Topic 3: How to develop a good financial strategy

A well-crafted financial strategy is essential for ensuring your organisation’s longevity and effectiveness, as it provides a roadmap for achieving your financial goals while supporting your mission and values.

In this section, we outline the 12 golden rules for financial management in non-profit organisations. These rules are designed to help you build stability and flexibility in your organisation’s finances, both now and in the future.

The 12 Golden Rules for Financial Management

Rule 1: Budgeting

Budgets are the backbone of financial planning, providing the necessary framework for all organisational activities. Effective budgets are realistic, based on solid assumptions, and promote clear accountability.

Rule 2: Program Costs

Understanding the true costs of your programs is essential for informed decision-making regarding fundraising, contract negotiations, and program development or modification.

Rule 3: Diverse Funding Sources

While diversifying funding sources is often touted as a best practice, it requires careful consideration and strategic planning. Different types of income necessitate distinct systems, structures, relationships, and communications.

Rule 4: Functional/Infrastructure Expenses

Accounting for functional expenses, including program services and core mission support, is crucial for organisational sustainability. Emphasising the importance of infrastructure support over traditional “overhead” expenses is key to reframing the conversation around financial sustainability.

Rule 5: Cash Flow

Maintaining healthy cash flow is vital for day-to-day operations and financial stability. Basic management tools can help monitor and manage cash flow effectively.

Rule 6: Financial Information

Promoting financial literacy among all stakeholders fosters effective decision-making and accountability. Encourage everyone to learn financial terminology, understand financial reports, and ask questions.

Rule 7: Financial Responsibility

Financial decision-making should be a shared responsibility throughout the organisation, supported by access to good information, frequent communication, and appropriate authority.

Rule 8: Operating Reserves

Establishing and maintaining adequate operating reserves is essential for responding to unexpected challenges or opportunities. Determining the ideal reserve level and building reserves over time are critical considerations.

Rule 9: Accountability and Transparency

NGOs are increasingly expected to demonstrate accountability and transparency in their financial activities. Embracing these values strengthens relationships with stakeholders and enhances organisational credibility.

Rule 10: Integrity and Honesty

Maintaining integrity and honesty in all financial activities is paramount for nonprofit organisations. Strong policies, job descriptions, and internal controls are essential, underpinned by a commitment to mission, values, and leadership.

Rule 11: Responding to Financial Problems

Addressing financial challenges requires strong leadership, effective communication, strategic planning, and decisive action. Proactive problem-solving is key to navigating unforeseen obstacles.

Rule 12: Interdependence

Financial management is interconnected with every aspect of nonprofit operations. Ensuring alignment and cohesion across governance, planning, programs, and evaluation is essential for effective financial leadership.

By adhering to these golden rules, your NGO can enhance its financial health, resilience, and impact in advancing its mission and serve their communities.

Now that you know all of the 12 Golden Rules, it’s time to develop your own financial strategy.

Developing your own Financial Strategy

A financial strategy is a cornerstone of any organisation’s strategic plan, providing a roadmap for how it will fund its operations to achieve its current and future goals.

The financial strategy listed below provides a structured approach to meeting financial objectives over a three to five-year period. It entails conducting a thorough assessment of the organisation’s current situation, identifying key risks and opportunities, and establishing clear financial targets and policies to guide actions.

1. Where Are We Now? This section of your financial strategy provides a snapshot of the organisation’s current financial landscape, including an assessment of risks, opportunities, and available resources. Understanding the organisation’s starting point is crucial for devising a realistic and effective financing strategy.
2. Where Would We Like to Be? Here, you should outline key financial targets for the future, informed by the risks and opportunities identified earlier. This includes defining the desired funding mix, setting targets for donor dependency and general reserves, and establishing clear objectives for financial stability and resilience.
3. How Do We Get There? Here, the actions that will be taken each year to finance the strategic plan and achieve the identified financial targets. It includes strategies for increasing unrestricted funds, financing core costs, building reserves, and maximizing the impact of available resources.
4. Key Policies: Finally, it’s important to outline key policies that will guide the financing strategy, covering areas such as reserves management, core costs recovery, pricing and cost recovery, and ethical considerations. These policies provide a framework for decision-making and ensure alignment with organisational values and goals.

By taking proactive steps to assess your current financial position, set clear objectives, and establish sound policies, you can pave the way for sustainable growth and impact. Remember, financial management is an ongoing process that requires diligence, adaptability, and collaboration.

1-Hour Webinar: Maximise the funding we have

We’re excited to have you join us for this insightful session on one of the most critical aspects of running a successful non-profit organisation: Maximising the funding you have. In this webinar, we will dive into the strategies and practices that can help you maximiseyour organisation’s funding and ensure long-term success.

This webinar will also provide you with actionable tools and strategies to improve your organisation’s financial resilience. Whether you’re looking to enhance your fundraising efforts, optimise your expenses, or build a sustainable reserve, this webinar will equip you with the knowledge and skills you need to make informed decisions and drive your mission forward.

We encourage you to actively participate in the session, ask questions, and engage with the speaker and other attendees. This is your opportunity to expand your knowledge, network with like-minded professionals, and gain fresh perspectives on achieving financial sustainability for your non-profit.

We look forward to a dynamic and productive session with you! Let’s get started.

Date: 11th June 13h00 -14h00 CET

Topic: Maximise the funding we have

Webinar Link: https://us02web.zoom.us/webinar/register/WN_l1-WT0-pTt2g9NYn9SFTbw

Host: Chris Meyer zu Natrup

Conclusion

As we come to the end of Module 1, it’s clear that this module has provided us with invaluable insights and practical strategies for navigating the complex financial landscape of the nonprofit sector.

Remember that financial sustainability is more than just balancing budgets and securing funding; it is also about resilience, and ensuring your ability to carry out your mission in the long term. It is about establishing trust with donors, stakeholders, and the communities you serve, as well as demonstrating your commitment to making a long-term impact.

With this module’s knowledge and tools, continue to strive for excellence in financial management, embrace innovation and adaptability, and work collaboratively to create a more equitable and sustainable world.