There are few things that are as frustrating as having to re-forecast your nonprofit’s budget when things don’t go according to plan. As mid-year closes in, it’s common for nonprofits to find their carefully prepared budgets aren’t balancing the way they’d expected them to. If you’re not prepared, these fluctuations can seriously disrupt your organization and its programs. But with a bit of legwork upfront, these unanticipated variances in a budget can be managed without causing your organization to lose sight of its mission.
Planning For Success: Preparing Your Forecast
Carefully preparing your forecasts when you’re initially building your budget is the first step in setting yourself up for success come mid-year. Though trying to figure out what your organization is going to spend—and where that money is going to come from—throughout the year can be challenging, taking your time to be thorough and thoughtful will pay off in the long run.
To build a thorough budget, you need to consider everything from pens to programs and everything in between. Take a look at what you’ve done in the past and update according to what worked, what didn’t, and what you’re planning on doing differently. Do your research to ensure your projected numbers are as accurate as you can make them.
Build Your Budget: Top-Down or Bottom-Up Approach
When establishing budgets, 2 common approaches are as follows:
- Top-down approach: In this approach, the leadership team identifies a high-level budget amount and its allocation across departments.Departments then determine how to best allocate their allotted budget.
- Bottom-up approach: An alternate approach is for individual departments to submit their budget requests based on their plans and needs, which forms the starting point of the organization-level budget.
We generally recommend the bottom-up approach because it enables organizations to identify a best case scenario budget without omitting any line items. If the budget exceeds what is financially feasible, organizations can then prioritize activities according to importance and determine if they need more funding sources.
Line Items to Include
Some line items that should be included in your expenses include:
- Salaries (including contractors and third-party services)
- Program needs
- Office supplies
- Utilities (including phones, internet, and electricity)
- Technology and software (don’t forget about those recurring annual license subscriptions!)
- Marketing initiatives
And, of course, there are your sources of revenue. This list can include:
- Earned revenue
- Event income
A good budget will also take things like in-kind contributions, fixed and variable costs, and reliable and transient revenue into account. When you carefully consider as many variables as possible from the outset, you give yourself the advantage of having a more holistic picture of what to expect in the year ahead.
It’s normal to worry that you’re missing something or to struggle to come up with forecasts that feel accurate. If building a thorough budget has you stressed, Trestle can help you create one that sets your nonprofit up for success.
Remember: No Budget is Set in Stone
Regardless of how much work you put into preparing your annual budget, things will happen during the year that can (and will) impact your forecasts. No matter how carefully you consider the variables, there are always things you can’t prepare for, such as:
- Changes to your overall strategy (be in programming, business, marketing, etc.)
- Unforeseen legal, economic, or natural events
- Funding that doesn’t meet your projections (or worse: funding that doesn’t come through at all)
- Organizational restructuring (such as consolidation, unexpected staffing needs, etc.)
While you can’t anticipate every little thing that might happen throughout the year, you can take steps in advance that will allow you to remain nimble in the face of crisis. When working on your annual budget, create a contingency line if possible (think of it as your organization’s rainy day fund) and prioritize your expenses so you don’t need to scramble in the event that you need to make some tough cuts.
The Key to Forecasting? Regular Monitoring
The best way to ensure your nonprofit is able to adapt to budget disruptions is to make monitoring your budget regularly throughout the year. Don’t wait until something goes wrong to check in on how things are going.
Whether it’s monthly or quarterly, reviewing the state of your budget should be a regular part of your organizational operations. Take the time to go over both your expenses and revenues to see if your actuals match up with your forecasts. This will give you a good sense of what’s working and where adjustments are needed, with enough time to respond to issues and discrepancies before they have a chance to get out of hand.
Don’t be afraid to adjust along the way
If after all your thoughtful planning and vigilant monitoring you find your budget is no longer balanced, don’t get discouraged. Obviously, the ideal situation is one in which everything goes according to plan and you don’t need to adjust your expectations, but sometimes you have no other choice.
Should you find yourself needing to re-forecast your budget, here are a couple of tips to make the process easier:
- Don’t throw the original one out and start fresh. Instead, create a new column within your existing budget so you can see everything at a glance.
- When making changes to the budget, add notes to provide context on the reason for those changes
- Look for opportunities to increase revenue in order to bring in more money.
- Remember that list of prioritized line items you made when you were building your budget in the first place? If you’re forced to make some tough decisions, having done this planning ahead of time will help you decide where you need to make some cuts.
If re-forecasting your budget has you stressed or stretched too thin, Trestle offers services that can take you from planning to monitoring to updating. Let us help you balance your books, so your nonprofit organization can focus on making a difference.