How to create a financial forecast for a not for profit organization?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your not for profit organization.
Putting together a not for profit organization financial forecast may sound complex, but don’t worry, with the right tool, it’s easier than it looks, and The Business Plan Shop is here to guide you.
In this practical guide, we'll cover everything you need to know about building financial projections for your not for profit organization.
We will start by looking at why they are key, what information is needed, what a forecast looks like once completed, and what solutions you can use to create yours.
Let's dive in!
Why create and maintain a financial forecast for a not for profit organization?
In order to prosper, your business needs to have visibility on what lies ahead and the right financial resources to grow. This is where having a financial forecast for your not for profit organization becomes handy.
Creating a not for profit organization financial forecast forces you to take stock of where your business stands and where you want it to go.
Once you have clarity on the destination, you will need to draw up a plan to get there and assess what it means in terms of future profitability and cash flows for your not for profit organization.
Having this clear plan in place will give you the confidence needed to move forward with your business’s development.
Having an up-to-date financial forecast for a not for profit organization is also useful if your trading environment worsens, as the forecast enables you to adjust to your new market conditions and anticipate any potential cash shortfall.
Finally, your not for profit organization's financial projections will also help you secure financing, as banks and investors alike will want to see accurate projections before agreeing to finance your business.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
What information is used as input to build a not for profit organization financial forecast?
A not for profit organization's financial forecast needs to be built on the right foundation: your assumptions.
The data required to create your assumptions will depend on whether you are a new or existing not for profit organization.
If you are creating (or updating) the forecast of an existing not for profit organization, then your main inputs will be historical accounting data and operating metrics, and your team’s view on what to expect for the next three to five years.
If you are building financial projections for a new not for profit organization startup, you will need to rely on market research to form your go-to-market strategy and derive your sales forecast.
For a new venture, you will also need an itemised list of resources needed for the not for profit organization to operate, along with a list of equipment required to launch the venture (more on that below).
Now that you understand what is needed, let’s have a look at what elements will make up your not for profit organization's financial forecast.
The sales forecast for a not for profit organization
From experience, it is usually best to start creating your not for profit organization financial forecast by your sales forecast.
To create an accurate sales forecast for your not for profit organization, you will have to rely on the data collected in your market research, or if you're running an existing not for profit organization, the historical data of the business, to estimate two key variables:
- The average price
- The number of monthly transactions
To get there, you will need to consider the following factors:
- Changes in grant funding: As a not for profit organization, a significant driver that may affect your average price or number of monthly transactions is changes in grant funding. If there are cuts in funding or changes in the terms of the grants you receive, this can impact your ability to offer services or products at a certain price point or maintain a certain level of transactions.
- Economic conditions: Economic conditions can also have an impact on your organization's sales forecast. If there is a downturn in the economy, individuals and businesses may be less likely to donate or support your cause, leading to a decrease in average price or number of monthly transactions.
- Changes in regulations or policies: Changes in regulations or policies that affect your organization can also impact your sales forecast. For example, if there are new regulations that require more resources or costs, this can impact the average price of your services or products, or if there are changes in policies that affect the demand for your services, this can impact the number of monthly transactions.
- Volunteer availability: For not for profit organizations that rely heavily on volunteers, the availability of volunteers can also affect your sales forecast. If there is a decrease in the number of available volunteers, this can impact the number of transactions you are able to complete, as well as the average price of your services if you need to hire additional staff to compensate.
- Public perception and trust: Lastly, public perception and trust can also be a driver that affects your sales forecast. If there is a negative perception of your organization, this can lead to a decrease in donations and support, impacting both the average price and number of monthly transactions. It is important to maintain a positive reputation and build trust with your target audience to ensure a stable sales forecast.
Once you have an idea of what your future sales will look like, it will be time to work on your overhead budget. Let’s see what this entails.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
The operating expenses for a not for profit organization
The next step is to estimate the costs you’ll have to incur to operate your not for profit organization.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your not for profit organization's operating expenses should normally include the following items:
- Staff Costs: This includes salaries, benefits, and payroll taxes for all employees of the organization.
- Accountancy Fees: These are fees paid to professional accountants for auditing, bookkeeping, and tax preparation services.
