Participant Manual

Financial Management Training Series

Session # 4

Planning & Budgeting Part 2

2

Initiative Overview Hartford Foundation for Public Giving’s team and Fiscal Management Associates (FMA) have partnered

to deliver a Financial Management Training series (October 2020 – February 2021) to increase the

financial and operational stability and resiliency of a cohort of organizations. Together, we believe that if

organizations are rooted in a sound financial position and develop discipline around financial and

operational practices, then they will be better positioned to deliver innovative programs in support of

their mission. Through virtual convenings, and coaching, organizations in this cohort will work towards

becoming more durable and resilient in the face of challenging times.

Key Program Activities

Each organization participates in the following:

• Organization pre-assessment for baseline capacity and financial practices

• Development of a multi-year financial health trends analysis for each participant

• Hands-on learning activities in a workshop setting, and as part of a series of virtual convenings

• Coaching geared toward creating space for each organization’s specific context and helping

leaders hold themselves accountable

Core Topics

3

Today’s Session:

Planning and Budgeting Part 2

4

Activity: Homework Review Assignment: With your leadership team, review your Chart of Accounts (COA) and identify where

expenses are specific and where they are shared.

Reflect on the following questions.

1. What was surprising or challenging for you in reviewing your COA for specific and shared

expenses?

2. How has examining your shared and specific costs changed your understanding of the true

costs of your program?

5

Guide to Key Budgeting Concepts Parts of a Budget | Revenue

Revenue Sources

Contributed Earned Government Other

Examples:

• Individual

contributions

• Foundation and

corporate

donations

• Special events

Examples:

• Fee for program

services

• Sales of

merchandise

Examples:

• Fee for service

contracts

• Cost

reimbursement

contracts

• Government

grants

Examples:

• Interest income

• Investment

income

• In-Kind

contributions

Revenue Types

Without Donor

Restrictions

With Donor Restrictions

(Temporary)

With Donor Restrictions

(Permanent)

Description: Contributions are

free of donor restrictions on

their usage

Examples:

• Foundation grants for

general operations

• Individual, corporate and

other contributions

• Performance-based

contracts

• Fee for service revenue

• Investment income

Description: Contributions

have donor-imposed

restrictions and may be

removed by (1) the passage of

time or (2) an act of the

organization. Temporarily

restricted revenue is

reclassified as unrestricted

revenue once the restriction

has been met.

Examples:

• Foundation grants for

specific programs

• Multi-year foundation

grants

Description: Contributions

have donor restrictions in

perpetuity

Example:

• Traditional Endowments

6

Revenue Types: Pros and Cons Social change organizations have multiple options for bringing in revenue to fund their work.

Each type of revenue comes with its own advantages and disadvantages for organizations to

consider as they build the business model that is right for them.

Individual Contributions

Pros Cons Unrestricted Sensitive to the economy/environment

No reporting Can be affected by tax law changes

May have loyal donor base Can be small increments

Limitless Inconsistent

Can be ambassadors Less accountability

Foundation

Pros Cons Less restricted than government Less accountability to equity

Social change sector focus Don’t fund forever

More nimble Power imbalance and relationship based

Relationship based Can be project based vs. operational

Not on the ground in the work

Corporate

Pros Cons Medium to large increments Can be hard to access

Can be long-term Often profit-driven, not mission-driven

Leverage giving of individuals Can damage reputation if wrong match

Deep pockets (if priority) Danger to mask corporate activity

Multi-channel Can be very restrictive

Can leverage other resources

Government

Pros Cons Often multi-year Labor intensive/time consuming (e.g., reporting)

Often large increments Often reimbursement based

Clear scope of work Political changes can lead to cuts

Local focus Can stifle innovation

Bureaucracy

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Earned Revenue

Pros Cons Unrestricted Takes work

Can be uncapped Hard to find for some missions

Predictable - trend Commit assets upfront

Reward innovation + quality Changing market trends

Room for negotiation Different strategy

8

Business Model A business model is the rationale of how an organization creates, delivers, and funds its impact. It works

in partnership with our mission and vision to help people both within and outside our organization better

understand what we do and how we do it. The business model statement complements the mission

statement by describing the organization’s key revenue drivers as well as how it delivers on its mission.

Business Model Drivers: Revenue What organizational characteristics are associated with different revenue types?

