Financial Considerations for 2022 – Looking Ahead
Posted in News Story
By A. Michael Gellman, CPA, CGMA
December 3, 2021
A. Michael Gellman is an independent Fiscal and Financial Strategist (CFSO) for nonprofit organizations and a founding principal partner for Fiscal Strategies 4 Nonprofits, LLC. He is also a part of the Center for Public & Nonprofit Leadership faculty.
A new calendar year is just around the corner. As with any new year, thoughts turn to how we can learn from the past and make improvements for the future. My writing has focused on fiscal and financial considerations and tactics that will help nonprofit organizations enhance sustainability and improve financial health, with a shift in emphasis over the past 6 months toward longer-term planning.
As you turn attention to preparations for 2022, consider incorporating some or all of these six fiscal and financial tactics into your planning strategies.
- Stress testing a nonprofit organization’s funding sources on a regular basis is my new go-to financial management tactic. The focus of this tactic is to assess whether revenue and other funding sources are changing and to incorporate future expectation for funding. https://www.se4nonprofits.com/blog/wt-74-nonprofits-should-stress-test-funding-on-a-regular-basis
- This Financial Health Assessment and Implementation Framework has recently been revised and expanded to be used as your organization returns to full capacity programming and more normal annual planning cycles. https://www.se4nonprofits.com/blog/wt-86-revised-financial-health-assessment-and-implementation-framework
- Capacity risks are real and need attention equal to the attention we pay to fundraising. We must ensure our organization’s ability to deliver the services promised, while continuing to perform at the highest level possible. The potential damage from under-performance and capacity stress is serious and needs consideration. https://www.se4nonprofits.com/blog/wt-83-capacity-risks-are-real-and-need-attention
- Capital budgets are an important planning tool. They need to be considered alongside annual operating budgets. Capital budgets help connect future capacity and impending cash flow pressures with annual operating cycles. Capital budgets need just as much attention as annual operating budgets, yet they are often ignored. https://www.se4nonprofits.com/blog/wt-79-capital-budgets-play-an-important-role-in-nonprofit-planning
- Accounting for multi-year grants. Funding cycles rarely line up with fiscal years and annual operating budgets. It is essential to plan for the impact that multi-year and off-cycle funding has on the annual bottom-line by showing the expected total impact over the full funding cycle. https://www.se4nonprofits.com/blog/qa-70-how-can-i-explain-the-bottom-line-budget-impact-of-multi-year-grants
- Finance Committee Orientation Meetings. One of my favorite financial planning tactics is to develop and schedule annual finance committee orientation meetings that 1) set realistic goals, 2) illustrate how the finance committee will function, and 3) demonstrate how committee members can participate and be useful. https://www.se4nonprofits.com/blog/wt-63-finance-committee-orientation-meetings-are-worth-the-effort
Planning Tip – The past two years has taught us that it is more important to plan forward than to look back. GAAP (generally accepted accounting principles) financial statements are naturally rearward looking and contain little information about the future. Make sure to include in your financial reporting system management reports, financial projections and forecasts, to keep attention more focused on the future than the past.
Incorporating even one or two of these forward-looking financial management planning tactics will open eyes to possibilities which is often more important than reporting on what has happened in the past. Visit www.se4nonprofits.com for other related articles, resources, and videos.