Budgeting During a Crisis

All nonprofits should have a budget that helps them plan for their programs and activities.  During times of crisis, though, the budgeting process may be more difficult given the amount of uncertainty.

First it is important to understand the potential impact of the crisis.

• What revenue sources will be affected?
• What costs will be affected?  Fixed costs do not normally change but depending on the crisis, such as COVID, traditionally stable costs like payroll or rent may fluctuate.
• Which programs will be impacted?  Will programs be temporarily stopped, as in the case with COVID or will there be an increase in demand

Create multiple budgets that include “what if” scenarios for different levels of possible revenue decline.  For example, a 10%, 20%, and 30% decrease in revenue.  At each of these levels, what costs will need to be decreased or activities evaluated in order to continue operating?

Consider utilizing a rolling budget.  For example, budget for four quarters ahead, meaning that each quarter, the budget is updated for the subsequent three quarters and a fourth quarter is added.  Rolling budgets are often used in more unpredictible situations as to be able to be more proactive in future opportunities.

Manage the organization’s cash flow.

• Create cash projections.
• Monitor the receivables balance and follow-up on old balances.
• Consider opportunities for additional funding related to the crisis.  Many funders, as well as the government, provided additional grants and loans related to COVID.
• Consider financing options (line of credits, bank loans).
• Evaluate board designatedions.  Should the board undesignate funds so that they can be used for current operations?

No matter the type of budget or process used, be sure that management continues to monitor actual results to budgeted on an ongoing basis.  Teh budget should be a tool that is used throughout the year to guide the organization on accomplishing its mission, especially through tough times.

Contributed by: Carrie Minnich, CPA, MAcct | Director | DWD CPAs & Advisors