Nonprofits May Want to Try a New Budgeting Approach

Some nonprofits have discovered that budgeting, like many other things, sometimes is more effective when you try a new approach.  For example, you may want to look at adopting a rolling budget — or by reforecasting an existing budget.

Roll With It

Historically, most nonprofits have relied on static budgets developed in advance of each fiscal year and are based on estimated activity. But static budgets generally are less valuable in turbulent times.

Rolling budgets are more flexible. Rather than leaving a budget in place for the year, organizations with rolling budgets set periodic dates to readjust 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 helpful information for decision-making than a backward-looking static budget.

A More Dramatic Fix

Some nonprofits may require an even more dramatic budget fix. Reforecasting the entire budget could boost your nonprofit’s odds of survival in tough times. It 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 apparent your existing budget is materially inaccurate.

This process begins by determining variable costs and revenues (for example, supplies and program revenue) and the effect that a trigger event might have on them. In the case of an event as far-reaching as the pandemic, you also might find that fixed expenses like payroll or rent are affected. You’ll need to reforecast any of these items that are likely to differ substantially from original estimates.

You may find it worthwhile to apply budget modeling, considering different scenarios. For instance, what would happen if a major revenue source was 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.

Stay on Top of It

Now might not be your nonprofit’s budget season, but you still need to keep a close eye on your budget. As pandemic-related events and other catastrophic changes affect your organization’s funding and expenditures, review and adjust your budget. We can help you review your current budget and suggest appropriate adjustments.  Contact us with questions.

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DISCLAIMER: This blog is provided for informational purposes only and is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant. Presentation of the information in this article does not create nor constitute an accountant-client relationship. While we use reasonable efforts to furnish accurate and up-to-date information, the evolving landscape surrounding these topics is supported by regulations or guidance that are subject to change.

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