Article

Preparing a Long-Term Financial Plan

Financial Management and Accounting

Preparing a Long-Term Financial Plan

 

Long-range financial planning is an essential facet of organizational sustainability. The administrator and Board of Directors need to look beyond the current year to plan for maintenance and growth. A long-term plan is not a budget; it is a combination of qualitative and quantitative assessments of the foreseeable future.

 

Two items are essential to a multi-year forecast. The first is a long-term “business plan” for the organization. This is based on a set of goals discussed and agreed upon by the Board of Directors and administrators of the organization. Those goals should frame the expectations for services and growth in the coming years. A five-year plan would be good, but three years should be the minimum. The goals should be consistent with the mission of the organization, and aggressive, but achievable.

 

Where does the organization want to be in five years? What are the desirable goals? What are the obstacles to achieving those goals?

 

The second item to form the basis for a long-rang forecast is the operating budget for the upcoming fiscal year. The budget forecast will be integrated to develop the long-term financial plan.

 

Assumptions

 

In making the plan, it may be desirable to consider several different scenarios and predict the impact for both revenue and expenses. The table below frames one approach for estimating the percentage change.

 

Factor/ Scenario

Improved economic conditions

Current economic conditions

Declining economic conditions

Volume of need for reusable AT devices

 

 

 

Availability of devices for re-use

 

 

 

Income from grants increase (decrease)

 

 

 

Income from public contributions +/-

 

 

 

Salaries growth

 

 

 

Benefits growth

 

 

 

Supplies/ parts increase

 

 

 

Other expenses +/_

 

 

 

 

 

Long-term plans provide an overall focus on the financial health of the organization. In developing these plans, the team will be forced to examine capital, sources of income, cash flow and anticipated changes to expenses.

 

Forecasting Changes to Income

 

Using the new budget as a base, the management team should examine all known or anticipated changes to income and expenses for the planning period. The duration of grants is easy to forecast. Sometimes corporate or charitable contributions are stable, predictable sources. However, it is important to consider factors that might affect that the stability of income.

 

An examination of anticipated income streams may force the examination of alternatives. It takes a great deal of planning to secure new sources of funding for nonprofits, so it is good to have an active program in place. Too often, nonprofits focus on the daily fulfillment of the mission until the funds are exhausted and it is not possible to sustain the organization. “Sales” has a different meaning for a nonprofit, but “sales” in the sense that generating income should be a regular, ongoing assignment for someone in the organization.

 

Predicting Changes to Expenses

 

The financial impact of each goal should be quantified based on current costs and added to the forecast for coming years. Then, the incremental costs of operations can be projected.

 

Most of the expenses of the assistive technology reuse organization should be predictable within reasonable ranges. This is true because the expenses are more likely heavily skewed toward salaries and wages. Other operating expenses are usually expected to increase in some modest fashion. Most changes to expenses can be explained by changes in volumes (number of users served) or increases in the cost of salaries, materials and supplies.

 

Salary changes should be easy to project, based on existing or additional staff, and the annual rate of increases. The increase in costs of materials, supplies and parts can be projected based on historical price increases.

 

Occasionally, unanticipated factors have a dramatic effect on some categories of expenses. For example, the unanticipated escalation of oil prices may be well beyond any anticipated but because utilities represent a low proportion of the budget, this should not be extreme.

 

However, massive physical losses due to a natural disaster or other unanticipated events might exceed the insurance coverage available for recovery or continuity of operations. These scenarios should be examined to determine whether adequate levels of coverage exist, or what the alternatives would be. They are not part of the typical long-term forecast.

 

 

 

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DISCLAIMER

This work is supported under a five-year cooperative agreement # H235V060016 awarded by the U.S. Department of Education, Office of Special Education and Rehabilitative Services, and is administered by the Pass It On Center of the Georgia Department of Labor – Tools for Life.  However, the contents of this publication do not necessarily represent the policy or opinions of the Department of Education, or the Georgia Department of Labor, and you should not assume endorsements of this document by the Federal government or the Georgia Department of Labor.

 

 

 

 

 

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Other Information

Title: Preparing a Long-Term Financial Plan
Module: Finance/Accounting
Author: Trish Redmon
Audience: Administrator
Sub Title: Forecasting three to five years
Procedure:
Organization Source: Pass It On Center
Last Reviewed: 10-20-2011 2:44 PM