By: Melissa Lagowski
Big Buzz Idea Group
Far too many nonprofits that we talk to have a wash-rinse-repeat model of budgeting that we at Big Buzz do not generally support. For those readers who have been following us for a while, you know that we believe that forward-thinking budgeting leads to the growth of your organization.
We fully believe that when it comes to budgeting, it is imperative to do a deeper dive about where you are and where you want to go as an association. You need to annually evaluate which resources are necessary to elevate your nonprofit to new heights. What staffing will you need for your goals? What technology or consultation is essential to success? How much revenue will be required to fund those new programs you intend to launch? These are fundamental questions for normal circumstances.
But after experiencing 2020, many of our clients have been asking how to effectively budget for uncertain times. Each organization has had a different experience: Some nonprofits were able to have their 2020 galas and conferences prior to COVID-19 shutting down the event industry, while others postponed events until next year. Some chambers and associations invoice for membership on the calendar year, so the annual dues were submitted early in the year and the organizations have fared relatively well. However, as they come up for renewal in 2021, these same organizations are now expecting a ripple effect – uncertain if members will be able to afford to renew. It is the proactive organizations that will have seen this coming and worked to rein in expenses early and/or develop alternative funding sources.
Regardless of your situation, this all probably has you wondering what comes next. This year has left us with so many uncertainties and turned many of our realities upside-down. So how do you tackle the development of a balanced budget for the year ahead when so many things remain uncertain?
What we have been doing with clients is to utilize all the financial data available from recent budgets and projections to map out a few different scenarios for analysis. It allows us to review line items and evaluate which expenses could be cut if revenues plummet. Often you can identify some immediate savings methods through this exercise and then brainstorm with team leaders to find other strategies to reduce spending without impacting your programs or clients.
To effectively prepare for these uncertain times, we propose you set up your budget document with the following columns:
- Required Columns
- 2019 Actual Numbers
- 2020 Budget
- 2020 Actual to Date
- 2021 Budget with 100% of your desired Revenue and Expenses
- Recommended Columns
- 2021 Budget at 75% of goal
- 2021 Budget at 50% of goal
- 2021 Budget at 125% of goal
These “Required Columns” are a standard starting point for our clients year after year. This method allows you to look at your last full year in more normal circumstances and to then evaluate how this year’s numbers actually compare to the budget you had set for 2020. How did they pan out? This will help you start to draft what 2021 might look like for your nonprofit.
If you were only able to hit 75 or 80 percent of your budget in 2020, then I encourage you to add a “75 percent of goal” column so that you can effectively start to imagine what expenses may need to change if revenues are not hitting your desired levels. When you can identify any potential shortfalls, you have a better story to share with donors about why their support means even more this year than usual, but it also allows you to manage your nonprofit with your eyes wide open.
We also propose adding a column that imagines your revenue dropping another 20 to 25 percent below your current year-to-date numbers. This will help you effectively analyze what will happen if your revenue falls short again in the year ahead. Should revenue and resources continue to decline for the foreseeable future, you can evaluate how your organization might respond and mitigate any potential devastation. While we hope that your nonprofit does not land at 50 percent of the annual operating budget, this is a solid exercise in preparedness and for planning what you would advise your leadership team to do if resources continue to dwindle.
In a more positive light, we also encourage you to include a column that shows revenues up 20 to 25 percent over 2020 to evaluate how to grow your organization and best prepare for the future. If you haven’t yet been working on your reserves, perhaps 2021 will be the year to make that happen. Take the lessons learned this year and evaluate how you will apply them to strengthen your association for the future.
Usually a budget is set annually and measured against monthly; however, during unpredictable times, you may need to have your finance team review the budget quarterly for adjustments. The world has been moving slowly but changing quickly in 2020. It is important to continue to review the numbers to effectively evaluate if your organization is maintaining financial security during these turbulent times.
Evaluating the numbers in black and white when there isn’t a crisis at hand will enable you to plan for a variety of different situations. And if you start planning for a variety of possibilities, you will be better prepared for whatever the future holds for you and your association.