Contributed Earned Government

• Delivery of programs and

raising of funds

independent and distinct

activities

• Requires robust fundraising

function

• Delivery of programs and

generation of funds closely

tied

• May require (contributed)

subsidies

• Revenue tied to delivery of

services but with a third-

party payer

Business Model Drivers: Expenses What are the key drivers of costs in your organization’s model?

Personnel Occupancy Purchased Goods

& Services

Total personnel costs are

typically around 70% of a

nonprofit’s expense structure

Occupancy costs tend to be

relatively fixed over the

medium or even long terms

Professional fees, supplies,

materials, travel, food, etc. -

generally smaller dollar

amounts but greater flexibility

Business Model Statement Your business model statement is a statement that complements your mission statement. It succinctly

outlines what you do as an organization and how you fund that work. Samples:

• Health clinic: We are a community mental health clinic supported by Medicaid fees and private

insurance and supplemented by a variety of other revenue streams, including government

contracts.

• Education reform organization: We provide research and advocacy for educational reform

efforts, supported by a few committed individual and foundation donors who helped create and

share our vision for reform.

• Neighborhood multi-service agency: We serve our neighborhood through a Head Start program

funded by a government contract, and through ESL and citizenship classes supported by an

annual fundraising event and business sponsorships.

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The Matrix Map: An Introduction While senior leadership and the board may have an understanding of each individual component of

their organization, they may rarely put everything together to see how the components relate as a

whole. The Matrix Map is a visual tool that plots all of an organization’s programmatic activities into a

single, compelling image. By illustrating the organization’s business model—through a picture of all

activities and the financial and mission impact of each one—the Matrix Map can support genuinely

strategic discussions and decision-making.

The Matrix Map shows: ➢ What the organization does

➢ Profitability of each activity

➢ Relative mission impact of each activity

➢ Where the organization is investing its resources

➢ Business model and sustainability

When is the best time to create a Matrix Map? Creating a Matrix Map can be helpful for an organization any time the need to make a critical decision

arises. Or, the process of creating a map can be integrated into other periodic and annual planning

activities. Some of the most common times to put together a Matrix Map include:

➢ During the strategic planning process

➢ As part of annual budgeting and operational planning

➢ When experiencing a loss of funding (to understand the implications for the organization)

➢ At the point a new opportunity or funding emerges

➢ Following a change in external environment (to understand vulnerabilities)

Who should be involved in creating a Matrix Map? There are many possible combinations of people who can participate in the process of creating the

map. Key stakeholders who can benefit from participating in the process include senior leadership,

board members, staff, funders, and constituents of the organization.

Once the team is assembled, the process of creating a Matrix Map includes the following steps:

➢ Identify your “lines of business” or activities

➢ Assess relative mission impact of each activity (see handout: mission impact criteria)

➢ Determine profitability of each business line

➢ Map the results on a 2x2 grid

Once completed, the map allows board and staff to understand the drivers of impact and revenue and

make decisions to strategically grow, shrink, or transform the organization, if necessary, in a way that

maximizes impact and promotes sustainability.

Adapted from “The Sustainability Mindset”, Bell & Zimmerman 2014

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Categorizing Revenue & Funding True Cost

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Evaluating Funding Opportunities Tool: Funding Opportunity Assessment

There are always potential cons to revenue sources and individual funding opportunities. Why might you

decide to turn down a funding opportunity? Possibly because of its reliability, restrictions or inability to

cover the full costs of a program. Here’s a tool that can help you assess different funding opportunities.

12

Strategic & Financial Planning How do strategic and financial planning Interact?

Strategy gets at the set of actions required to

achieve desired goals

Financial planning forces the focus on the “how”–e.g. relevant operational

decisions

Resource decisions, in turn, reality-test the

strategic plan, and allow for further refinement

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Financial Planning Scenario Planning addresses the question of planning in the face of major uncertainties. When it is

unclear how an organization may need to move forward, scenario planning allows them to create

multiple versions of the budget to reflect different situations.

1. Key Questions: Your scenarios should consider the following key questions:

➢ What are the external circumstances?

➢ What will be the impact on our programs?

➢ What will be the impact on our financial health?

➢ What will be the impact on our workforce?

➢ What will be the impact on operations?

2. Financial Planning Options ➢ Annual Budget

➢ Scenario Planning

➢ Multi-year Plan

➢ Cash Flow Forecast

3. Define Scenarios ➢ Select current scenario

o No regrets decisions

o Quick and reversible decisions

o Major investments or changes

➢ Define pivot points to move between scenarios

o What are the unknowns?

o What’s the timeframe in which you will need to make a decision?

