Having a good working relationship with your CFO is essential for this process. Ask them for input, direction and numbers!

Building a Fundraising Revenue Budget

PROJECTIONS FOR CONTRIBUTIONSGIFT CHARTS & PROSPECT LISTSGRANT PROJECTIONSCOST PER $ RAISED

Preparing Revenue Projections

Know what revenue line items you are responsible for Every organization is different. Some organizations have earned income that a

program manager will budget for. Some organizations have large development teams that have different folks in charge of different revenue line items

Start with your End of Year Forecast What did you raise last year? This is a great indicator of what you will raise this

year

Do you have any new programs or initiatives? Be sure to account for those!

Preparing Revenue Projections

What are your fundraising trends over the past 3-5 years. Draw a trend line and project for the future.

What are your donor retention and attrition rates? Adjust income accordingly.

Evaluate donor satisfaction, do you expect significant gift increases?

Check in with foundations, major donors and large corporate donors to evaluate the likelihood of renewed giving

Are you planning to host any events or special campaigns in the budget year?

Preparing Revenue Projections: Contributed Income & Gift Charts

Using Gift Charts to calculate contributed income Individual donations, monthly sustainer donations, major donors, corporate

donors

A gift chart is a planning tool to tell you how many gifts and prospects you will need to raise a specific amount of money.

Get the data for your gift chart from your database (SalesForce, Raiser’s Edge, etc). You might be able to get this from your CFO. Please note, not all CFOs will have this information. Some accounting systems do

not track individual transactions, some do. You should be able to pull information about how many gifts you received in a

given year and the amount of each gift


6 Guidelines to creating a gift chart (from TheBalance.com)1. The lead gift should be at least 15% and maybe up to 25% or more of the goal.

2. Build the chart downwards by cutting the gift size in half and doubling or tripling the number of donors at each level.

3. Round the donation levels up or down to avoid weird numbers.

4. Roughly 80% of your goal will come from 20% of your donors.

5. For each gift, you need three or four qualified prospects (not everyone will say yes to the amount you are seeking). “Qualified” means that you have some reason to believe the person would consider a gift at that level.

6. As you go down the list, you need fewer prospects because people who said no at higher levels may give smaller gifts.


Start with what you know. Who are your regular donors that give every year? You can count on them! ALL NUMBERS MUST BE ROOTED IN REALITY.

Not all organizations have 80% of their income come 20% of their donors. Many organizations rely heavily on lots of small gifts. Remember these are guidelines and that every organization is different.

Also, if you have guaranteed gifts you don’t have to have multiple prospects, the number of prospects is a guideline.

Remember to account for growth or loss. If you are running a special campaign (like a capital campaign) during the budget year, it could cannibalize your regular donations for the year, so you would want to budget for less.


If you have donors that give at a specific amount every year, you can be specific about that amount on the gift chart. I.E. Make the levels work for you.

Use a different chart for each line item. Monthly Donors

Major Donors

Individual Donations

Corporate Donors

Preparing Revenue Projections: Gift Charts next step – Prospect Lists

After creating your gift chart, the next step is adding in SPECIFIC donor’s (prospects) names.

List the name, $ amount of gift, the probability of the gift, description of the relationship, and when you expect the gift to come in.

The information for your past and current donors, donation amounts and time of donation will be in your donor database.

Your prospective donors would come from prospect research ( a system of research that uses different types of data to evaluate the likelihood of and amount of an individual’s donation.

Preparing Revenue Projections: Grants

Budgeting for grant income is tricky. A seasoned CFO or Board is not likely to pass a budget that includes income from a grant that has not been won before.

A start up organization should never budget for grant income. Winning a grant from a foundation can take years of relationship building. Foundations (or the government) is not likely to invest in an organization that does not have a proven track record.

When budgeting for the grants line item a percentage of the total income in grants you are applying for is a good practice. Here’s one method for doing that:


Create a schedule of proposals. Include on the schedule: Name of Grant Amount applying for Likelihood of receiving grant (a percentage based on history with funder and

past gifts) Grant due date

Date you would receive funding if grant is won Notes on Restriction if any

Multiply amount of grant times the likelihood of receiving grant and sum across all grants to get amount to budget for.


Even if you use this method it is not a guarantee of that you will not over budget in grants.

