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Financial Planning for Nonprofits

Financial Planning for Nonprofits

Financial planning is an essential part of any nonprofit organization. Adequate financial planning is essential to ensuring your organization can continue to meet the goals laid-out in your mission statement. But financial planning for nonprofits is not the same as financial planning for individuals.

Nonprofits face unique financial challenges that require an individualized approach to financial planning. What works for one organization may not work for yours. It’s crucial to establish a financial plan that speaks to your individualized organization and its needs, from managing cashflow to addressing your short-term goals, to creating an investment strategy to help you achieve your long-term goals.

At TrustCore, financial planning for nonprofits is one of our specialties. We created this guide to highlight key elements to consider. For more information, visit the TrustCore Institutional page.

Chapter 1

Cash Management

Cash is the lifeline of any nonprofit, so it’s important to establish strong cash-management practices to thrive. Cash management is about two key elements: Liquidity and yield.

A good cash management solution should ensure you have access to the cash you need when you need it (liquidity), but don’t need to sacrifice yield for the sake of that access. Likewise, you want to maximize your yield without losing liquidity. What you don’t want is to lose security, such as FDIC coverage, by chasing yield. 

When looking for a cash management solution, work with a financial advisor who can help you determine best-in-class solutions that can offer competitive yields with the liquidity you need and FDIC coverage to protect your cash reserves.

Chapter 2


While nonprofits are usually exempt from annual payments, you will still need to file a Form 990 to maintain your exempt status. Form 990 is where you provide the IRS with your relevant financial information. The IRS then uses this information to ensure your organization is working toward your mission and deserves its tax-exempt status.

There are two ways to tackle tax return preparation: By yourself or with an outside organization, such as a third-party accountant. If you decide to prepare your own tax return, keep an eye on the news. Events like the COVID-19 pandemic may grant you extensions. The Taxpayer First Act was another recent legislation that requires nonprofits to file their 990s online starting in 2021. Being aware of tax legislation changes is key to tax preparation for nonprofits.

If staying on top of changing legislation or going through the tax-return paperwork yourself doesn’t sound appealing, hiring someone outside the organization can be an important step. At TrustCore, our team has developed relationships with many of these service providers who work extensively with nonprofits and foundations, and can help connect you with appropriate contacts, be it a CPA, a lawyer, a grant writer, even a Realtor. 

Chapter 3


A nonprofit’s board of directors has a fiduciary duty to protect the nonprofit’s assets. This means that in the absence of an outside investment advisor, it’s up to your investment committee to develop and manage a prudent investment strategy that helps further your organization’s goals.

Often, a prudent strategy requires investing the organization’s assets in certain financial securities so they can grow over time. The challenge here is to do so in a way that doesn’t cause your organization to take on undue financial risk. You want your assets to increase in value over time so that you can meet your organization’s future obligations, while at the same time, invest in a way that safeguards those assets to help protect their future value.

When determining your investment strategy, start by defining your nonprofit’s investment objectives and timeframe. For example, you can create different buckets for your investments: One for short-term investments you’ll need in the next five years, one for medium-term investments and one for long-term investments. Within these buckets, you can then choose adequate investments that won’t exceed your organization’s risk tolerance.

Investment management can be especially complex when it comes to a nonprofit. If you’re not up to the task, make sure to delegate your investment responsibilities to an outside financial advisor. Just be sure to carefully vet the advisor’s expertise, because your board will still be responsible for ensuring the assets are prudently managed.

Chapter 4

IPS and Governance Assistance

In determining your investment strategy, you’ll want to begin by defining your Investment Policy Statement (IPS). An IPS is a foundational document that establishes the guidelines and parameters for an investment portfolio. These guidelines and parameters may include your organization’s risk tolerance, liquidity requirements and target asset allocation. It’s standard practice for portfolio managers to require an IPS before they assume management duties. Regardless if you work with an outside manager or handle the investments yourself, it’s important to have an IPS for your organization.

An IPS will often start by defining your goals, both qualitatively and quantitatively. It’s not enough to simply state what you want to accomplish. Take this a step further and quantify how much this goal will require and your timeframe for achieving this goal. With these parameters in mind, you can create an investment strategy to help you achieve this goal. Your strategy should include your target asset allocation and how it may change over time. 

Once you have your investment strategy, you may think your IPS is complete, but this is only the beginning. You’ll also need to outline your investment selection criteria: What characteristics will you look for in the investments you use? For example, if you invest in mutual funds, will you require they have a certain number of total holdings or meet certain environmental, governance and social criteria?

Your IPS should also detail the monitoring parameters you’ll use to keep tabs on the portfolio. Part of a nonprofit’s fiduciary duty requires regularly checking an investment portfolio to make sure it hasn’t drifted from its target allocation. What parameters will you use to trigger a rebalancing of your portfolio?

Chapter 5

Other Concerns

Addressing the above financial planning elements is only the start of your financial journey. 

The goal of most nonprofits is to continue to grow for years and decades to come. With that growth will likely come other concerns, from tax management to securing grants and funding. 

If anything, talk to a financial advisor about what these additional concerns could mean. You may find that there are some tasks you feel comfortable with, while others, you don’t. At TrustCore, we can offer referrals, advice and help with your overall plan. 

8 Common Financial Planning Mistakes Nonprofits Make

Chapter 6

The Right Financial Advisor

Nonprofit board members and executives often wear many hats, filling a void that the organization has. Unfortunately, this isn’t always a role you enjoy or feel well-equipped to fulfill. This can be especially transparent when it comes to managing your organization’s finances.

Nonprofit financial planning is a uniquely challenging field. A nonprofit is unlike any other organization. Nonprofits face distinct financial planning challenges and risks. As such, if you choose to lean on an outside professional to help you meet your financial planning needs, not just any financial advisor will do. Do your research and find a financial advisor who specializes in working with nonprofits. This will make a world of difference. 

Why Financial Planning for Nonprofits and Business Owners is Different