Uncertain Times: Develop a Flexible Budget Strategy
Posted by Jenna Sheehan on January 17, 2024
Navigating uncertainty requires a more adaptable budget strategy. Economic, social, and political developments in 2024 have the potential to impact your not-for-profit's budget adversely. If you traditionally create static budgets well in advance of each fiscal year, it might be time to reconsider. Embracing rolling budgets can provide your organization with increased flexibility. In the face of significant changes, you might also want to explore the option of reforecasting your current budget.
Rolling budgets involve adjusting the budget periodically instead of leaving it unchanged for the entire year. For example, budgeting four quarters ahead allows you to update figures at the end of each quarter for the subsequent three quarters, adding a new fourth quarter. This approach anticipates changes, prompting your organization's leaders to adopt a forward-looking perspective. It proves effective for nonprofits dealing with dynamic circumstances and evolving strategies, offering more valuable information for decision-making compared to a static budget that looks backward.
Reforecasting presents a more drastic solution for some nonprofits, particularly when faced with significant changes that impact overall operations, such as gaining or losing a substantial grant. This option makes sense if it becomes evident that your existing budget is materially inaccurate. The reforecasting process entails identifying variable costs and revenues (e.g., supplies and program revenue) and evaluating the impact of trigger events on them. For instance, during the COVID-19 pandemic, many organizations experienced dramatic changes in fixed expenses like payroll or rent.
Consider applying budget modeling with different scenarios, contemplating the potential consequences of major revenue reductions or disappearances. What if a key revenue source is halved or vanishes entirely? Would you seek a loan, cancel a capital project, or trim staff? The final reformulated budget is not merely a few line-item adjustments but a thoroughly revised document.
Looking ahead, even if it's not your nonprofit's budget season and you already have a plan for the year, it's worthwhile to reflect on how you might enhance the process in the future. Feel free to reach out to us for budgeting assistance.
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As a member of the Firm’s audit department, Jenna supervises the conduct of audit fieldwork for nonprofit and governmental organizations. She has expertise working with a considerable number of public and private foundations, human service agencies, and other nonprofit organizations in the areas of audits, Single Audit, reimbursement, tax and information returns, and financial reporting