Communication with program managers around grant income is essential because program staff will be budgeting for expenses associated with grants. this is why including dates in the grant schedule is important – the CFO can see

the dates and make sure they are in line with Program Staff’s implementation plan.

Be careful not to chase grants that do not naturally fit within your existing programs. Creating programs to make your organization more attractive to a potential funder is a slipper slope and can cause mission drift, ineffective program implementation and an unstable organization.

Putting it all together

After you have created your revenue and expense projections, put them together in a traditional budget format to create your development department budget.

You can use this budget to see your net projected revenue for the year as well as your projected cost per $ raised

Net Revenue = Gross Revenue – Fundraising Costs (Direct and Indirect)

Cost to Raise $1.00 = Costs (Direct and Indirect) / Net Revenue

Managing your Budget

CASH VS. BUDGETRECORD KEEPING, TRACKING AND REPORTING

Cash Management vs. Budget Management

Budgeting is done on an accrual basis – this means meeting budget goals does not always meet cash needs.

Cash Management! Not all organizations have extensive cash stores or reserves for business operations.

Organizations can be cash strapped. As a fundraiser, you need to know and understand the cash needs of your organization.

You cannot count income contracted last year as income toward your current goals this year, even if you receive the cash this year. (This can be a constant struggle between accounting and development)

Many organizations in today’s climate need a separate cash management system by generating a separate Cash Budget and periodic Cash Flow Statements.

Managing your Budget

Effective budget management is achieved through maintaining accurate records, reviewing the budget via your organization’s financial reports on a monthly basis, having systems in place to ensure expenses are authorized and integrating your budget management into the strategic and operational plans of the development office.

Use your CFO’s monthly financial reports BUT also keep your own records! Create a system for yourself that you understand and can easily use.

Work with your CFO to track cash flow in addition to your accrual based financial reports

Managing your Budget: Record Keeping

Work with your CFO to establish tracking and record keeping systems Who does gift processing?

Who enters gift information into the database?

Who issues gift receipts?

What is your system for communicating Pledged income and grant awards and when subsequent payments are made? Pledge Forms! Use them! Your auditors want you to.

Managing your Budget: Record Keeping for Grants

Create separate spreadsheets for each grant you win and track all income and expenses associated with the grant

Share this tracking sheet with your program staff and CFO to ensure that everyone has all pertinent grant information and the grant is properly stewarded.

You can draw upon this information when you do your grant reporting

Managing your Budget: Reviewing Reports

Remember to review your reports on a monthly basis. Profit & Loss by Class

Budget vs. Actual

Your personal reports – where are you on your gift chart and prospect lists?

Pay attention to large fluctuations in your revenue projections (either positively or negatively) and act accordingly. Revise your budget if necessary

Cut expenses (or increase program expenses if you are raising more than you projected)

Reviewing What we Learned

Tying the budget to the strategic plan and budgeting as a planning tool

Building a fundraising expense budget Preparing revenue projections Creating gift tables and prospect lists Cost per dollar raised calculations Budgeting for Grant Proposals Managing your Budget

Homework

Funding Mix Exercise Know your Financial Strengths and Weaknesses Exercise Recommended Reading:

10 Finance Essentials for Social Sector Leaders – Nonprofit Finance Fund (included in resource packet)

Financing Not Fundraising Series (http://www.socialvelocity.net/financing-not-fundraising-a-social-velocity-blog-series/)

Backward Budgeting: Exploring Best Practices and Real World Solutions

Thursday January 19, 2017

3:30 – 5:00pm

Concordia Community Room at The Kennedy School

5736 NE 33rd Ave.

Portland, Oregon 97211

Presenter: Amanda Green, MPA

amanda@b‐word.org

RESOURCE PACKET

Contents

10 Finance Essentials for Social Sector Leaders – Nonprofit Finance Fund

Homework / Activity: Knowing your Financial Strengths and Weaknesses – Nonprofit

Homework / ActivityFinance Fund Evaluating your Funding Mix – Center for Nonprofit

Stewardship

Example Development Budget with Cost per $ Raised Calculation

Example Gift Chart for Individual Donors and Board Donors

Example Gift Chart for Monthly Donors

Example Grant Schedule

Backward Budgeting Resource Packet 1

p. 2

p. 3

p. 5

p. 9

p. 10

p. 11

p. 12

Visit us at nonprofitfinancefund.org Nonprofit Finance Fund (NFF) works to create a strong, well-capitalized and durable nonprofit sector that connects money to mission effectively, supporting the highest aspirations and most generous impulses of people and communities.©2009 Nonprofit Finance Fund

... keep mission, capacity and finance in balance. These three elements are interdependent and exist in dynamic tension. If one changes, the others change, too. This happens in all organizations, whether seen or unseen, planned or unplanned.

