A Guide to Nonprofit Financial Projections

Nonprofit financial planning is tough. You can guess, hope, and peer into your crystal ball all you want, but if you’re going to stay grounded in reality, there’s just one thing that can make your nonprofit financial projections more accurate: reliable data.

Budgeting your nonprofit organization’s programs and operations may seem like an exercise in futility. After all, how can you possibly know who is going to donate and when? But if you dig into your data, carefully extract relevant numbers, then do a little (easy) math based on safe assumptions, you can arrive at a budget that will help guide how your organization runs in the future and how much positive impact you can make. 

This is forecasting, and it’s absolutely essential to make sure you don’t get caught off-guard halfway through your fiscal year.

Why Forecasting Is Important

While financial forecasting for nonprofits is not going to be perfectly accurate every single time, it’s the best tool available to give you a good idea of what your organization is capable of doing, and when. 

Enkel cites three primary benefits of budget forecasting in this post:

1. Tracking performance. Comparing both your projections and your actual activities against your budget lets you track your financial performance. is to say, if you’re blowing through your allotted budget every time, it may be time to go back to the drawing board for your next financial plan. Conversely, if you frequently have a leftover budget at the end of a program, you can probably plan on doing more with less in the future.
2. Spotting opportunities & challenges. Forecasts make it easier to plan the use of working capital around emerging opportunities and anticipated problems. Thinking about possible negative externalities in advance of actually confronting them is the best way to be ready for things to go wrong. Likewise, identifying opportunities before they happen gives you and your team the ability to be ready to capitalize on them.
3. Responding to change. While new information or events can lead to a change in plans in any given year, they don’t always warrant revising your annual budget. Cash flow forecasts are an ideal tool for responding to unanticipated change.

Forecasting can help you build buffers into your budget, rather than rewriting the whole thing, that let you roll with the punches that are so common in the nonprofit sector.

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How to Forecast Your Nonprofit Revenue

At a foundational level, forecasting is simply looking at your nonprofit revenue streams from previous years, then accounting for expected trends and changes in certain areas in the upcoming year (or five years, or ten). Let’s take a look at the trends that most often affect nonprofit financials.

1. Study Historic Giving Patterns

Looking at data from previous years, you should be able to identify both high and low seasons for revenue. For example, on average, across the nonprofit sector, 30% of all donations are made in December. This is good to know, but you can also go deeper. 

Perhaps a nonprofit organization with an annual event in July sees its main revenue spike in June as participants ramp up fundraising. Conversely, you can likely identify a slow season when revenue is low each year. These types of data points make forecasting much more accurate and your budget easier to manage.

2. Observe Philanthropic Trends

Just like for-profit businesses, the nonprofit world is subject to trends that span the market. From changes in giving behavior overall to specific shifts in different categories of supporters, trends can affect your organization either negatively or positively, and it’s a good idea to account for them.

Joan Garry takes a high-level look at philanthropic trends and how to analyze them, and it’s certainly worth your time to read Inside Philanthropy’s take on what’s likely to happen in the 2020s.

3. Review Pending Partnership Agreements

Partnerships between your organization and suppliers, corporations, governments, and other potential funders are a great way to secure monetary and in-kind support. However, it can take a long time to sort out the details. As part of your forecasting exercise, be sure to account for these types of revenue sources in the long term, as well as the likelihood that the partnership will be realized.

4. Conduct Competition Analysis

Looking at how your competitors are doing can be a helpful way to inform your forecasting. Ahead of the pack? Great, include that in your forecast. Falling behind? No problem, account for it and work toward evening the playing field. Competitor analysis templates can make it easy for you to input data and turn it into practical insights.

Joan Garry points out that most relevant financial information on nonprofit organizations is available from Guidestar, so feel free to dig in. This is an especially useful tactic for young nonprofits that don’t have a long history of internal data to pull from.

And Now, Math

Now that you’ve gathered information on things that will affect your forecast, it’s time to get your hands dirty. We created this helpful Fundraising Forecasting Calculator to do some of the heavy liftings on your behalf.