Why uncertainty calls for a more flexible budget
January 18, 2024
Economic, social and political events in 2024 have the potential to negatively influence your not-for-profit’s budget. So if you generally prepare static budgets well in advance of each fiscal year, you may want to switch things up. Rolling budgets can provide your organization with greater flexibility. And in the event of major changes, you may even want to consider reforecasting your current budget.
Rolling budgets
Rather than leaving a budget in place for the year, organizations with rolling budgets set periodic dates to adjust the numbers. For example, you might budget four quarters ahead. At the end of each quarter, you would update the budgets for the next three quarters and add a new fourth quarter.
The rolling approach anticipates changes and encourages your organization’s leaders to take a forward-looking perspective. It works well for nonprofits dealing with shifting ground and evolving strategies. Plus, it provides more useful information for decision making than a backward-looking static budget.
Reforecasting
Some nonprofits may require an even more dramatic budget fix. Reforecasting your entire budget could boost your nonprofit’s odds of survival in tough times. This option generally makes sense if you’ve undergone a major change that has implications for overall operations, such as securing or losing a large grant. Reforecasting also typically makes sense if it becomes clear your existing budget is materially inaccurate.
This process begins by identifying costs and revenues that are variable (for example, supplies and program revenue) and the effect that a trigger event might have on them. For example, during the COVID-19 pandemic, the fixed expenses (such as payroll or rent) of many organizations changed dramatically. You should reforecast any items that are likely to differ substantially from your original estimates.
You may also find it worthwhile to apply budget modeling with different scenarios. For instance, what would happen if a major revenue source were cut by half? Or if it disappeared altogether? Would you seek a loan, cancel a capital project or trim staff? The final reforecasted budget is a fully revised document, not simply a handful of line-item adjustments.
Going forward
Even if this isn’t your nonprofit’s budget season and you already have a budget in place for the year, think about how you might change the process in the future. Contact us for budgeting help.
© 2024