... never ignore the dynamics of the “enterprise platform.” The combination of capacity and capital comprises the “enterprise platform,” by which mission is delivered. It exists in every organization. It is related to, yet separate from, program and mission. Money does not flow directly to program; it is turned into program execution via the enterprise platform. If the platform is weak, program execution will be undermined. Nonprofits with similar missions and programs can have very different enterprise platforms.

... are proud of nonprofit tax status. It exists for a reason, and it’s a commercial reason. We enter the market when the for-profit and governmental sectors can’t, won’t or shouldn’t, generally due to a gap or failure in the market economy. This commercial flaw is why nonprofits (501(c)3s) are provided two powerful tools to reliably subsidize operations: tax exemption and access to tax-advantaged charitable contributions.

... insist on having clear, reliable, routine, management-friendly financial information. Effective leaders share it with their board, funders, internal and external stakeholders and use it as a tool to effectively communicate their organization’s financial story.

... can tell their program story in financial terms, and their financial story in program terms. They, and others in senior roles and board positions, can fluidly connect money and mission based on the needs and perspectives of who they’re talking to, and what they’re talking about.

... predict how their organization will end the year financially, on January 1.They also know what the levers are that will make their prediction more or less likely. They will continue to update predictions with “actuals” and new projections to year-end and beyond as the year proceeds. They share these routine numbers with the board, and make course corrections accordingly.

Effective Nonprofit Leaders....

10 Finance Essentials for Social Sector Leaders

Mission

Capacity Capital

Enterprise Platform

... understand that they manage in a looking-glass world, commercially speaking. Many of the standard rules and conventions that for-profit managers rely on are reversed, or at best unreliable, in the nonprofit environment: growth almost always increases the need for fundraising and decreases “self sufficiency”; cash is not always fungible, “surpluses” are often prohibited; expenditures on overhead are seen as wasteful…and more. Leaders from the for-profit world must understand these (and other) management realities to make better decisions.

... understand that they run at least two businesses. There’s the core business, related to delivering on mission (healing, teaching, sheltering, etc.), and then there’s the “mission support business” (usually fundraising) that makes up for the market flaw.

... understand that growth is especially demanding in the nonprofit world, for commercial reasons. Growth is more capital intensive, takes longer, and is riskier from a quality control and mission perspective than for-profit sector growth (which is difficult as well). Increased revenue frequently means decreased net revenue.

... distinguish regular, routine operating revenue from capital and extraordinary revenue, and manage accordingly. They match their fixed costs to reliable revenue and understand (and fill) the capital demands of rapid growth, incremental growth, and routine capacity refreshment and maintenance.

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Nonprofit Finance Fund® (NFF®) unlocks the potential of mission-driven organizations through tailored investments, strategic advice and accessible insights.

To learn more, visit us online at nff.org.

©2015 Nonprofit Finance Fund®

Core Areas of Nonprofit Finance

RevenueThe degree of predictability and reliability of revenue is often an indicator of financial health. Revenue includes: payments for services; donations from individuals, foundations and corporations; contributions and contract payments from government agencies; and income from investments and other activities (for example, rentals).

ExpensesNonprofits that run into financial challenges are often uncomfortable bringing expenses in line with their revenue reality. There are also costs beyond day-to-day operations, including debt principal payments, capital expenditures, and funds set aside each year for future use. Budgeting to the full cost of doing business is essential for sustained financial health.

Profitability and SavingsNonprofits need profits. Surpluses are necessary to pay off debt, invest in facilities and equipment, and fund savings and growth. We encourage nonprofits to budget for and manage to annual surpluses that meet their short- and long-term needs. Breaking even is rarely enough.

Health of the Balance Sheet The balance sheet reveals a nonprofit’s ability to manage risk and pursue growth or other opportunities. It indicates financial condition at a specific point in time. Included on the balance sheet are assets, liabilities and net assets. In the nonprofit sector there are restrictions on assets and net assets which can impact an organization’s flexibility.