➢ Engage board and finance committee for review and approval.

➢ Develop a monitoring process and communication plan

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Activity: Scenario Planning Discussion We will place you into breakout groups with the rest of your team.

As a group, please discuss the following questions. Ask one person from your group to be prepared

share one way you are preparing for any anticipated changes.

1. What significant program changes do we expect over the next year? How are we preparing for

the changes?

2. What are 1-2 significant revenue sources we expect to change over the next year? How are we

preparing for the changes?

3. What are 1-2 significant expenses we expect to change over the next year? How are we

preparing for the changes?

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Multi-Year Planning

A multi-year plan is a forecast of an organization’s operations over a 3-5 year timeframe. Multi-year

plans can help an organization:

• Facilitate the integration of operational and strategic planning

• Provide a forum to address significant long-term issues

• Increase focus on long-term financial sustainability, such as building operating reserves

• Create a space for planning around multi-year grants

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Cash Flow Forecast A cash flow budget or forecast is a 6 to 18-month plan for cash disbursements and receipts, month by

month, incorporating both operating and capital requirements. The forecast should include a clear

indication when cash will be received and disbursed regardless of when revenue and expenses will be

recognized on an accrual basis. Cash flow forecasts should include cash inflows and outflows which are

not in the operating budget like the purchase of depreciable fixed assets and utilization or repayment of

debt.

Using the starting cash position, this budget can predict the likelihood of a cash shortfall in specific

months. The position would need to be shored up using reserves or a credit line. The budget can also

predict months when there is excess cash. This could be a good time for taking on expenses which have

a flexible timeframe.

Even an organization which plans for a healthy surplus in its annual budget and has a several months of

cash-in-hand, can have a cash crunch if the revenue and expenses are very low or very high,

respectively, in some months.

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Resource: StrongNonprofits.org

Planning tools available on www.strongnonprofits.org:

1. Revenue Scenario Planning Tool Excel template to help nonprofit leaders project best, moderate, and worst case revenue scenarios

based on likelihood of revenue receipts, and to compare each revenue scenario to projected functional

and overall expenses.

2. Funding Opportunity Assessment Tool

Questionnaire to help nonprofit managers and their teams decide whether it’s wise to take on a new

funding or contract opportunity.

3. Cash Flow Projection Template + Online Tutorial

Excel worksheet designed to help nonprofit financial managers translate their operating budget into a

detailed cash flow projection over the course of a fiscal year accompanied with a step-by-step

instructional video.

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Online Tutorial:

https://vimeo.com/433631001

Password: FMAscenario

Resource: Scenario Planning Toolkit 1. Fillable Scenario Planning Tool:

2. Excel-Based Modeling Tool:

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Resource: Articles to Read

• “The Matrix Map: A Powerful Tool for Mission-Focused Nonprofits”

https://nonprofitquarterly.org/the-matrix-map-a-powerful-tool-for-

mission-focused-nonprofits/

• “Develop Strong Fiscal Muscles for High Performance”

https://leapambassadors.org/resources/ambassador-

insights/strong-fiscal-muscles/

• “Cash Flow in the Nonprofit Business Model: A Question of Whats

and Whens”

https://nonprofitquarterly.org/cash-flow-nonprofit-business-

model-question-whats-whens/

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Homework: Write a Business Model Statement

Assignment Part 1: With your leadership team, use the following worksheet to describe your key

programs in terms of expenses (activities) and revenue/support sources.

**Please send your completed business model statement to FMA prior to the next session as we’ll be

using them for a fun activity in Session 5!

Program Expenses/Activities Revenue/Support Sources

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Write a Business Model Statement Activity Part 2 Assignment: Using the information you gathered for your key programs, expenses and revenues, draft a

business model statement that describes your mission focus and key financial drivers. Use the key

questions below to guide your statement. **Please send your completed business model statement to

FMA prior to Session 5 as we’ll be using them in a fun activity! The activity will limit business model

statements to 35 words or 250 characters, so please keep this in mind for your submission to FMA.

Key Questions

What is a

Business Model?

For Nonprofit Organizations: The rationale of how an organization creates, delivers, and funds its

impact. The business model statement complements the mission

statement by describing the organization’s key revenue drivers as

well as how it delivers on its mission.

What are your organization’s

key Revenue drivers?

Sample Revenue Drivers Contributed (e.g. individual, foundation, special events)

Earned (e.g. program fees, sales)

Government (e.g. fee-for-service, reimbursement contracts)

In-Kind (e.g. pro bono services, donated goods)

Describe your organization’s business model

What is your organization’s

Business Model statement?

