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Strategic Planning in the Arts: A Practical Guide
Financial Planning and Management
Once an organization develops its implementation plan, a financial plan must be created. Financial plans are a series of projections that reveal the expected fiscal impact of pursuing organizational strategies in the manner described in the organization’s implementation plan. While implementation plans answer the questions of what will be done, by whom and when, financial plans answer the questions, “At what expense?” and “Will enough income be generated?”
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While the missions of not-for-profit arts organizations focus on the quality of their artistic and educational offerings, it is a fact of life that these organizations must remain in long-term cash flow balance if they are to sustain their levels of performance.
Financial plans are a series of projections that reveal the expected fiscal implications of pursuing the strategies described in the plan. If an organization plans to mount an active national visibility campaign, the associated costs should be reflected in the projected marketing budgets. If strengthening the Board to increase contributions from individuals is a key strategy, support from individual donors will grow more rapidly than from other donor categories; fund-raising costs will probably increase as well.
While the financial plan, therefore, is a logical ending point for the strategic planning document, its placement does not mean that the goal of the plan for any arts organization is simply to produce a sound income statement or balance sheet. The goal of the plan is to help the organization achieve its mission; the financial plan indicates whether the organization will have the fiscal strength to pursue this mission in a consistent manner.
Two basic structures form the heart of a financial plan: income statements and balance sheets. These reveal the annual fiscal performance of the organization and the accumulated historical level of performance, respectively. The financial plan should project income statements and balance sheets for each year in the planning period.
The number of years in the planning period should depend on the nature of the organization, the challenges it faces and the stability of the environment. Most organizations project five years into the future when developing their plans. This is sufficient time to implement most strategies and to observe their financial impact. For very young organizations (which change too dramatically to project accurately too far into the future) or for those in a rapidly changing and unstable environment, a three year forecast may be more reasonable. An organization planning a large-scale ten-year physical expansion project, including a capital campaign, however, may need to extend the planning period.
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