LiquidityLiquidity is a measure of how much cash (and assets readily convertible to cash) is available to an organization. Marketable securities, undrawn lines of credit and receivables are liquid if they can be turned into cash within one year. Determining liquidity is often complex for nonprofits. Cash and investments may be restricted by donors, creating the false impression that a nonprofit is flush with flexible funds when it may instead be dealing with liquidity constraints.

Financial PlanningOrganizations that actively and continuously plan for the unexpected are better positioned to weather difficult times and pursue new opportunities. Planning requires access to financial information that is timely, accurate, and reliable. It is the collective responsibility of staff, management and the board. Financial plans are only as good as their underlying assumptions and are not a substitute for making and communicating difficult decisions.

MissionWhat you do

and why you do it

CapacityYour ability to

do what you do

MoneyWhat you have and how it’s distributed

Enterprise Platform

Know Your Strengths and Weaknesses

Organizations that can clearly and accurately articulate their financial story and resource needs are better positioned to make a strong case for support. In both good times and bad, your stakeholders will be more engaged if you can provide a data-driven assessment that links your nonprofit’s financial health to its impact and accomplishments. This can inform strategic planning and guide leadership in making mission-driven, financially sound decisions.

Use the worksheet on the back to capture a snapshot of your nonprofit’s strengths and weaknesses. The worksheet is divided into six core areas of nonprofit finance, described in detail to the right. Together, these areas help you balance the three critical components essential to an organization’s long-term viability: Mission, Capacity, and Money.

With support from your funders, we can help you better understand the way a nonprofit’s core areas of finance influence organizational success. To learn more, visit us at nff.org.

®


Core Areas of Nonprofit Finance Y N Not Sure

N/A Priority- High, Med, Low

BrainstormingWhat is our current strategy for handling the concern? What’s the next step towards a solution?

Revenue: How might the reliability of revenue streams continue to be affected in the current economic climate?Is our revenue mix (earned AND contributed) relatively predictable and reliable over time?

Are our government contracts stable and relatively unaffected by state/local budget cuts?

Will our foundation giving and/or corporate support remain stable or grow?

Are our major donors still reliable? Can we count on their support at current levels?

Can we rely on our Board to help cover any funding losses?

Have we identified additional sources of support to make up for funding declines elsewhere?

Have we updated our fundraising message to include the strongest, most urgent case for success?

If in the midst of a capital campaign, are we still meeting fundraising targets? (If not, have we considered phasing the campaign or a Plan B?)

Expenses: Will costs have to be cut? If so, which costs?Have we identified where we can cut costs without harming critical programs and operations?

Can we still maintain our existing staff numbers and salaries?

Profitability: How might changes in revenue streams or expense dynamics affect the bottom line?Are we generating operating surpluses on a relatively consistent basis?

Are we developing and approving budgets that keep expenses in line with our new revenue reality?

Are our surpluses big enough to cover depreciation, meet debt obligations, and contribute to savings?

Are we raising revenue to cover new expenses and/or higher service demand?

Health of the Balance Sheet: How might changes in operating results affect your organization’s balance sheet?Are we making loan payments on schedule?

If struggling with debt, have we spoken with our bank about renegotiating terms?

Are we paying our vendors on time?

Are we planning for and meeting maintenance needs of our facility (or other fixed assets)?

Are our investments safe and stable?

Liquidity: What cash is readily available for routine and emergency needs?Do we have enough cash on hand to manage the cyclicality of our daily operations?

Do we have reserves that we can draw on to manage any shortfalls?

If reserves have been used, are we on a replenishment plan?

Financial Planning: Have you incorporated contingency planning into decision-making?Have we developed best, probable, and worst case revenue /expense scenarios?

Do we project, track, and monitor cash flow on a monthly basis?

Is our Board regularly reviewing our financial condition and encouraging rapid response to change?

Have we considered collaboration as an opportunity to further mission and/or save costs?

This worksheet reveals some of your nonprofit’s financial strengths and weaknesses. If you answer Yes to many questions, you’re likely weathering the economic climate well and have a good grasp of your financial dynamics. If you’re answering No or Not Sure often, you may want to review what actions you are or could be taking to manage areas of concern. Match your answers to the Priority Level you assign to the question to identify which may be the most pressing concerns.

With support from your funders, NFF can help you interpret the results and consider next steps. You can then develop a clear financial plan to share with board members, funders and others.