- Insurance Costs: Not for profit organizations need insurance coverage for their operations, assets, and employees. This includes general liability, property, and workers' compensation insurance.
- Software Licences: Nonprofits often use software for various purposes such as accounting, fundraising, and donor management. Licenses for these software programs need to be renewed regularly.
- Banking Fees: This includes fees for maintaining bank accounts, wire transfers, and credit card processing fees.
- Rent/Lease: Many nonprofits rent or lease office space, equipment, and vehicles for their operations.
- Utilities: This includes electricity, water, and gas expenses for the organization's facilities.
- Marketing and Advertising: Nonprofits need to promote their mission and events to attract donors and volunteers. This includes expenses for advertising, social media, and printing materials.
- Office Supplies: Nonprofits need basic office supplies such as paper, ink, and pens for daily operations.
- Training and Professional Development: This includes expenses for training staff and volunteers to improve their skills and knowledge.
- Travel and Transportation: Nonprofits may need to travel for events, meetings, or conferences. This includes expenses for airfare, lodging, and ground transportation.
- Telecommunication Expenses: This includes phone and internet expenses for the organization.
- Fundraising Expenses: Nonprofits often hold events and campaigns to raise funds for their cause. This includes expenses for event planning, catering, and marketing materials.
- Legal Fees: Nonprofits may need legal advice for various issues such as contracts, compliance, and employment matters.
- Membership Dues and Subscriptions: Nonprofits may need to pay membership fees for professional organizations and subscriptions for publications related to their cause.
This list is not exhaustive by any means, and will need to be tailored to your not for profit organization's specific circumstances.
What investments are needed to start or grow a not for profit organization?
Your not for profit organization financial forecast will also need to include the capital expenditures (aka investments in plain English) and initial working capital items required for the creation or development of your business.
For a not for profit organization, these could include:
- Building renovation or construction: This can include expenses related to renovating or constructing a new building for your organization's operations, such as construction materials, labor costs, and permits.
- Equipment purchase: This can include the cost of purchasing new equipment for your organization, such as computers, office furniture, or vehicles.
- Technology upgrades: This can include expenses related to upgrading your organization's technology, such as software, hardware, and IT services.
- Facilities maintenance: This can include ongoing expenses for maintaining your organization's facilities, such as cleaning services, repairs, and maintenance contracts.
- Capital campaigns: This can include expenses related to fundraising campaigns to raise capital for your organization's projects or initiatives, such as marketing materials, event costs, and consultant fees.
Again, this list will need to be adjusted according to the size and ambitions of your not for profit organization.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
The financing plan of your not for profit organization
The next step in the creation of your financial forecast for your not for profit organization is to think about how you might finance your business.
You will have to assess how much capital will come from shareholders (equity) and how much can be secured through banks.
Bank loans will have to be modelled so that you can separate the interest expenses from the repayments of principal, and include all this data in your forecast.
Issuing share capital and obtaining a bank loan are two of the most common ways that entrepreneurs finance their businesses.
What tables compose the financial plan for a not for profit organization?
Now let's have a look at the main output tables of your not for profit organization's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your not for profit organization's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a not for profit organization should normally show:
- Sales growing above inflation
- Stable or expanding (ideally) profit margins
- A net profit
This will of course depend on the stage of your business: a new venture might be loss-making until it reaches its breakeven point in year 2 or 3, for example.
The projected balance sheet
Your not for profit organization's forecasted balance sheet enables you to assess your financial structure and working capital requirements.
It is composed of three types of elements: assets, liabilities and equity:
- Assets: represent what the business owns and uses to produce cash flows. It includes resources such as cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: represent funds advanced to the business by lenders and other creditors. It includes items such as accounts payable (money owed to suppliers), taxes due and loans.
- Equity: is the combination of what has been invested by the business owners and the cumulative profits and losses generated by the business to date (which are called retained earnings). Equity is a proxy for the value of the owner's stake in the business.
The projected cash flow statement
A projected cash flow statement for a not for profit organization is used to show how much cash the business is generating or consuming.
The cash flow forecast is usually organised by nature to show three key metrics:
- The operating cash flow: do the core business activities generate or consume cash?
