Developing a financial strategy for nonprofits

Nonprofits operate in a complex environment in which they sometimes have to achieve two conflicting goals. The natural tendency of a nonprofit's management is to maximize the organization's social goals, by using its resources fully. However, every nonprofit needs financial stability, and this goal requires to limit the expenses in order to create reserves. This article presents guidelines for planning toward financial stability, using real life examples from three nonprofits. The article presents the common measures of financial stability and shows how we can project their values for the relevant planning period. Using these projected measures of financial stability, the article presents a methodology to determine the necessary budgetary planning both for the next budget and for the long-run. We also demonstrate how the financial stability measures can be used to manage the risk that emanates from the significant uncertainty regarding income in the nonprofits' sector.