Financial Self- Assessment

©2015 Nonprofit Finance Fund®

nff.org

®


It’s critical that you have an overall understanding of the business model of your organization. That way, when big decisions come up and ideas for new programs or revenue sources are discussed, you'll know how they’ll fit into the overall picture of your organization. By knowing where your funding comes from, you can determine if you have a good mix of income sources or whether you are too dependent on only one or two sources.

Have your Board Treasurer complete Part 1 (a filled-in example of Part 1 is provided). Distribute copies of your Treasurer’s completed version of Part 1 and a blank copy of Part 2 to each board member during your next board meeting. Take 10 minutes to have each board member review the Treasurer's findings in Part 1 and then fill out Part 2 of the worksheet. After the meeting, compile the answers and review at the next board or committee meeting.

At the following meeting, take some time to discuss any concerns that were uncovered by doing this exercise.

You may want to assign a task force or committee to build an action plan for Part 2, Question 3. You may use the following table to help organize tasks.

Who Will Champion Action Item Resources Needed This Task? Due Date

1.

2.

3.

This 10 Minute Board Exercise was adapted from a practice created by Grady Goodall for the Center for Nonprofit Stewardship's eLearning Course for Board Members, of which he is a presenter. For more information about the course, visit our website at:

www.nonprofitsteward.org/eLearning

Purpose

Instructions

Follow-Up


Instructions for the introductory worksheet inEvaluating YourFunding Mix

Disclaimer: This information is not a substitute for competent legal and accounting advice rendered on your particular fact situation and planning goals. Laws and procedures change frequently and are subject to different interpretations.

©2014 Center for Nonprofit Stewardship www.nonprofitsteward.org

Introductory worksheet in

Evaluating Your

Funding Mix

Part 1: For the Board Treasurer to complete.

Section 1 - Determining the Mix

Use your organization's current budget or last year's end-of-year Profit & Loss Statement to determine major revenue sources. Enter the amounts into the corresponding fields below. You may need to combine some items to make them fit into the categories.

From this information, draw the estimated portions on the blank pie chart below.

Possible Major Revenue Sources Revenue Pie Chart

Fundraising $_________ __________%* (donations, events, sponsorships, etc.)

Earned Income $_________ __________% (program revenue, contracted services, sales, etc.)

Membership Dues $_________ __________% (if a membership organization)

Grants $_________ __________%

Investments $_________ __________%

Other:_________ $_________ __________%

Total: $_________ (*to determine the %, divide the line item amount by the total)

Section 2 - Determining the Risks

How stable is the funding in each of the individual categories? Are there trends in your field or other factors that could affect your future funding mix?





Evaluating Your

Funding Mix

Part 2: For the board to complete.

Section 1 - Checking In

1. Take a moment to review the findings from Part 1 (completed by your Treasurer) and consider if you arecomfortable with your organization's current funding mix. Then, complete the sentences below.

2. Is the funding mix what you thought it would be? I had no idea what to expect Yes No, I thought ...

Section 2 - Questions to Consider

What looks good here is... The part of this mix that makes me uncomfortable is…

I need more information about...

1. What would happen if one of your major funding sources suddenly went away?What is a possible Plan B?

2. Will this same funding mix work for your organization in 1, 3, 5 years?

3. If no, what needs to be put into place now to get ahead of the transition or become more stable?


Example




Evaluating Your

Funding Mix

Note: The figures below are for example only and are not best practice benchmarks.

Part 1: For the Board Treasurer to complete.

Section 1 - Determining the Mix

Use your organization's current budget or last year's end-of-year Profit & Loss Statement to determine major revenue sources. Enter the amounts into the corresponding fields below. You may need to combine some items to make them fit into the categories.

From this information, draw the estimated portions on the blank pie chart below.

Possible Major Revenue Sources Revenue Pie Chart

Fundraising $ 30,000 30 %* (donations, events, sponsorships, etc.)

Earned Income $ 20,000 20 % (program revenue, contracted services, sales, etc.)

Membership Dues $ 0 0 % (if a membership organization)

Grants $ 50,000 50 %

Investments $ 0 0 %

Other:_________ $ 0 0 %

Total: $ 100,000 (*to determine the %, divide the line item amount by the total)

Section 2 - Determining the Risks

How stable is the funding in each of the individual categories? Are there trends in your field or other factors that could affect your future funding mix?

