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

March 1, 2017; Forbes Nonprofit Council

Many nonprofits start their fiscal year on July 1^st; 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.

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