Not-for-profit leaders face the challenge of growing their organizations through capital acquisition while maintaining financial stability. It is a delicate balance – one that many organizations strike by retreating to tried and true methods. To achieve truly sustainable financial results, however, it is just as important to look ahead as it is to look back. Not-for-profits can use strategic capital planning to invest not only in the current state of their organization, but also to lay the groundwork for a solid financial future.
Strategic capital planning focuses specifically on linking an organization’s capital needs to its strategic and operational plans. It is a process that works best when an organization’s key stakeholders are willing to support it and participate as needed. Through development and ongoing evaluation of a strategic capital plan, your not-for-profit will become more flexible, responsive and adaptable to future opportunities and challenges. Let’s examine the four main steps to the strategic capital planning process.
Establish a financial baseline
Gain a thorough understanding of your not-for-profit’s current financial situation. This is the lens through which all strategies will be evaluated during the process. At this point, you need to identify, understand and define the following factors:
- Existing debt and capital capacity
- Current and target credit profile
- Required level of cash reserves
- Estimated future capital capacity (using sensitivity analysis)
Define affordable capital capacity
This is the amount of money expected to be available for financing capital projects. It is the sum of existing cash reserves, contributions, cash generated from activities and funds available through debt financing. Once calculated, this figure will help your organization better understand the capital implications of the targets, milestones and strategies you create out of this process.
Hold interactive planning sessions
Gather your strategic capital planning team and work together to conduct real-time modeling and evaluate strategic options. Group members can provide input as they see the planning scenarios unfold. This step should also include consideration of:
- Market-related issues, such as demand, competition and program life cycle
- Projected growth of operations
- Identification of financing options (contributions, debt financing, operational cash flows), and evaluation based on cost, risk and effectiveness of meeting specific needs
- Management-influenced actions, such as cost savings initiatives and revenue enhancements
Review the plan. Once modeling is complete, you will have a plan ready for a thorough examination. This is the time to kick the plan’s tires, so to speak, to ensure it is ready for implementation to meet your strategic objectives. At this step, it is important to determine whether the plan’s underlying assumptions are sound, and if there are any financial constraints to address with external financing goals like debt financing, capital campaigns or fundraising initiatives. Finally, build in accountability measures for management and board members to progress towards the plan’s goals.
Strategic capital planning is a vehicle to help not-for-profits anticipate future challenges and seize potential opportunities. Continual evaluation and adaptation of the plan helps organizations formalize their financial organizational goals, which strengthens the group’s commitment to long-term success.
Need help implementing a strategic capital plan for your not-for-profit? RKL has a deep bench of professionals focused on serving the financially oriented needs of community benefit organizations. Contact one of our local offices today.