Nonprofit budgeting has always been challenging. However, as we cross the one-year threshold into the coronavirus pandemic, you might notice the process is even more difficult than in the past. Many uncertainties exist, while many nonprofit organizations’ services are in demand more than ever. Here are some helpful tips and points to consider when budgeting for the future:
- Realize there is not a one-size-fits-all when it comes to budgeting. Every nonprofit is unique in the services they offer and the funding that allows this to happen. What works for one organization will likely not work for another. Recognizing the uniqueness of your organization is essential to the budgeting process.
- Remember that expenses are inherently more controllable than contributions. Possibly the most crucial factor in the budget is identifying a realistic estimate for revenues. Many organizations have seen an influx of special government funding to help meet the demand for services or stay afloat. However, not all nonprofits have been so lucky – particularly those that are mainly driven by contributions. Working closely with development staff and major donors is a critical exercise in having a good pulse on expected contributions.
- Identify acceptable levels of funding shortfalls. Every organization has a different level of net assets and reserve funding. Work closely with the board of directors to identify the maximum amount of these that you are comfortable using in the future.
- Develop a plan for potential cutbacks. If contributions fall short of historical levels and you find yourself at an unacceptable level of deficit, cutbacks may need to be made to protect the organization’s future. Having a ‘worst-case scenario’ plan in place can identify potential cuts in services you offer or specific non-critical expenses that could be eliminated, so you are prepared in advance.
- Be realistic. Don’t fill holes in funding with phantom contributions that are unlikely to roll in. If you expect a net loss during the year and have accepted that fact, let the budget reflect that.
- Get creative with new fundraising ideas. Virtual fundraisers have been successful for many nonprofits over the past year. Although in some cases, these events have yielded lower gross revenues than events that have been held in person in the past, expenses are typically much lower as well. This may be the year to depart from the annual gala and consider an event or other fundraising tactic you haven’t before!
- Monitor, revise, analyze. Make budget-to-actual comparisons often and understand why areas are over or under budget. When it is clear that the budget is no longer realistic, you might wish to amend the budget to account for this and make adjustments in other areas to compensate.
Contact Yeo & Yeo’s Nonprofit Services Group if you would like assistance in the budgeting process or have specific questions about your organization.