Tips for Nonprofits Tackling Budget Challenges in 2021
Budget planning has always raised a level of uncertainty in the nonprofit world. While you can create a solid framework, it’s important to be prepared for bumps in the road. However with Covid-19 cases on the rise, nonprofits everywhere are facing a higher level of uncertainty than ever before. How do you maintain organizational capacity and sustainability? How can you focus on the bigger picture and adapt to an unstable global environment?
In this article, we’ll break down the key areas of focus in your budget planning, and how to best prepare for the changing nonprofit world ahead.
Setting an annual budget allows an organization to establish a set of expectations, and delegate responsibilities early. It also helps facilitate reporting and accountability. However, budgets generally correlate to expected income and expenses for the coming year; something most organizations are unsure about headed into 2021. So if you can’t anticipate income, how can you match it to expenses?
The best way to move forward is to prioritize your core expenses to determine what is necessary and what can be removed. The next step is to think through how you can proactively cut expenses, which will increase the likelihood that income will be adequate. Although this is not ideal, the pandemic environment has already forced nonprofits to hone in on these key areas. Take this time to revisit those areas, and evaluate if those cuts have helped your current budget for 2020. If they have, continue to focus on those cuts in 2021, and dig deeper into other areas where spending can be decreased. It’s better to prepare for a dynamic year by accepting new ways of thinking, restructuring internal processes, and having the right financial tools in place to adapt to the challenging road ahead. Some organizations have also considered multi-scenario budgets that allow you to plan for best and worst case outcomes. The more conservative budgets can be approved by the board and circulated externally, while the others can be pursued by fundraising. And lastly, it’s also important to consider cash reserves. These come in handy when it comes to meeting short-term and emergency funding needs.
The big picture.
While income and expenses are essential aspects of budgeting, they’re not the only factors in determining organizational capacity and sustainability long term. You should align your budget with your strategic plan and what you anticipate to take place in 2021. Will these goals be achieved with your current budget or do you need to adjust? Predicted income can guide the way, but it’s equally as important to focus on other resource areas like reserves, restricted funds, and year-end fundraising. Allow these components to contribute to your financial decision making — the greater amount of resources you have, the less disruptive income uncertainty will be!
While a budget can help guide the success of a nonprofit, so do its people. Nonprofit organizations everywhere should look towards creating a stable, yet adaptable team. Start identifying key areas that may allow for cracks in the organization. Maybe the board is very set in their ways, or the executive directors aren’t settled enough in their role yet to deal with the financial challenges ahead. Whatever the case may be, put an action plan in place to fill the gaps in those key areas. Focus on creating strong relationships with financial advisors, so they are ready when needs arise. Review policies that may influence decisions around staff terminations, and adjust where necessary. Do everything you can to optimize communication between the board, staff, and other stakeholders. Communication is everything — and while times are tough, having a cohesive team will allow your organization to rise above the occasion.
While the year ahead seems daunting, don’t let it scare you! When there’s a will, there’s a way. Nonprofit professionals are incredibly passionate people, and it never ceases to amaze us how often they’re able to push through tough times. It’s imperative that nonprofit organizations maintain their positive attitudes, and pair that with consistent review of their budget for proactive decision making.
If your nonprofit is in need of consulting services in 2021, RBW Strategy has your back! We’d love to assist you in planning for your future endeavors. Visit our team solutions page for more information, and contact us today.