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Year End Financial Planning for Nonprofits

best practices board finances foundation reporting Oct 12, 2023

    Year end financial planning is one of the most critical things you'll do in a nonprofit organization. So, as we approach the end of the calendar year, I want to encourage board members and Executive Directors by giving you some concrete steps to help you focus on your financial situation and prepare for the upcoming year. 

     As a seasoned nonprofit CFO, I've seen many organizations struggle with what to do at the end of the year. For now, I’m going to assume you have a calendar year end, although most nonprofits do not. But, the same processes apply, no matter when your year ends, so just adjust the timing based according to when your fiscal year ends.

1. Review Your Budget

     First of all, let me remind you that this is actually a great time to review your budget. 

You’ll want to focus primarily on the revenues and expenses for the year:

  •  What is your net income? 
  •  Was it income or was it actually loss? 
  •  What was over budget?
  •  What was under budget? 
  •  Is there a trend? 
  •  Is there an alarm going off?
  •  Are you missing an opportunity to adjust your budget for next year? 

2. Evaluate Your Ending Net Asset Balances 

     Next, it’s time to evaluate your ending net asset balances. On your balance sheet, look for the net asset section, and you should see those resources broken down into two categories- “restricted” and “without restriction.” If you have restricted funds, make sure you have liquid resources to fulfill those restrictions.

     In addition, you also need to be aware of the ending balances of your internally designated funds. Remember, you have two classes of net assets- funds with restrictions and funds without restrictions. “Restrictions” are set by donors, (see above) but internally designated funds are funds without restriction. We need to be earmarking our own funds or “internally designating” funds for things like emergencies or cash reserves. This is a great time to reconsider your goals for cash reserves. Has your financial climate changed? Maybe the conditions in your environment have deteriorated and there’s a greater likelihood of needing cash during a decline in giving. Perhaps you are funded by a grant that is nearing its expiration. There are many reasons you may need to increase your cash reserves. 

Considerations For Evaluating Internally Designated Funds

  •  Percentage of your Total Budget- time to recalculate and update!
  •  Percentage of Debt Service- have you paid off a loan recently? 
  •  Return on Cash Reserves- Are you taking advantage of unusually high yield investment accounts? It’s currently possible to earn around 4% interest even without compromising liquidity or insurance! (For more info see my previous article on this) It’s certainly a good season to be able to get a little bit of yield on those funds that you're setting aside. 

3. Communicate with Your Stakeholders

     Finally, I want to emphasize the importance of communicating well with all your stakeholders.  Tell them what your financial situation is, what your goals are, and what your plans are for the upcoming year. This includes making sure board members are well informed. Don’t forget to communicate with your staff members or maybe even your volunteer groups. When everyone is on the same page, and your donors see transparency In your financial communication, it really helps to build trust and keep everyone engaged and informed. 

     If planning all of these financial tasks seems a bit overwhelming, I’ve created an effective financial task checklist to help you know exactly what to do and when to do it. It’s available to you as a free resource by clicking here. 



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