Ten Tips for Better Financial Planning

If bookkeeping is the bricks and mortar of your financial reporting system, then financial planning is the architecture; effective financial planning can better prepare your organization to respond whatever happens on a daily basis.

  1. Failing to plan is planning to fail. It’s an old saw, but a good one! You wouldn’t start on a long trip without a road map and a destination; by the same token, you shouldn’t launch a new year of activities without a financial plan that lays out some sensible goals – and boundaries. That plan is your annual operating budget – a statement of your programs and activities in dollars and cents. The budget is your financial road map, a key operating document approved by your board as a current-year operating policy, defining and quantifying your targets for spending and raising money.
  2. Put it in writing. Your plans will undoubtedly change as the year unfolds, and you respond to changing circumstances (a budget is an adaptable planning tool to help predict your future; financial statements are historical documents that record where you’ve been). However, keeping a clean copy of that initial budget is important! It serves as a yardstick for measuring your progress in fulfilling your plans – and your success at adapting them to your organization’s evolving situation. A written document provides a solid basis for comparing plans to results. It is also an excellent tool for sharing information amongst your organization’s leadership and staff.
  3. Share responsibilities effectively among your staff, board and volunteers. What’s effective depends on the nature of your organization and the individuals involved. For some charities, financial planning is staff’s hands-on responsibility, with board members in a governance role, approving the results or requiring changes. In other charities, board members – e.g. the President or Treasurer – take an active role in planning. Some have a Finance Committee, where volunteers outside the board contribute to the process. Often, smaller organizations need more volunteer support, and larger ones delegate more responsibility to staff. Consider what will work best for your organization at this moment in its life cycle.
  4. Identify and use all resources. Chances are, you recruited board members based on the skills, connections and support they could bring to your charity. Are your directors fulfilling those roles for your organization? If not, have you talked to them about stepping up to the plate? Consider, too, that your directors may be able to recruit colleagues or friends to provide pro bono support for specific needs. If your organization has an annual financial audit, don’t forget to use your auditor for accounting, planning and tax compliance advice. Your banker, broker, government funding officer and others should be able to contribute planning advice on trends and opportunities for your organization.
  5. Think about how to share financial information. Personal data such as staff compensation must, of course, be treated with care. More broadly, though, it is important to think about who needs to know about your charity’s financial situation, and at what level of detail. You wouldn’t want staff or volunteers to be worrying needlessly.But, if you need their input, you must provide enough information for them to offer an informed opinion. You can share financial data in a controlled way by preparing mini-statements by program or activity, as well as a complete operating statement. You can also prepare both detailed and summary (“high-level”) financial statements, to be disclosed depending on people’s level of engagement with the challenges at hand.
  6. Secure board buy-in to your plans. A charity’s board of directors is legally responsible for the organization. In situations where staff are front and centre in terms of running the show, board members may become complacent – but they are still on the hook! Staff should ensure that board members receive – and read – and understand – budgetscashflow projections, financial statements and other key financial planning documents. It’s important to be clear with your directors where the risks lie in your plans for the year. If those plans go awry, you need them to stand behind you and back you up. The organization’s financial plans must be the board’s plans too.
  7. Secure staff buy-in to your plans. Staff are instrumental in carrying out the plans for the year. The more they feel ownership of the targets set for their position or their department, the more invested they’ll be in achieving those goals. If belt-tightening is in order, you need your staff, especially those in leadership, purchasing and revenue generation roles, to be fully on board with whatever needs to be done. Develop appropriate ways to bring them into the process of brainstorming, generating options, and making decisions.
  8. Follow an annual planning agenda. If an organization is very project-driven, each year may be quite different from last year and next. However, many organizations have a well-understood annual routine. In these cases, financial planning should also follow a well-defined pattern where the tasks associated with creating, reviewing and adjusting plans happen in the same order, within about the same time frame, with the same participants each year. A written annual planning agenda (for instance, setting out key tasks by month) can be used to ensure staff and board understand what will be expected from them. Your planning calendar will also help you identify and meet external reporting deadlines, e.g. funding applications and tax returns.
  9. Create time for planning. Make sure your work schedule allows time to read and analyse financial reports, think about the implications, consider your options and prepare well-researched plans for your programs and overall operations. This is even more important for Board members who meet intermittently; get the financial statements to them before they need to act on them. The worst decisions are often the ones made under pressure in the midst of a crisis. If you’ve invested time in contingency planning – anticipating problems and brainstorming “what-ifs” and possible responses – you will be much better prepared to give a measured response and a sound decision.
  10. Take the long view. “Now” always seems to be the imperative. Staying on top of today’s demands can take all your time. However, this year is just one more milestone in your organization’s life. You need to consider this year’s plans in context with medium- and longer-term objectives. This year’s operating budget carries through from last year’s results, and it should help your charity achieve its plans for the future. Situating each year’s budget within a multi-year strategic plan is an excellent way to anchor your financial planning.

This tip sheet was created by Heather Young of Young Associates. Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, focused on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005)a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.