Organizational budgeting is far from a simple process, and this is especially true for those in nonprofit leadership. There are often many complexities to consider when developing a financial plan capable of carrying the mission forward into the next fiscal year and, certainly, the added challenges of the COVID-19 pandemic have not made this task any easier.
Predicting the giving patterns of donors; determining what additional funding sources may arise; making sure program expenses can support the restrictions associated with many contributions; attempting to control the timing of awards to coincide with the period in which they have been budgeted; deciding whether it is possible, let alone profitable, to host a gala or special event in the current climate; and struggling to keep enough unrestricted dollars hitting the bank account to pay the staff and keep the lights on is, in a word, daunting.
Rarely do nonprofit professionals have the resources available for the technology that would assist in modeling all these various components and many often feel as though they must resort to consulting crystal balls to bring everything together.
If the past year has taught us anything, it is that the best-laid plans may not always yield what is needed for current circumstances. Our world is constantly evolving and so too must our financial planning methods.
Not-for-Profit organizations are seeing the benefits of flexible budgeting, which produces a plan capable of shifting and changing along with the needs of the mission. Thinking about budgeting as a fluid process rather than a static one is not only very realistic but could also give management the tools to make more effective decisions.
Flexible Budgeting Strategies:
When contemplating flexible budgeting, an organization may consider employing some of the following strategies:
- Developing more than one budget for the fiscal year.
It is quite conceivable in today’s world that an organization may find benefit in having two or three budgets at its disposal, depending on how activities unfold. Considering various financial outcomes between program activity and fundraising events held in-person verses virtually, for example, may be a worthy endeavor.
- Establishing ranges rather than static figures for certain revenues and expenses.
As situations shift and develop, having a wider “comfort zone” in place could provide sound guidance for the organization.
- Creating performance metrics for programmatic areas.
Metrics can be a difficult consideration for many organizations, as outcomes are not always easily aligned with the myriad revenue sources that support them; however, using discernment regarding the viability of program performance and related expenses may be a beneficial exercise as funding patterns change.
- Setting pre-defined contingency plans.
Along with the approved budget(s) for the fiscal period, it may be helpful to create a priority listing of those expenses that can be adjusted more easily than others in the event that revenues fluctuate beyond expectations. Getting early buy-in on this contingency list from the management team may also make evolving financial decisions easier when or if they become necessary down the road.
- Updating the budget on a regular basis.
One benefit of a flexible budget is its agility. It can (and should) be updated regularly throughout the year and communicated to those individuals who are responsible for helping maintain it.
A good budget requires ample amounts of time, thought, energy, communication, and cooperation across the organization. To be effective, it requires commitment from all levels of management and governance and is something to be consulted continuously. Change often creates anxiety; nevertheless, understanding this change is unavoidable, and pre-emptively building it into a flexible and fluid budget model allows for a realistic tool that can be relied on to help navigate an organization through periods of elevated uncertainty.
If you have questions regarding flexible budgeting for your organization, please contact your local Blue & Co. advisor for assistance.