For instance: 50% of our revenue comes from grants. If we are not able to receive this funding,

our budget would be drastically reduced. Factors that may affect this are availability of grants,

the number of applications submitted by other nonprofits, the time spent by our staff to apply

for grants, and our relationships with our funders.

20% EarnedIncome

30% Fundraising

50% Grants


Income4000 · Sustainer Contributions 220,000.00$ 4010 · Individual Contributions 187,500.00$ 4011 · Board Contributions 30,000.00$ 4021 · Corporate Matching Donations 5,000.00$ 4022 · Corporate Donations (NonMatch) 250.00$ 4200 · Foundation Donations 51,000.00$ 5450 · Sponsorships - Earned Income 75,000.00$ 5440 · Subscriptions 237,000.00$ 5441 · Digital Subscriptions 2,000.00$ 5446 · Back Issue Sales 2,946.00$ Net Revenue = Gross Revenue – Fundraising Costs

5448 · Digital Back Issues 5,389.20$ Net Revenue Raised Calculation:5611 · Merchandise Gross Sales 39,230.00$ Gross Revenue: 870,315.20$ 5612 · Merhandise Shipping Income 15,000.00$ Fundriasing Costs (210,087.80)$

5900 · Other Income -$ Net Revenue: 660,227.40$

Gross Income 870,315.20$ Expenses

7221 · Salaries 67,982.00$ Cost to Raise $1.00 = Costs (Direct and Indirect) / Net Revenue

7222 · Vacation Accumulation 300.00$ Cost to Raise $1 Calculation:7240 · Health Insurance 4,245.00$ Fundriasing Costs 210,087.80$ 7251 · Payroll Taxes 7,478.02$ Net Revenue 660,227.40$

7540 · Contract Services 2,240.00$ Cost to raise $1: 0.32$

8110 · Supplies 1,750.00$ 8112 · Donor Retention Benefits 5,800.00$ 8113 · Subscription Campaigns 4,000.00$ 8530 · Memberships/Subscriptions 337.00$ 8540 · Professional Development 350.00$ 8580 · Event Expense 5,250.00$ 8591 · Hospitality 380.00$ 8133 · Email Marketing and Research 5,750.00$ 8140 · Office Postage (exc. Merch) 7,590.00$ 8142 · Bulk Postage and Mailings 3,200.00$ 8146 · Express Mail (FedEx and UPS) 460.00$ 8149a · Merchandise Shipping 15,000.00$ 8151 · Subscriber Renwal Mailings 6,996.00$ 8156 · Data Storage 1,000.00$ 8172 · Other Printing 3,900.00$ 8174 · Bar Code Fee 120.00$ 8271 · Cost of Goods Sold 16,350.00$ 8310 · Travel, Meals and Entertainment 4,800.00$ 8312 · Conferences 530.00$ 9000 · Indirect Expense Allocation (estimate) 44,279.78$ (15 % of Shared (Indirect Expense) based on prior year Indirect Expense Allocation)

Total Expense 210,088$ (Fundraising Costs)

Net Income 660,227$ (Net Revenue)

÷

2016 Development Budget


Target Goal: 217,500.00$

Gift Amount # of Gifts

# of Prospects

Required Row Total

Cumulative

Total

Row

Percentage of

Total

Cumulative

Percentage (%)30,000.00$ 1 10 30,000.00$ 30,000.00$ 14% 14%20,000.00$ 1 10 20,000.00$ 50,000.00$ 9% 23%10,000.00$ 1 10 10,000.00$ 60,000.00$ 5% 28%

5,000.00$ 5 20 25,000.00$ 85,000.00$ 11% 39%3,000.00$ 2 20 6,000.00$ 91,000.00$ 3% 42%2,500.00$ 5 20 12,500.00$ 103,500.00$ 6% 48%2,000.00$ 3 20 6,000.00$ 109,500.00$ 3% 54%1,500.00$ 5 20 7,500.00$ 117,000.00$ 3% 54%1,000.00$ 10 50 10,000.00$ 127,000.00$ 5% 58%

750.00$ 2 50 1,500.00$ 128,500.00$ 1% 59%500.00$ 20 50 10,000.00$ 138,500.00$ 5% 64%250.00$ 49 100 12,250.00$ 150,750.00$ 6% 69%200.00$ 50 100 10,000.00$ 160,750.00$ 5% 74%100.00$ 100 2000 10,000.00$ 170,750.00$ 5% 79%