Sample Statement: [Organization Name] provides [these core

programmatic activities] to [this community] supported by [these

types of revenue including in-kind support].

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Appendix

Optional Teamwork: If any of the following topics really resonated with you during the training, you can explore three optional

activities with your team and/or during coaching.

Optional Teamwork #1: The Mission Matrix will help assess and rank mission impact, financial impact,

and budget size of your programs or fundraising activities, and chart them on the program matrix map.

Optional Teamwork #2: The multi-year planning activity will help your team discuss the expense and

revenue drivers for your organization and a case for change over an extended time frame.

Optional Teamwork #3: The Scenario Planning Toolkit will help your team move through a step-by-step

process to explore scenarios and model the financial implications over the next 6-18 months

23

Homework: Mission Matrix Mission Impact Worksheet The following worksheet can be used to determine how much each of your programs/activities

contribute to the achievement of your mission. Use the mission impact criteria to help you rate each of

your programs/activities. Then, from a scale of 1-5, rate how much each program/activity you do

contributes to the achievement of your mission. 1 = Not at all and 5 = Very Much

Mission Impact Criteria Definition

Contribution to intended impact Relative to other programs, how well does this program contribute to what the

overall organization aims to accomplish?

Excellence in execution Is this program something that the organization delivers in an exceptional

manner?

Scale How many people are touched or influenced by this program?

Depth How profound is the level of intervention with this program?

Significant unmet need

Is there significant competition or are there similar offerings of this program?

Is there an adequate supply of services to meet the demand for them in our

community?

Community building Does this program build community around the program or the organization as

a whole?

Leverage Does this program benefit from and nurture important relationships and

partnerships inside and outside the organization?

Program or

Fundraising

Activity

Contribution

to Impact

Execution Scale Depth Unmet

Need

Community

Building

Leverage Overall

Average

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List your programs below with the mission impact (high to low) and financial impact (positive to

negative) of each one.

• Mission Impact: How much does this program/activity contribute to the achievement of your

mission? (Taken from above)

• Financial Impact: What is the program or activity’s financial impact to your bottom line? Does it

generate resources (positive) or require investment (negative)? (Use financial statements)

• Budget Size: What are the total annual expenses related to this program/activity? (Use budget)

Program or Fundraising Activity Overall Mission

Impact

Financial Impact

(Positive/Negative)

Budget Size

Mis

sio

n Im

pac

t

25

Use larger circles (bigger programs) and smaller circles (smaller programs) to plot your programs on the

2x2 Matrix Map below.

Mis

sio

n Im

pa

ct

Low

High

+ Financial Impact

Mis

sio

n Im

pac

t

-

Adapted from The Sustainability Mindset by Steve Zimmerman and Jeanne Bell 2014

26

Appendix: Build a Multi-Year Plan With your team, choose one scenario or goal you are considering over the long term and work through

the questions thinking about what it would take to achieve that scenario or goal. Start with the

organization analysis cover sheet on this page, then think about the expenses and revenue drivers,

finishing with the case for change.

Defining Your Scenario or Long-Term Goal

Scenario (e.g. in anticipation of this event, we are planning these activities) or Goal:

Impact to the organization, programs and

supporting services:

What are our top concerns?

How will our business model change?

Timing / Likelihood

(e.g. planning, start, duration)

Decisions:

What decisions do we need to make?

What financial information do we need to

make these decisions?

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A: Expense Drivers

Type Organization

Wide

Growth

Scenario

Reduction

Scenario Change & Expected Timing

Pe

rso

nn

el

• Will there be

COLA

adjustments?

• Will positions

be brought

up to market

rate or

benefits

change?

• Will there be

leadership

transition?

• Will the

leadership

and

management

structure

look the

same?

• Is

additional

capacity

needed?

• Are

different

skillsets

needed?

• How will

positions be

consolidated?

• Will staff be

reassigned to

other areas?

• Will there be

separation

packages?

Co

ntr

acto

rs/

Co

nsu

lta

nts

• How can we

best use

consultants

to support

our long-term

goals?

• What

specialized

expertise

should we

leverage?

• Do we have

the skillsets

needed?

• Should

outsourced

functions

be

transitioned

in house?

• Can we reduce

staff positions

and engage

consultants as

needed?

• Should

functions be

outsourced?

