THE BLOG
02/27/2012 08:00 am ET Updated Apr 28, 2012

The Power of Financial Planning

While most arts managers and board members don't turn to financial forecasts when they are looking for a lift, I must admit that I find them inspiring. I find possibilities for change, growth and renewal in projections for income and expenses.

Of course we in the not-for-profit world should never judge our success by the financial results we produce. Our missions relate to programming success, audiences reached and communities changed.

But when I create a financial plan as part of a strategic planning effort, I can see the impact of the plan in the way the numbers change over time. I can 'create' a believable new financial future for the organization.

I have been developing new financial plans for three organizations in recent weeks.

One of them needs to bolster its individual fundraising effort substantially to overcome current financial problems. I have no doubt it can. While many on the board and staff are skeptical when I discuss proposed strategies, I hope the financial plan I am creating gives them inspiration and motivation.

A second organization intends to increase its level of programming substantially and needs to find new sources of earned and contributed income to pay for is level of growth; the plan for this organization should produce all of the additional income required if it is implemented well.

And the third organization needs to find new earned income; it cannot continue to rely on growth in contributed income if it wants to maintain fiscal stability. This organization is starting a new for-profit business that should take the pressure off of its highly successful development effort that has been growing rapidly but is starting to reach diminishing returns.

In each case the financial forecasts for the future look radically different than the income statements for the past five years. And yet, in none of these instances are the forecasts simply wishes -- instead they emerge from the organization's strategic plans.

To me, these financial forecasts are the exclamation point of the strategic plans. They are a tangible demonstration that the strategies included in the plan have an impact.

Yet in too many plans for arts organizations, the words of the strategies do not match the music of the financial forecasts.

Proposed aggressive marketing, fundraising and board development strategies do not seem to result in commensurate changes to the expected fiscal profile of the organization. Major new initiatives are proposed yet the numbers rarely change by more than three or four percent per year.

This makes it hard to believe the organization truly believes its plan -- that there is no real conviction that a change in strategy will actually result in something. This makes the entire planning process seem pointless, at best, and dampens the motivation of arts organizations to pursue dramatic changes in strategy at worst.

Organizations that devote time and energy to developing strategic plans must have the courage to imagine truly different futures. And the financial forecasts that should end every plan should reveal one aspect of this new tomorrow.

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