75.00$ 200 2000 15,000.00$ 185,750.00$ 7% 85%50.00$ 250 2000 12,500.00$ 198,250.00$ 6% 91%25.00$ 300 2000 7,500.00$ 205,750.00$ 3% 95%15.00$ 350 2000 5,250.00$ 211,000.00$ 2% 97%10.00$ 400 2000 4,000.00$ 215,000.00$ 2% 99%

5.00$ 500 2000 2,500.00$ 217,500.00$ 1% 100%TOTALS: 2221 14480 217,500.00$ 217,500.00$ 100% 100%

12.5% of Donors at 80% of goal in this example

Annual and Board Donor Gift Chart


Target Goal: 220,000.00$

Monthly Gift

Amount

Annualized

Monthly Gift # of Gifts

# of Prospects

Asked

Row Total/

Month

Annualized Row

Total

Annual

Cumulative

Total

Row Annual

Percentage of

Total

Annual

Cumulative

Percentage (%)100.00$ 1,200.00$ 10 1000 1,000.00$ 12,000.00$ 12,000.00$ 5% 5%75.00$ 900.00$ 15 1000 1,125.00$ 13,500.00$ 25,500.00$ 6% 12%50.00$ 600.00$ 25 1000 1,250.00$ 15,000.00$ 40,500.00$ 7% 18%40.00$ 480.00$ 30 1000 1,200.00$ 14,400.00$ 54,900.00$ 7% 25%35.00$ 420.00$ 35 1000 1,225.00$ 14,700.00$ 69,600.00$ 7% 32%30.00$ 360.00$ 40 10000 1,200.00$ 14,400.00$ 84,000.00$ 7% 38%25.00$ 300.00$ 50 10000 1,250.00$ 15,000.00$ 99,000.00$ 7% 45%20.00$ 240.00$ 125 10000 2,500.00$ 30,000.00$ 129,000.00$ 14% 59%15.00$ 180.00$ 150 10000 2,250.00$ 27,000.00$ 156,000.00$ 12% 71%10.00$ 120.00$ 200 10000 2,000.00$ 24,000.00$ 180,000.00$ 11% 82%8.00$ 96.00$ 245 10000 1,960.00$ 23,520.00$ 203,520.00$ 11% 93%5.00$ 60.00$ 275 20000 1,375.00$ 16,500.00$ 220,020.00$ 8% 100%

TOTALS: 1190 84000 18,335.00$ 220,020.00$ 220,020.00$ 8% 100%

57% of Donors at 80% of goal in this example

ResourceOnline Calculator: http://sumac.com/fundraising-gift-range-calculator/

Nonprofit Example Monthly Donor Gift Chart


Funder Name Amount of Grant % Likelihood % Amount Grant Due Date Potential Funding Date Basis for Percentage Notes Restriction?

Grant 1 20,000.00$ 100% 20,000.00$ 5/15/2016 9/1/20216 Received grant every year for past 7 years Unrestricted

Grant 2 5,000.00$ 100% 5,000.00$ 5/15/2016 7/15/2016 Received grant every year for past 12 years Unrestricted

Grant 3 55,000.00$ 50% 27,500.00$ 7/1/2016 1/15/2017 Received funding in for 3 out of 5 most recent proposals EcoChallenge Technology

Grant 4 40,000.00$ 75% 30,000.00$ 7/15/2016 1/1/2017 Received funding in 4 out of last 5 years but at lower level than appliedUnrestricted

Grant 5 10,000.00$ 75% 7,500.00$ 8/1/2016 9/15/2016 Funder usually grants, seeking potential partnership on new project New Coursebook Campaign

Grant 6 25,000.00$ 25% 6,250.00$ 10/15/2016 1/1/2017 New Application Unrestricted

Grant 7 80,000.00$ 25% 20,000.00$ 10/21/2016 3/1/2017 Last received funding 4 years ago for large technology project EcoChallenge Technology

Grant 8 7,000.00$ 25% 1,750.00$ 11/1/2016 1/15/2017 New Application New Coursebook Campaign

Grant 9 2,000.00$ 100% 2,000.00$ 11/1/2016 1/1/2017 Received grant every year for past 4 years Intern Stipends

TOTAL 244,000.00$ 120,000.00$

(Amount aplying for) (amount budgeted for)

Example Grant Schedule


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