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Financial Planning for Nonprofit Organizations

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Last editedJul 20222 min read

Whether you’re just starting out or are already well established, it’s important to think about nonprofit financial planning. Without this kind of financial foresight, nonprofit organizations will struggle to be sustainable, making it difficult to fulfil your vision. However, financial goals for nonprofit organizations can help them to thrive.

There are obviously some key differences between financial planning for nonprofit organizations compared to for-profit ones. While companies aim to create profit, nonprofits will instead look to reinvest money to achieve some larger mission or goal.

At the same time, there are similarities between the two types of organization, with both requiring careful budgeting to achieve a viable business model. Keep reading to find out more about nonprofit financial planning.

Create a solid budget

One of the most important financial goals for nonprofit organizations is a clear and well-researched budget. Make sure to be realistic about the amount of money that you are able to acquire through fundraising, using past data to inform this. In the same way, you can predict the amount of expenses that you will need to spend based on past experiences.

For example, if you’re planning an annual fundraising event, then you can look at past expenses and money raised to get a better idea of how this will affect your nonprofit organization.

One of the biggest mistakes that nonprofit organizations make is being too optimistic about their estimates for operating expenses and revenue. A more realistic approach to budgeting and financial management for nonprofits can help you to achieve your goals in the long term.

Use an organized system to help you keep track of finances

One of the best ways to ensure efficient budgeting and financial management for nonprofits is by developing a good system to keep track of all your incomings and outgoings. Ensure you keep all your financial data in one place and that it is regularly updated. In this way, you will be able to easily access it and make use of financial insights to adapt your strategy.

One way you can do this is through the use ofaccounting software such as QuickBooks or Xero. Not only will this provide you with an organized system, but it can also automate financial tasks like paying bills and keeping track of invoices. Automation is an excellent way to make a more efficient business, making it an important part of a financial plan for a nonprofit organization.

Demonstrate your effective use of donations

Of course, one of the most important parts of a financial plan for a nonprofit organization is actually raising the funds. Getting people to part with their hard-earned dollars can be a difficult challenge, and one of the best ways to encourage people to do so is by demonstrating how their donations will be used.

Consider the best way you can present this to potential benefactors. For example, you could showcase stories on your website, demonstrating how donations can make a difference to the cause you are supporting.

What to include in a financial plan for a nonprofit organization

Now that you know some of the best practices for nonprofit financial planning, you might be wondering what you should actually include in the financial plan itself. Remember that the key goals of the financial plan are to estimate and record your expenditure, as well as outline the goals and milestones you have for receiving financial support from donors.

Some important elements of a financial plan include:

  • Projected cash flow, with details of both gross and net cash flow for both monthly and yearly revenue.

  • A balance sheet showing the projected growth of net worth.

  • Standard ratios analyzing total assets compared to total liabilities.

  • Project surplus or deficit based on past data.

  • Considerations of the possibility of a major recession and a contingency plan for this.

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