- The investing cash flow: how much is the business investing in long-term assets (this is usually compared to the level of fixed assets on the balance sheet to assess whether the business is regularly maintaining and renewing its equipment)?
- The financing cash flow: is the business raising new financing or repaying financiers (debt repayment, dividends)?
Cash is king and keeping an eye on future cash flows is imperative for running a successful business. Therefore, you should pay close attention to your not for profit organization's cash flow forecast.
If you are trying to secure financing, note that it is customary to provide both yearly and monthly cash flow forecasts in a financial plan - so that the reader can analyze seasonal variation and ensure the not for profit organization is appropriately capitalised.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Which tool should you use to create your not for profit organization's financial forecast?
Using the right tool or solution will make the creation of your not for profit organization's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your not for profit organization's projections
The modern and easiest way is to use professional online financial forecasting software such as the one we offer at The Business Plan Shop.
There are several advantages to using specialised software:
- You can easily create your financial forecast by letting the software take care of the financial calculations for you without errors
- You have access to complete financial forecast templates
- You get a complete financial forecast ready to be sent to your bank or investors
- You can easily track your actual financial performance against your financial forecast, and recalibrate your forecast as the year goes by
- You can create scenarios to stress test your forecast's main assumptions
- You can easily update your forecast as time goes by to maintain visibility on future cash flows
- You have a friendly support team on standby to assist you when you are stuck
- It’s cost-efficient and much cheaper than using an accountant or consultant (see below)
If you are interested in this type of solution, you can try our forecasting software for free by signing up here.
Calling in a financial consultant or chartered accountant
Enlisting the help of a consultant or accountant is also a good way to obtain a professional not for profit organization financial forecast.
The downside of this solution is its cost. From experience, obtaining a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to cost a minimum of £700 or $1,000.
The indicative cost above, is for a small business, and a forecast is done as a one-shot exercise. Using a consultant or accountant to track your actuals vs. forecast and to keep your financial projections up to date on a monthly or quarterly basis will cost a lot more.
If you opt for this solution, make sure your accountant has in-depth knowledge of your industry, so that they may challenge your figures and offer insights (as opposed to just taking your assumptions at face value to create the forecast).
Why not use a spreadsheet such as Excel or Google Sheets to build your not for profit organization's financial forecast?
Creating an accurate and error-free not for profit organization financial forecast on Excel (or any spreadsheet) is very technical and requires both a strong grasp of accounting principles and solid skills in financial modelling.
Most entrepreneurs lack the expertise required to create an accurate financial forecast using spreadsheet software like Excel or Google Sheets. As a result, it is unlikely anyone will trust your numbers.
The second reason is that it is inefficient. Building forecasts on spreadsheets was the only option in the 1990s and early 2000s, nowadays technology has advanced and software can do it much faster and much more accurately.
This is why professional forecasters all use software. With the rise of AI, software is also becoming smarter at helping us detect mistakes in our forecasts and helping us analyse the numbers to make better decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and updating your forecast as the year progresses is manual, tedious, error-prone, and time-consuming. Whereas financial forecasting software like The Business Plan Shop is built for this.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Use our financial projection templates for inspiration
The Business Plan Shop has dozens of financial forecasting templates available.
Our examples contain both the financial forecast, and a written business plan which presents, in detail, the company, the team, the strategy, and the medium-term objectives.
Whether you are just starting out or already have your own not for profit organization, looking at our template is always a good way to get ideas on how to model financial items and what to write when creating a business plan to secure funding.
Takeaways
- Having a financial forecast enables you to visualise the expected growth, profitability, and cash generation for your business over the next three to five years.
- Tracking actuals vs. forecast and keeping your financial projections up-to-date is the only way to get a view on what your not for profit organization future cash flows may look like.
- Using financial forecasting software is the mordern and easy way to create and maintain your forecasts.
This is the end of our guide on how to build the financial forecast for a not for profit organization, we hope you found it useful. Don't hesitate to contact us if you want to share your feedback or have any questions.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Also on The Business Plan Shop
- Example of financial forecast
- How to create a sales forecast for a business?
- Sample financial forecast for business idea
Know someone who owns or is thinking of starting a not for profit organization? Share our forecasting guide with them!