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Enhancing the strategic value of the finance function

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Given the dynamic nature of today’s operating environment, it is growing increasingly important for not-for-profit boards, finance committees and management to expand their view of their organization’s financial performance. While nonprofits routinely develop strategic plans to re-evaluate their market position, assess organizational priorities and trade-offs, and chart a course for the future, such initiatives are conducted with varying levels of participation from and coordination with chief financial planners. Although some finance executives are intimately involved in these initiatives, others have historically maintained a relatively nominal role, with their primary focus on more traditional general accounting and financial reporting matters. Finance professionals are increasingly being asked to offer insights and deliver greater strategic value to their organization’s long-term planning and resource allocation decision-making.

In addition to participating in discussions and partnering with organizational leadership to confront pressing issues around balancing the budget, evaluating investments, managing cash flow, addressing escalating costs and performing budget-to-actual analysis, among others, finance executives must maintain a keen eye on navigating the tumult associated with the months and years ahead, while taking measured steps to position their institution for financial sustainability and future success. These leaders are charged with the difficult task of balancing their organization’s ambitions with financial capacity and the opportunity costs of resource deployment. While an annual budget and year-to-date variance reports and forecasts can play a vital role in helping finance and not-for-profit leaders maintain a finger on the pulse of near-term performance, it is essential that boards, finance committees and senior management understand the organization’s anticipated trajectory over the long term.

With increasing uncertainty in nonprofits’ operating environment and ever-rising constituent expectations around performance, program development and service delivery, establishing a multiyear financial plan and developing long-range financial projections will help leaders and those responsible for governance to better understand baseline financial performance projected for the next three to five years. This planning will also offer valuable insights into the organization’s sensitivity to changes in key business drivers under a variety of “what-if” scenarios. In addition to understanding the organization’s trajectory in relation to the status quo, long-range financial plans enable finance executives to make more informed decisions regarding their organization’s ability to pursue growth, fund capital expenditures and service debt. These plans will also shed light on how heavily their organization might have to rely on investment income or fundraising to support core operations.

An integrated long-range financial projection, informed by organizational strategy, is increasingly becoming a valued resource for finance and board discussions.

See the full report: The State of the Not-for-Profit Sector in 2015