28

A: Expense Drivers

Type Organization

Wide

Growth

Scenario

Reduction

Scenario Change & Expected Timing

Fa

cilit

ies

• Is the lease

expiring?

• What

maintenance

is needed?

• Do we need

to make

significant

renovations

to our space?

• Will space

be

appropriate

in the

future?

• If

expansion

of space is

necessary,

will we

lease or

buy?

• Will we move?

• Can we

sublease or

renegotiate

our lease?

• Will we rent

out some of

our building?

Pro

gra

m E

xpe

nse

s

• Will we

increase or

decrease our

current

program

services?

• How will we

improve or

maintain the

quality of our

services?

• How will we

gather and

evaluate

information

on our

programs?

• Will there

be new

data

collection

and

program

evaluation

needs?

• Will there

be start-up

costs?

• How will

reduced

services

impact our

efficiency?

• Will we need to

transition

services or

participants to

other

programs or

organizations?

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A: Expense Drivers

Type Organization

Wide

Growth

Scenario

Reduction

Scenario Change & Expected Timing

Ou

tre

ach

/C

om

mu

nic

ati

on

s

• How will we

communicate

with our

community?

• Will we

need to

reach out

to new

program

participants

or donors?

• Will we need to

communicate

changes or

reductions in

services?

Te

ch

no

logy

• Do we have

an org-wide

technology

plan?

• Are we

regularly

replacing

outdated

equipment?

• Do we need

to update

software?

• What training

will we need?

• What kinds

of

technology

will be

required as

we expand

services?

• How will we

measure

outcomes?

• Can we

leverage

technology to

provide

services at a

lower cost?

30

A: Expense Drivers

Type Organization

Wide

Growth

Scenario

Reduction

Scenario Change & Expected Timing

Fix

ed

Asse

ts

• What

equipment or

other fixed

assets will we

need?

• How will we

maintain or

replace

depreciated

assets?

• How will we

pay for the

purchase of

new capital

assets: debt,

reserves, or a

capital

campaign?

• Will there

be

significant

cash

layouts in

anticipation

of new

revenue

streams?

• Will we sell off

assets no

longer

needed?

Oth

er

• Are there

other

expenses

that will

significantly

change?

31

B: Revenue Drivers

Type Experience Guiding Questions Opportunities & Risks Change & Expected

Timing

Ind

ivid

ua

l

• What activities

currently

support

individual

giving?

• What role

does the

board play?

• Will we need to

identify new

donors?

• Do we have

donors who

could increase

their giving?

• Do we need

new messaging

to appeal to

donors?

Fo

un

da

tio

n &

Co

rpo

rati

on

s

• What capacity

do we

currently have

for foundation

and corporate

gifts?

• Do we have

any current

multi-year

grants or

commitments?

• Will funders

support our

strategy?

• Will new

revenue result

in new

expenses?

• If funding

source at risk,

what are new

sources that

may cover gap?

Go

vern

me

nt

• Do we

currently

receive local,

state or

federal funds?

• If, so how do

we manage

cash flow?

• How might

policies impact

our support?

• Will we need to

increase our

compliance

capacity for

government

funders?

• Are we eligible

for expense

reimbursement

contracts or

grants?

32

B: Revenue Drivers

Type Experience Guiding

Questions Opportunities & Risks

Change & Expected

Timing

Ea

rne

d

• How has our

team engaged in

earned revenue

strategies?

• Is there a mission

fit and expertise

needed for

earned revenue?

• Do we have

new

opportunities

to generate

earned

revenue?

• What will be

the volume

of activities?

• How will we

determine

pricing?

Oth

er

• What has been

our return on

investments?

• What is our

investment

strategy?

33

Case for Change

To achieve… (describe overall goals and impact desired)

Our organization will require… (explain the level of

investment/change required)

Over the next…(insert time frame)

Which will help cover…(describe what the investment/change will cover

and how it will help you achieved desired impact)

34

Appendix: Scenario Planning Toolkit The Scenario Planning Toolkit is comprised of two documents which will be emailed following the

training.

• Scenario Planning Tool: This tool is formatted to help leadership teams develop and

document up to three scenarios and associated assumptions for your organization’s path

forward.

• Scenario Modeling Tool: This tool is intended to be used for projecting an organization’s

cash flow across the fiscal year under up to 4 different potential scenarios, identifying in

advance any potential cash shortfalls that may need to be addressed.

Access an online tutorial for the modeling tool at https://vimeo.com/433631001 (Password:

FMAscenario)