A nonprofit financial plan is a strategic document that outlines how your organization will generate revenue, manage expenses, and allocate resources to support your mission over a specific period. It’s one of the most powerful tools you have to protect your mission, support your team, and serve your community for the long haul.
When funding is unpredictable and resources are limited, effective financial planning is vital for supporting your mission long-term. Whether you rely on donations, grants, or earned income, your ability to forecast revenue, track expenses, and plan for the future directly affects the lives you're trying to impact.
In this blog, we’ll walk you through the elements you should include in your nonprofit financial plan and how to effectively put it into action.
The Cliffnotes version
- A nonprofit financial plan supports long-term sustainability and mission alignment.
- It allows for more strategic nonprofit budgeting, revenue forecasting, setting of financial goals, and performance tracking.
- Your nonprofit financial plan should consider income streams, expense categories, cash flow management, fundraising goals, and KPIs.
Why you need a nonprofit financial plan
Your nonprofit financial plan offers a detailed strategy for how your organization will earn revenue, cover expenses, and make financial decisions that support your mission.
Financial planning for nonprofits also differs from that of for-profit businesses, as it takes into account different, often limited, revenue sources and more stringent compliance rules.
An effective nonprofit financial plan:
- Promotes mission alignment — You direct your financial resources in a way that directly supports your mission.
- Support financial stability — Your plan accounts for future expenses and goals, ensuring you use funds intentionally and reduce the risk of mismanagement.
- Increases accountability with stakeholders — You demonstrate a transparent, responsible use of funds to donors, board members, and the public.
- Builds credibility — Transparent financial planning boosts trust and increases donor retention and confidence.
- Clarifies financial goals — You directly tie your financial operations to the ways your nonprofit will have an impact, as well as what it will cost to get there.
- Improve decision-making — Financial forecasting within your plan allows leadership to anticipate financial challenges and take proactive steps to combat them.
With so much riding on effective planning, you need to ensure you’re factoring in the right components.
What to include in your nonprofit financial plan
Sure, the exact nonprofit financial strategy you create can vary from a different organization, depending on your specifications. However, generally speaking, there are some key components you'll never want to miss.
1. Expense sources
You need to know exactly what expenses and overhead costs you'll have to cover while supporting your mission.
These are some of the most common ones, with examples:
- Program expenses — Educational materials, supplies, transportation, and compensation for staff involved in the delivery of a program.
- Administrative expenses — Rent, utilities, office supplies, staff salaries, technology expenses, and payroll.
- Donor management expenses — Printed materials and donor merchandise.
- Financial and legal expenses — Financial consulting, accounting services, and legal counsel.
- Training and continuous learning — Training, workshops, and other professional development programs.
- Reserve funds — Funds set aside for contingencies.
2. Revenue sources
While you don’t operate on a for-profit basis, you (hopefully) still have to manage large amounts of money.
Typically, these will include:
- Donations
- Membership fees
- Earned income, such as from merchandise sales
3. Fundraising goals
Your nonprofit financial plan should include fundraising plans and goals related to how you’ll raise money to support your mission. Factor in:
- Fundraising target amounts
- Grant application plans and schedules
- Donor acquisition and retention tactics
4. Policies and financial KPIs
Define policies that will govern how your nonprofit manages its money. These can include:
- Financial reporting procedures
- Risk management
- Financial success monitoring and evaluation
You should also include financial KPIs to measure your success against, such as:
- Donor retention rates
- Fundraising plan efficiency
- Program efficiency
Once you have all the components of your financial plan, you’re ready to build it out!
How to build an effective nonprofit financial plan in 6 steps
1. Gather historical financial data
Your past informs your present. Review two to three years of financial statements, and use that data to identify seasonal patterns and trends.
If you don’t have access to that many years of data, gather what you can. Use the knowledge of your mission and space to predict what expenses you’ll have to cover.
2. Forecast income and expenses
Based on your available financial data and goals, make informed predictions about the revenue you'll bring in and the expenses you'll have to cover. Your financial forecasts can cover a month, quarter, or year and should be broken down by program or department.
3. Account for donor management
Managing donors is vital for building sustainable, consistent nonprofit income.
To effectively earn donations, you need to:
- Collect and organize donor information
- Monitor communications and interactions
- Track donations and other financial actions
- Maintain strong relationships to encourage future support
4. Forecast cash flow
You need to have a firm handle on your nonprofit cash flow to correctly understand your financial health and:
- Maintain stability
- Support causes
- Meet debt obligations
- Plan for growth.
Leverage financial forecasting, weekly cash flow tracking, and real-time financial dashboards to get the proper visibility to identify opportunities to strengthen your financial operations.
5. Create a nonprofit budget
Your nonprofit’s budget is separate from your financial plan. It’s a document that clearly outlines a nonprofit’s projected net income and expenses for a set period of time.
Your budget should cover a specific timeline, such as one fiscal quarter, and include:
- Projected income sources
- Expense sources
- Net income
- Reserves and contingency funds
- Project-based budgets
- Budget priorities
It should also outline key stakeholders, who ultimately should review, approve, and pass it.
Hint: Use a nonprofit budget template to make your life easier.
6. Monitor and track progress
You need specific ways to confirm that the effort you put into making your financial plan actually pays off.
Carefully monitor how your financial operations play out compared to your initial financial plan. If you notice any major discrepancies, revisit your plan and make adjustments as needed.
If you set up a nonprofit financial dashboard, you can let technology do the work for you and automatically alert you to your progress.
FAQs for financial planning for nonprofits
Q: Who should be involved in the planning process?
At the very least, you should involve your executive director, finance team, program managers, and board finance committee in the financial planning process.
Q: Do small nonprofits need a financial plan?
Even more than large nonprofits! Smaller organizations, who typically have even more limited resources, need an effective financial plan to make sure that they are using their money as resourcefully as possible.
Q: How often should I update my nonprofit’s financial plan?
You should update your financial plan at least annually. However, you should also revisit it and make adjustments if you experience significant operational or funding changes.
Q: How do we forecast revenue if our funding varies year to year?
In cases like this, it's best to be conservative with your revenue forecasting. Err on the side of caution and assume you won't have high numbers.
This way, you don't overextend your resources within your financial plan but still have the wiggle room to pivot if you bring in more than you planned for.
Finalizing your nonprofit financial plan
At the end of the day, your mission deserves more than good intentions. It deserves a strong financial foundation.
Whether you’re building a new budget, applying for grants, or planning long-term growth, having a clear financial roadmap helps you lead with confidence, stay aligned with your mission, and show donors and stakeholders that you’re serious about sustainability.
If you’re feeling stretched thin or unsure where to start, Hiline can help.
We specialize in nonprofit accounting services designed for growing organizations like yours. From bookkeeping and nonprofit budgeting to cash flow planning and grant management, we help you simplify your finances so you can focus on what matters most: creating change.
Let’s work together to build the foundation you deserve.
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