Big Picture Financial Planning for Nonprofits (part 2 of a series)

Big Picture Financial Planning for Nonprofits (part 2 of a series)

By Tom Wilson Major Gifts Guru

See part 1 for more background on why endowments are not the magic answer to financial health for most nonprofit organizations. To continue on the solution path . . . .

While started as an arts initiative, after many years the Financial Arts Stabilization Fund, shortened its name to NAS Fund when it became apparent this financial model fit all nonprofit organizations, not just the arts.

Why is this financial stabilization discussion important to major gift fundraisers?

In these unsettling times, many nonprofits are financially unstable and major donors know it. Why should they invest in an unstable organization? How can you reassure them you will be okay and have a plan for the future?

Read on.

A balanced budget each year was the first key to financial discipline. Remember this was the arts (and is the arts where I started my fundraising career). Balancing the budget year was not a given and still isn’t.

To help ensure a balanced budget and to plan for uncertainty, FAS recommended a 5% contingency fund be established in the operating budget. If these contingency funds are not used during this budget cycle, they can be carried for use next year. This contingency fund insulator enables organizations to weather ups and downs in their operations without breaking (or going) to the bank. For an organization just barely balancing its budget each year, the 5% guideline can seem like a huge budget number. Start small if you need to. Shoot for 1% next year, then 2% the following year until you hit the 5% benchmark.

Given a balanced budget and a 5% contingency, the next key to financial stabilization is eliminating all debt. For some nonprofits, particularly colleges and hospitals, long-term debt around a building may be okay, but short term debt is an albatross around the neck of a nonprofit. A good metaphor is your personal finances. A home mortgage is okay but credit card debt isn’t. And of course, no debt at all is ideal.

So, to summarize so far – a balanced budget each year, a 5% contingency fund in the operating budget, and no debt.

But that’s wasn’t the total solution.

To read the rest of the series, please see below:

Permanent Link: Big Picture Financial Planning for Nonprofits (part 2 of a series)

http://majorgiftsguru.com/2009/04/big-picture-financial-planning-for_07.html

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Big Picture Financial Planning for Nonprofits (part 2 of a series)

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