Revenue, Profit and Cash flow set up the financial foundation for any non-profit (or really any business for that matter.) But, in this article, we're going to focus in on some operational 'tools' for taking hold of these key financial pillars and putting them into some sort of actionable and usable form.

These tools will help you build out a financial forecast for the year, guide you through some of the pitfalls and help you wrap your head around your numbers.

A Word on Profit

Before we continue, I think it's worth emphasizing that your organization needs to be highly focused on running profitably. The term 'non-profit' can feel a bit like a soft landing if the numbers don't line up at the end of the year. But, make no mistake, non-profits have to be profitable!

‍It's what you do with the profit that makes you a non-profit. Simply put, the profits aren't distributed to owners or investors, they are used to further the goals of the organization or those that they support. The only alternative to profit is a loss and a loss, at best, can hamper the organizations ability to do what they set out to do. At worst, the organization could close its doors.

Tackling Your Operational Finances

Whatever role you are committed to, chances are you are wearing many hats. If you are in any shape or form, responsible for fund development, grab a tall glass of water and let's get started.There is more to your operational finances than creating a budget and setting a fundraising (revenue) goal for the year. You also need to keep track of your cash flow so that you can ensure that you can pay all of your bills month-to-month.

Here are the key areas you should consider forecasting and actively tracking on a regular basis:

1. Build your budget for the next 12 months

Grand goals are fantastic, but delivery is key - you are being trusted to deliver action for a cause which is achievable only when you have support on multiple levels.

Showing your budget and what it is going to take to get there means you can start inspiring others to take charge of specific aspects of the master plan. Open up a tool to record your information. While a spreadsheet is the most common option, we recommend Dryrun. (completely biased, of course!)

You can connect you accounting software to Dryrun to import information. This is a great time saver. If not, you can manually input the information, a little bit of elbow grease at the beginning will pay off later.

‍Setting up an Operational Budget:

• Estimate monthly expenses
• Build a recurring budget that contains your operational expenses (ie. rent, utilities, payroll)
• Add in contingencies for unexpected expenses (i.e. 15 percent)
• Determine recurring income (ie. monthly donations or grant money)
• Any large variable expenses - one time purchases such as computers, that may not show up in your recurring budget

2. Create revenue goals for the next 12 months

How is your organization structured? Who is responsible for funding on different levels? Perhaps you have a board that manages the overall operation. Do you have government funding, monthly donors, annual campaigns?Each revenue stream needs to be managed and monitored.

The foundation of your fundraising house relies on the sturdiness of all the individual pieces. Within the structure of your fundraising are knowns and unknowns. Start with what you know.

How much revenue do you need to make to meet your baseline budget? (Your break-even point)

How much do you need to make above your baseline operational budget, such as purchasing equipment, add staff, paying contractors etc.Does your organization funnel funds from your fundraising efforts to the end users?

For instance, is your organization built to raise money that is then passed along to groups that make use of the funds? ie. A cancer research institute. If so, then you need to set revenue goals well above your operational expenses and determine how much money you are planning to donate down the chain.

3. Meeting Your Fundraising Goal

This is where you plan how you will meet your big-picture goals.

• How do you make money for your organization?
• Do you host events?
• Send out letter campaigns, online donations?
• What kind of fundraising events occur during the year?
• Do you need money up front for holding events?
• Do you have 3rd party groups that host events and raise funds on your behalf?
• How much money is typically delivered post event to your organization?

Once you have gathered all possible revenue streams, and the potential monies you may receive...Build a forecast. The forecast will show the revenue you expect, where it is coming from, when and the amount. This is a living document that you can follow, and adjust as the actual money is received.

What this always is to keep you on track and realistic.

4. Direct Expenses for Fundraising Activities

Often it is difficult to track and forecast direct expenses for specific projects, events and initiatives. You may want to track these direct expenses separately from your operating expenses to keep things straight.

These direct expenses should be a fraction of the amount of revenue you will make out of an event or initiative. In other words, your fund-raising activities need to be profitable.

• If you hold an event, what are the up front costs related directly to preparing for the event.
• When do you need to send money out the door to rent a location, order food, the list goes on.
• Predict the multiple sources of income, separate them out and look at the income and expenses for each channel.

Consider each fundraising activity separately and evaluate the costs, potential revenue and benefits of each. Is this an awareness campaign, or an operating fund campaign to keep the doors open... or both?

‍Be attentive. Be realistic. The risk, timing and distribution of funds must not be ignored.Take a look at your numbers for each activity. Create a best case scenario, worst case and most likely case. This process will help you identify areas of high risk, set expectations and help you set up a safety net.

Make decisions on what you know, and if the success of your endeavour rests on unknowns, get on the phone, get in a meeting, connect with supporters, get answers and secure the support you require for the event before you proceed.

5. Revenue Forecast

Now that you've carefully plotted out the different fundraising activities, you can predict your total revenue from your fundraising. You can also now determine your gross profit from these activities by subtracting the directly related expenses you've documented.

Now you can compare this revenue forecast to your operating budget to make sure that you are predicting that you will still profitable and reach your goals after your operational budget is accounted for.

6. Cash Flow Forecast

Now that you have your operational budget in place, your revenue goals and plans for each activity, including the related expenses and how much profit you expect to make from each, you need to turn your attention to cash flow.

The plans you have are a huge step forward, but you need cash to operate. You need to pay all of those ongoing expenses from your operations. You also will likely need money available for your direct fundraising activities. Down payments will need to be made, marketing materials, advertising for events etc.

You need money in your bank account to cover these costs, but unfortunately, it's unlikely you are starting out your year with enough funds to cover all of these eventualities. It's much more likely that you will have money coming and going from your account on a regular basis and making sure you maintain money in your account is critical.

Cash flow from specific fundraising activities can even be highly variable. For instance, let's say you are holding an event. Do people purchase tickets for the event? Are they paid for up front, at the door? A mix?How are they paid for? Some with cash, some with check, some with credit card? When will the funds from checks and credit card purchases clear and be in the bank?

What about revenue received at the event. Cash donations? Are checks and credit cards accepted as well? A cash flow forecast keeps track of all of the money coming and going from your account and exactly when you expect the money to flow in or out. Predicting when the cash will flow in and out of your account will help you keep track of all of the bills you need to pay and funds you are expecting to receive so that nothing is missed.

It will also serve as an early warning system so you can identify a potential short fall ahead of time.When you have time and see potential issues far enough in advance, you will likely have more options for addressing the shortfall.

7. Other expenses to monitor

What surprise expenses could impact your organization this year? What costs could increase? Rent? Staff costs? Charges for holding an event?

Costs are rarely the same from year to year so leave some wiggle room when you are building your budget and direct expense forecasts. What other factors could impact your income? Is the economy in better or worse shape than last year? Has the number of donors changed? Are people donating money to other, highly topical causes this year that could turn into 'donor fatigue' that will affect your organization?

The main point is that times and situations change. You cannot rely on last years income to pave the same path this year. Last years income sets a starting point but you may encounter challenges that make it difficult to match last year....or you may have opportunities to exceed your goals. But you need to go into your planning cycles with your eyes wide open.

Recognize challenges and opportunities when you are setting budgets, income goals, and managing your cash flow.One thing is clear, forecasting your finances ahead of time and keeping a watchful eye on your forecasts and near term cash flow is essential for your non profit organization to survive and thrive!

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