Budgeting During Uncertain Times

When you’re facing uncertain times, as we are right now, budgeting is more important than ever. Many organizations need to be nimble right now — resources are unpredictable, and figuring out how and where to allocate them is challenging without a set plan.

A budget can help you handle how your organization will navigate the upcoming year, but this year will likely be quite different. You’ll likely have uncertainty around:

• The potential infusion of government grants
• Individual giving, where there will be shifts depending on the effect of the pandemic to your key donors
• The changing needs of the population served

While your budget may be a moving target and some estimates more difficult than usual, additional care needs to be taken in 2021 to ensure you have a budget that serves your nonprofit

This year, you may find yourself communicating more frequently with your board members. Both to update them on your plan forward and to get support. Create a strategy for increased communication and share it with them. Rather than a monthly check-in, consider sending updates bi-weekly, letting them know the budgetary trends, planned expenditures, and changes.

You might also consider including trigger events in your communication strategy. These are signals that remind you your plan needs to be adjusted. For example, a trigger event could be cash flow changing outside of a certain threshold.

When you budget, you are making estimates with the best available information that you have. While there is too much uncertainty to create a reliable prediction about 2021, you can instead plan out various scenarios and forecast based on these options.

• What will your organization look like if you can start in-person events in the second quarter?
• What if it takes until the fourth quarter (or longer) to have in-person gatherings?
• What if additional government funding becomes available?

Using scenario planning can help you map out different paths that might unfold during 2021 and how your organization will operate under them.

We know that this year will be challenging to predict, as hard as we try. Rather than trying to estimate an accurate budget for the next 12 months, consider planning for a shorter period, say a quarter at a time.

You may also want to consider looking at your budget program-by-program to dive into the details. With unpredictable or new funding streams, taking a more granular approach can help you stay flexible and make better decisions.

Under normal circumstances, you might choose to review your budget on a monthly or quarterly basis. During these uncertain times, consider checking in on your budget more frequently.

You may also want to lean on another helpful tool during this time: a cash flow projection. This tool will help you understand what you expect to come in and out of the organization. It will help you understand actual cash on hand for when and how it will be spent.

Checking in regularly will help you review the assumptions and forecasts you used and make needed adjustments. This year is all about staying agile to help you navigate change.

Creating a budget and forecasting for 2021 is going to be challenging thanks to so many unknowns. It’s still an important tool to help you lead your organization through this period of uncertainty for long-term success. If you need help creating a budget or understanding what tools and options are available, reach out to your Aldrich Advisor for support.