When faced with a revenue shortfall should a nonprofit cut expenses across the board? Is there one way to “balance the budget?” We share insights from John Bazzanella, COO of Tennessee Nonprofit Network, as we end this six-part series on nonprofit budgeting.
What should a nonprofit do when facing revenue shortfalls?
One way to reduce the stress is to plan ahead in the budgeting process and create contingency plans based on revenue projections. This process allows you to consider scenarios related to your level of confidence in different revenue streams. Begin with the full budget, then reforecast revenue with however many scenarios you want (less than projected donations; didn’t receive a grant; didn’t hold a special event, etc.). Then think ahead about how you would adjust expenses for each scenario. You don’t need to detail each cut to expenses, but rather, have a general strategy prepared should you find yourself in a particular scenario. Approaches to reducing expenses will vary and might involve program changes or increasing operating efficiency. Be creative. Maintain a balance between program and overhead needs and stay relevant and impactful to those you serve.
The value of scenario budgeting is that you’ve estimated how much you might need to adjust in a given situation. This approach during planning can help guide later decision making. There are spreadsheet templates for this type of process available online for free.
What are your closing words of wisdom?
Be better than break-even – This is a phrase I say in every budget workshop I facilitate. It’s a simple but critically important mindset to have when budgeting. You want to build sustainability for your nonprofit, and the budget is an ideal tool for planning for sustainability. It’s ok and necessary for a nonprofit to generate a profit – that “profit” is a surplus that you are reinvesting for the future of the organization. If you only break even, then you only address current needs. If you want to plan for future viability, then you must also be intentional about budgeting for a reasonable surplus.
Leverage systems – As a master procrastinator, I can’t advocate enough for using a calendar to guide your budget process and schedule your reporting. Use templates for the budget and reports. Use a dashboard to communicate with the board and staff. Create tools such as a database or online questionnaires that make it easier for staff to contribute data. The efficiency gained will be worth the time spent creating templates and systems.
Breathe –Sometimes we forget to breathe. It’s just a budget. Budgets are based on what you plan to do and where you are at the time you make the plan. Plans change. Budgets won’t be perfect. The budget is an opportunity – it’s an internal tool you can customize to provide guidance and a means to track and understand your financial performance. It can and should be adaptable. Make it look and function however it best fits your organization so that is manageable and meaningful and adds value for your nonprofit.
