A budget covers the year ahead. Financial projections look further out. They show your board, funders, and lenders where the organization is headed, whether growth plans are sustainable, and how much cushion you have if revenue changes.
Project each revenue stream for three to five years, with clear assumptions: grant renewal rates, donor retention, event growth, and program fees. Separate restricted from unrestricted revenue.
Build expenses from the plan: new hires, salary increases, program expansion, and occupancy changes. Keep the functional breakdown (program, management and general, fundraising) consistent with your budget and Form 990.
Nonprofits often run tight on cash even when the year looks balanced on paper. Grants pay on reimbursement, donations cluster at year-end, and events have upfront costs. A monthly cash flow projection shows when you may need reserves or a line of credit.
Projecting net assets, reserves, and liabilities shows whether the organization is getting stronger over time, which is a key question for funders and lenders.
Model at least three cases:
Scenarios help the board decide in advance what to do if conditions change, instead of reacting mid-year.
Update projections at least quarterly, and whenever a major assumption changes. Compare projections to actual results so each forecast gets more accurate.
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