Copyright 2010 by Jack B. Hoey, Jr. All rights reserved.
The most successful nonprofits are the best-managed financially. There are two critical dimensions to good financial management: 1) the ability to budget and plan effectively, and 2) an effective system of controls over resources.
Budgeting and planning is a proactive tool. The organization I described previously used its planning disciplines to navigate 2009’s economic slump. Before the recession began to bite, its staff examined a range of scenarios that projected lower income. They decided to set their budgets based on conservative assumptions. Setting a priority of protecting staff as much as possible, they cut non-staff expenses to the bone, and required senior management approvals for all purchases. As the year unfolded, they met their revenue goal and reduced expenses even more than planned. This gave them resources at year-end to expend on priority projects that had emerged during the year. In a tough year, they were able to accomplish more than they expected.
Planning is not important because it helps you see into the future. No human tool can do that. But it provides a baseline for management. You construct a plan that enables the organization to maintain or improve its financial health, based on well-thought-out assumptions. As the future becomes the present, you will need to make adjustments. The planning system enables you to make all the adjustments needed to achieve a well-balanced result.
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