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The Pitfalls of Your 2018 Nonprofit Budget and What to Do NOW

Gayle Nelson and Ruth McCambridge
March 16, 2017
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“a backpacking travel to europe” by kokorowashinjin

March 1, 2017; Forbes Nonprofit Council

Many nonprofits start their fiscal year on July 1st; consequently, March is an important time to begin building next year’s budget. But this March and the months ahead seem filled with more turmoil than ever. How do nonprofits plan in such an unpredictable moment?

Recently, Dr. Gloria Horsley, the founder of the Open to Hope Foundation, wrote a thought-provoking article on 2017 trends facing the nonprofit community. Among those trends is the current pervasive sense of political uncertainty, which, she writes, will impact the revenue and operating environments of any number of fields of nonprofits. Building flexibility into your budget, quarter by quarter, and making clear the assumptions upon which your budget is built are ever more critical. What are your tactical options under the various scenarios that may be brewing? One must not “freeze and wait,” but that takes foresight and a thorough understanding of the capital and revenue structure of your organization.

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Last year, the Nonprofit Quarterly offered an excellent webinar, “Why Funding Overhead Is Not the Real Issue: The Case to Cover Full Costs.” The speaker, Claire Knowlton, the Director in Advisory Services at the Nonprofit Finance Fund, clearly demarked a new lens from which to view the cost structure of your organization. As you consider how to manage over this period, you’ll need a number of analytical tools, and this may be particularly helpful. You’ll want a process in place to manage cash flow and liquidity and to judge the potential downsides of growth. You should have a dashboard that tracks the variables that are most important to you. (A good resource for developing dashboards is found in “Models and Components of a Great Nonprofit Dashboard” by Hilda Polanco and Sarah Walker.) These are important resources to make use of even when you are well seasoned as a nonprofit executive/financial/board leader.

Lastly, your ear should be planted firmly on the ground to discern what train may be hurtling toward you. As leaders build their 2018 budgets, they should also assess the risk associated with their revenue streams. This is particularly true for government funding. Many of the services that many nonprofits provide are funded at least in part by the government at the local, state, and/or federal levels, often through multiple streams. But in this uncertain climate, an executed contract does not always lead to prompt payment. For example, the state of Illinois remains without a budget, leaving many Illinois nonprofits without promised funds and those receiving funds waiting for payment many months after services were rendered. Additionally, many nonprofits’ government funding is closer to earned income rather than grants (reimbursements to organizations providing healthcare services, for example). As regulations and legislation change, nonprofits may not be able to bill for all services rendered, or may receive less if funding shifts from individual to block grants. Finally, the federal government might withhold some municipal funding as punishment for local activities, as in the case of sanctuary cities. All of these factors illustrate the importance for nonprofits to build relationships with government representatives and vibrant long-term advocacy.

Clearly, fiscal 2018 is the year of flexibility and strong real-time evaluation tools helping organizations pivot as funding shifts and new opportunities become available.—Gayle Nelson and Ruth McCambridge

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ABOUT THE AUTHORS
Gayle Nelson

Gayle Nelson, Esq is a leader responsible for raising millions of dollars for diverse nonprofit organizations. Since over three quarters of revenue flows from individuals, Gayle begins her work expanding organizational capacity by coaching leadership on development best practices and engaging new volunteers. In addition, she reaches out to major and younger donors planning exciting events and increasing visibility utilizing crowdfunding, social media tools, and traditional media outlets. With a strong network and knowledge of philanthropy, Gayle coaches organizations of various sizes on opportunities to increase revenue from Donor Advised Funds (DAF) and planned giving vehicles as well as public and private foundations. Additionally, she often writes proposals funding new programs and develops earned income revenue streams. As an attorney, Gayle is also an advocate, partnering with nonprofits to enhance their relationships with government leaders to pinpoint community need and promote agency services. And, to ensure activities lead to thriving organizations and long-term sustainable growth, Gayle utilizes her financial acumen to partner with Boards and finance staff to build comprehensive program and agency budgets. Finally, she is a highly respected speaker on diverse topics including shifting government funding, succession planning, and inter-generational board/volunteer engagement.

Ruth McCambridge

Ruth is Editor Emerita of the Nonprofit Quarterly. Her background includes forty-five years of experience in nonprofits, primarily in organizations that mix grassroots community work with policy change. Beginning in the mid-1980s, Ruth spent a decade at the Boston Foundation, developing and implementing capacity building programs and advocating for grantmaking attention to constituent involvement.

More about: government fundingManagement and Leadershipnonprofit budgetingNonprofit News

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