For many organizations, nonprofit budgeting in 2021 is more complicated and uncertain than ever. The pandemic continues to cause economic damage and disruption to everyday life. Although there are signs of hope on the horizon with vaccines rolling out nationwide, there are no guarantees that daily life will return to “normal” anytime soon. Nonprofit leaders need to figure out how to navigate their organizations through this time of extreme financial uncertainty.

In an earlier article, we discussed how to budget around uncertainty. Here, we’ll dive into the key questions affecting your 2021 nonprofit budget.

2020 was a terrible year for the economy and public health, but a surprisingly good year for nonprofit fundraising in many ways. Many organizations were able to continue raising money; many donors kept stepping up. A report from the Fundraising Effectiveness Project found that after the pandemic hit in the second quarter of 2020, the overall number of nonprofit donors increased by 7.2%, and new donors increased by 12.6%.

Will donors continue giving at the same levels as 2020? Millions of people are struggling financially, but millions of other Americans have been able to keep working and save money through the pandemic. Millions more are concerned and compassionate about their communities and the world.

What have you learned in 2020 about your organization’s fundraising and operations that can carry forward? Can you keep doing digital outreach to donors, online fundraising events, and otherwise adapt your operations and revenue-generating programs for social distancing requirements?

Without a clear end in sight, nonprofits should prepare to continue to adapt and keep delivering their mission during the “new normal” of the pandemic.

The Biden administration has promised additional stimulus relief in 2021, which could include aid for small businesses and new $1,400 stimulus checks to most Americans. This federal spending would likely encourage further charitable giving by people with comfortable household budgets.

The prospective of additional federal stimulus spending is likely to be good news for nonprofit budgets.

The 2017 Tax Cuts and Jobs Act raised the standard deduction, making it harder for many small donors to itemize their deductions to claim a tax deduction for their charitable giving. Due to the pandemic and CARES Act, during the 2020 and 2021 tax years, people can deduct up to $600 in charitable donations, even if they don’t itemize.

Are your donors aware of this deduction? It might not make a huge difference in your 2021 budget, but this could encourage donations during tax season and influence your fundraising communications.

COVID-19 has caused significant drops in tax revenue at the state and local level in many states. The Center on Budget and Policy Priorities found that as of November 2020, some states were seeing revenue shortfalls of 20% or more.

Not every state was equally affected by this downturn in revenues; some states only declined a few percentages. If your nonprofit receives grants from the state or local government, this could affect your budget planning for 2021 and beyond.

Dr. Anthony Fauci predicted that the U.S. could begin to achieve early stages of herd immunity by late spring or early summer. Much remains to be determined if we can reach that goal, as the vaccine rollout is accelerating. Your nonprofit organization might not be able to hold a big fundraising gala during the first half of 2021, but what if you could plan for a December 2021 event?

It might be too soon to assume that the pandemic will be over in 2021; new variants of the virus could spread, the economy could take another downturn. But it might not be too soon to start planning for some more hopeful scenarios and the possibility of a return to in-person interactions and events.

Now is the time to stay flexible and keep riding out this uncertainty. Nonprofit leaders need to be agile and adaptable with their budgets. For example:

• Can you dip into your cash reserves?
• Can you work with the Board to approve shorter-term budgets?
• Can you plan multiple budget scenarios based on various cash flow projections and fundraising outcomes?

Keep talking with your Board, be engaged and transparent about budget issues, and don’t hesitate to look for insights and support from other nonprofit leaders and financial advisors. The Aldrich Advisors team is here to support you and your nonprofit with budget planning for 2021 and other financial questions. Reach out to your Aldrich Advisor for assistance strengthening your financial foundation and fulfilling your nonprofit’s mission.