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No Money, No Mission: Putting Finance into Strategic Planning

Strategic planning and vision go hand-in-hand. But the word “finance” does not usually jump out first in discussions around the strategic planning process. Without keeping this critical element in mind from the beginning, however, the most well thought out goals, strategies, and objectives become irrelevant. If you don’t know what you have and what you need to get where you’re going, how can you get there?

Here are ways to incorporate finance into the strategic planning process from beginning to end:

STEP 1: Internal Review

When launching the discovery phase, don’t let the financial review (aka internal data review) take a backseat. Be sure to take a close look at your income statements to see revenue sources, primary expenses, and program numbers and impact. This will show you where you’ve been and the overall trends that have influenced your outcomes to provide context for your overall planning. For example, if individual contributions increased dramatically, this could inform your strategic decisions around the scale of program or organizational growth you could fund moving forward. Also look for gaps in your finances – potential revenues that you could spend more time developing. It is typical to go back five years in financial records in a planning process, however, since the past five years have been anomalous with the recession, it may make sense to go back further.

STEP 2: Environmental Scan

Once you have assessed your internal trends, take a look at the macro environment to identify major economic/funding changes that will affect your work. If you are in health care, what are the financial implications of the Affordable Care Act in California? If you are in housing, what are the potential effects of the closure of housing redevelopment agencies?

STEP 3: Benchmarking

There is no better way to see where your organization stands in the larger landscape than by comparing your progress with those of similar organizations. Some easy research will show you where other organizations are making their investments on functional expense categories (i.e. marketing, fundraising, programs). With this information, you can see where you are and if there are any categories where you depart from the norm. This information can be easily obtained from 990s, websites such as Charity Navigator, or industry databases such as the Cultural Data Project (CDP), which compiles information from arts organizations. It is recommended to review at least 7 other organizations for a broad range of data.

STEP 4: Scenario Testing

Now that you know where you stand in the context of your own organization’s history, the macro environment, and in relation to similar organizations, scenario testing can be an effective tool to monetize your various vision scenarios or strategic directions and their impact on your finances using a forecasting model. This will help you answer questions such as: if our organization continues to grow at the 10% rate we have been, how will this impact our finances for next year? If a critical funder does not come through, how will it change our program numbers? If we obtain a new grant, what programs can benefit and exactly how much could they grow? has some great resources and templates that can help guide you through some of this planning.

STEP 5: Capitalization Planning

After you complete your discovery work, begin to draw some conclusions, formulate various vision scenarios, and hone in on your overall strategic direction, you’ll need to spend some time creating a roadmap for defining, securing and stewarding the types of financial resources needed to execute your vision and support the organization long term, known as capitalization planning. This is a critical time to engage the board in discussion around what types of capital (facilities reserves, endowment, innovation fund, etc.), will position your organization for success and long term sustainability. Looking at different types of reserves funds is a particularly important component as this can ensure your livelihood in worst-case scenarios or emergencies. For capitalization planning tools visit The Kresge Foundation.

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STEP 6: Financial Projections

After landing on a final strategic direction to pursue, outlining goals and objectives, and listing the resources needed to achieve your desired results, you should begin to create financial projections. It is typical to project three to five years out, with more detail in the first year or two, and less detail in the ensuing years. Financial projections should reflect the detailed expenses and income associated with your strategic goals. Are you hiring new staff, opening a new program, or investing in a new building? Your projections should reflect this. Or have you chosen an ambitious plan and need to look at expanding fundraising? It is important to identify and plan for gaps in funding. Once you have completed the projections, you should have the information necessary to build momentum towards the next phase of your organization.

Vision is, of course, critical to move you forward in establishing the strategic goals of your organization. These steps will ensure you are progressing with a financial plan as well as a strategic plan and not ending up alongside the road with no cab money to get home.

Kristin Heller

Kristin Heller

Kristin joined Olive Grove in 2010 as its first Marketing Director. Since then, the firm quadrupled in size, and Kristin was a big part of that growth by serving in many key roles for the firm, including Consulting Director and Senior Consulting Director. Before leaving Olive Grove in April 2015, Kristin was a integral member of the leadership staff delivering exceptional consulting services to a diverse range of clients.