Use smart financial management planning to determine effective, sustainable ways to deliver on your missionOriginally published October 2016 | Updated July 2018
Most nonprofits rightfully see themselves as mission-driven organizations committed to serving the best interests of their clients. Unfortunately, too few see themselves in another light — as business enterprises that require a financial strategy to deliver on that mission.
In fact, because finances drive virtually every aspect of an organization — the ability to provide programs and services, raise funds, and pay for people, equipment and facilities, to name a few — having a financial management plan is fundamental to success. Think of it as the financial equivalent of a strategic plan, providing a framework for realizing key objectives in a way that's aligned with organizational goals.
Given this, developing a financial plan isn't a task best delegated solely to a financial manager or accountant. It also demands the commitment and active involvement of key players, chief among them the executive director or chief executive, board of directors or trustees and, potentially, qualified consultants.
Identify the issues
No single financial management plan fits all organizations. Instead, base your plan on the issues most critical to your nonprofit's financial well-being. This may include:
- Your current business model
- Your organization's financial history and trends
- Organizational goals (including ways to meet them and corresponding costs)
- Organizational capacity to deliver on goals
- Financial risks and specific management strategies
- Benchmarks to monitor progress
- Your vision for financial sustainability
Evaluate with care
Each issue in your financial management plan deserves due diligence, which can be a time-consuming process. For example, assessing the current business model may involve examining a range of issues related to revenue mix, programs and infrastructure, such as:
- The true cost of programs, including human resources, office expenses and technology
- Evaluating past decisions and leadership actions
- Identifying the largest sources of revenue, expenses and assets
- Assessing strengths and weaknesses of current infrastructure
Be prepared for an investment of months — or perhaps longer — for adequate evaluation.
Consider weak spots
Your evaluation is likely to shed light on things that aren't working and should be changed. Also remember that organizations, like people, evolve over time. Don't consider any financial decisions as etched in stone. Make sure that everyone involved understands this, keeps feelings in check and stays focused on the overriding objective — developing a financial management plan that delivers on your nonprofit's mission in financially feasible ways.
Embrace the opportunities
A viable financial management plan is a powerful way to help your nonprofit:
- Connect organizational goals to financial realities
- Use resources effectively and efficiently
- Deliver on your mission
- Demonstrate accountability and transparency
- Gain a competitive advantage
- Anticipate financial uncertainty
- Prepare for long-term financial sustainability
When all's said and done, resist any temptation to file your newly minted plan in a drawer. Developing a financial management plan isn't a one-time event. Like long-term strategic planning, financial management planning should become a regular part of organizational planning — a process that helps you look ahead and determine effective, sustainable ways to deliver on your mission and vision.
Nonprofits Assistance Fund: Budgets are lousy financial plans by Kate Barr (2011)
Nonprofits Assistance Fund: Transforming nonprofit business models (2014)
Knowhow Nonprofit: The basics of financial management (2016)
Knowhow Nonprofit: Finance strategy and reserves policies (2016)