For nonprofits, navigating the challenges of constrained resources and increased demand—often at the same time—is nothing new. Building financial resilience is a necessity, and scenario planning and revenue diversification are essential tools for nonprofits to manage uncertainty, sustain their impact, and ensure financial sustainability.

In this article, we explain what scenario planning is, how it’s used, and what it involves. We also provide actionable tips for revenue diversification that will position your organization for sustained impact.

What is Scenario Planning for Nonprofits?

Scenario planning is a strategic planning method used to assess a variety of risks and opportunities and create contingency plans. More than budgeting, which covers a single year, and forecasting, which uses historical data to predict the near future, scenario planning empowers you to proactively explore “what if” situations for a longer time horizon. It’s about preparing for a full range of outcomes, so your organization can pivot quickly and confidently respond when circumstances change.

How Do Nonprofits Use Scenario Planning?

Nonprofits can use scenario planning to prepare for the following:

  • Program Demand: Anticipate changes in service needs, such as increased demand during economic downturns or decreased demand due to demographic shifts.
  • Funding Stability: Explore options for managing fluctuations in grant availability, donor trends, and government policy.
  • Communication Strategies: Prepare to keep stakeholders informed and engaged as you plan for new programs or respond to external changes.
  • Capacity Building: Plan for staffing shortages and resource constraints under various circumstances to identify gaps and address them proactively.

What are the Steps in the Scenario Planning Process?

  1. Assess Risks and Opportunities: Identify both positive and negative factors that could impact your organization. Use the PESTLE framework (Political, Economic, Social, Technological, Legal, Environmental) to brainstorm risks across program, fundraising, and administrative areas.
  2. Prioritize: Assign impact levels (high, medium, low) to each risk or opportunity. Focus on mission-critical issues first.
  3. Create Scenarios: Develop multiple “game plans” for multiple scenarios—for example, optimistic, reasonable, and catastrophic. Use historical data and current budgets as your baseline, then layer in revenue and expense assumptions for each scenario and consider how each group of assumptions affects the line items in your forecast. Make sure you have input from all relevant stakeholders.
  4. Develop Strategies and Assign Actions: Develop strategies for addressing critical uncertainties. How might you spend less or differently? How might you fundraise more or differently? Then assign responsibilities and set SMART goals (Specific, Measurable, Achievable, Realistic, Timely). Make sure every action has a clear owner and deadline.
  5. Implement and Monitor: Use key performance indicators to measure success. Review cash forecasts and compare them to actual results. Update plans regularly and pivot as needed. Board oversight, active monitoring, and engagement are essential.

Watch our webinar for a detailed walkthrough of specific scenario planning examples.

How Can Nonprofits Get Started with Scenario Planning?

  • Don’t Wait: The best time to prepare is before you need to react.
  • Start Small: Focus on high-impact risks and build your plan step by step.
  • Leverage Technology: Use scenario planning software to model different outcomes quickly.
  • Ask for Help: Engage financial professionals or nonprofit finance consultants to guide your process.

How Can Nonprofits Diversify Revenue to Strengthening Financial Sustainability?

Assess each of your revenue streams and consider the following best practices to weather uncertainty and fuel growth:

Contributed Revenue

  • Cultivate Donor Relationships: Research new funders you haven’t pursued before. Connect with funders known for providing operating grants. Partner with companies that provide matching gifts.
  • Engage Your Board and Volunteers: Empower your board and volunteers to use their networks for fundraising by providing tools and education.
  • Solicit In-Kind Donations: Seek gifts of nonfinancial assets like equipment, supplies, and advertising.
  • Make Giving Easy: Set up automatic payment options to encourage sustained support. Let donors know they can direct their donor-advised funds to support your nonprofit.

Earned Revenue

  • Tiered Memberships: Offer benefits at various levels to appeal to different needs and interests.
  • Workshops and Merchandise: Monetize educational programs, webinars, and workshops. Sell branded products related to your mission.
  • Facility Rentals and Co-Produced Events: Rent out unused space or equipment. Collaborate with other organizations on event hosting to expand your audience and share costs.

General Strategies for Financial Sustainability

  • Transparency: Share your story. Publish financial statements, audit reports, annual reports, and impact reports on your website to build trust.
  • Advocacy: Educate local officials on your economic impact and participate in business leagues to expand your reach.
  • Digital Outreach: Use social media and crowdfunding to boost your visibility and attract new supporters.
  • Budget for Surplus: Remember, nonprofit is a tax status—not a business model. Aim for a cushion to protect your organization’s financial health and sustainability.
  • Build Reserves: Establish board-designated reserves from your surplus and secure a line of credit to prepare for challenges before they arise.

Ready to Build Resilience?

YPTC specializes in nonprofit financial management, offering expert guidance in scenario planning, revenue diversification, and best practices for financial sustainability. Explore our Scenario Planning for Nonprofits: Building Resilience and Sustaining Impact webinar for more insights, real-world examples, and actionable strategies.

Work with us for customized support!

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