Nonprofit 411: How to Budget During a Pandemic

Nonprofit 411 NPCM-minBy Brian Kindorf, Managing Director at Non Profit Capital Management

Did any non-profit accurately predict what was going to happen in 2020? I suspect none did, so how will predicting 2021 be any easier? Most non-profits use the static budgeting method. This type of budget is often developed by management, voted on by the board of directors, and locked in place for the next twelve months. But how can management and a board predict what’s going to happen twelve months into the future of a pandemic?

The key to success in budgeting during any period of intense change- like an unprecedented global pandemic- is to embrace the uncertainty with a more dynamic budgeting process.

There is no rule that a budget must stay the same all year. In a dynamic budgeting process, the changing environment is constantly monitored and a new forecast is produced as information becomes available. It need not be a twelve-month budget or even conform to the non-profit’s fiscal year.

Rather than presenting the Board of Directors with a set of final numbers, management might consider presenting a set of inputs that are influenced by the pandemic. These might be the number of clients served, the number of volunteers recruited, the number of visitors, etc. Based on how those inputs move up or down, corresponding revenues and expenses move with them. Create different scenarios if you find your inputs are highly sensitive to the pandemic. Those might involve the ability for people to travel, or the opening of school, or the opening of other businesses around you.

The ability to run events and attract new donors is harder than ever, but many creative non-profits are finding ways to engage with their supporters in smaller, more intimate settings, or online. Evaluate your organization’s traditional supporters to see how they might be impacted by the pandemic. Are they business people in the finance sector? If so, they might be doing very well. Are they local business owners forced to closed? If so, they may not be able to sponsor the organization this year. Thinking through what pandemic inputs will impact your largest supporters will be critical to forecasting charitable revenue.

Sold on the concept of a dynamic budget? Start with the following steps:

  1. Break your expenses & revenues between fixed and variable. Fixed items are those that are not influenced by the pandemic. While most revenues and expenses have some degree of variability, this group is the line items with the least variability.
  2. Go through each of the variable lines and identify the input that influences them.
  3. For inputs that are highly influenced by the pandemic, create several scenarios that go out as far as your timeline.
  4. Each reporting period update those inputs based on your new information.

There is no “silver-bullet” to budgeting during a pandemic, but updating your forecast and not focusing on a static budget will allow your organization to better understand its own risks and opportunities.