There is always a degree of uncertainty when your organization is budgeting for the year. However, the COVID-19 pandemic has created a completely new sense of uncertainty. As revenues for many organizations have decreased in the past year and the demand for program services has not changed (or may have even increased), the budgeting process has become a more complicated endeavor.
Related Read: Five Planning Strategies in Uncertain Times
Time to change budgeting models
Organizations commonly use a fixed budget that is set in stone before the fiscal year begins and is never reevaluated. However, in light of the COVID-19 pandemic, this year may be the time to implement a rolling budget or reforecast the budget at some point during the year. The organization will have to ensure that the bylaws allow for this and a board vote may be potentially necessary. If it is possible to move away from a static budget, it may be more meaningful for the organization, especially in these uncertain times.
Rolling budgets are more flexible than their static counterparts. Rather than leaving a budget in place for the year, organizations with rolling budgets set times throughout the year to readjust the numbers (i.e., set four quarters of a budget and after every quarter, remove the expiring quarter and replace with a new quarter that includes any changes necessary based on the facts and circumstances that exist at that point).
The rolling approach anticipates changes and encourages your organization's leaders to take a forward-looking perspective. It works well for not-for-profits dealing with shifting ground and evolving strategies. That is because it facilitates more timely responses to emerging trends, as significant changes may have impacted revenues received or expenses incurred. This provides more useful information for decision-making rather than a backward-looking static budget.
For most not-for-profit organizations, it is probably safe to say that the COVID-19 crisis has represented something more dramatic than simply shifting ground. Most assumptions that were made when originally preparing the budget may have changed. If your organization has seen dramatic changes in light of the pandemic, you may want to consider reforecasting your entire budget. Although this may be time-consuming, it may provide benefits for the organization and determine your ability to continue operations.
Reforecasting generally makes sense when your organization expects to go through, or has undergone, a major change that has implications for overall operations, such as securing or losing a large grant. It is also wise to reforecast if it becomes clear that the existing budget is materially inaccurate. This process involves completely re-writing the playbook. The reforecast budget provides a brand new picture and is much more than just modifying a few line items.
Related Read: Fiscal Oversight During a Pandemic
Keep the team involved
It is not just the highest level of employees that may provide input on the budget. Keep in mind that there may be department leaders or other staff that may be able to provide insight on future expectations. Be sure to have conversations with all the employees who may be able to provide assistance with the budget.
It is equally important to stay on top of the figures. The entire point of the budget is to constantly review for variances and reevaluate operations accordingly. Budgets are not a tool to set and forget.
The pandemic is not over
Although many believe there will be a sense of normalcy to be achieved at some point in 2021, the COVID-19 pandemic is still ongoing and its impact will continue to modify your organization's practices.
Most not-for-profit organizations have instituted enhanced cleaning protocols and procedures, whether mandated by the government or not. Even as the pandemic dissipates, it is likely that people will remain sensitive to sanitation for some time. Additionally, many will be fearful of travel or in-person meetings, even after health officials may declare this to be safe. Continuing virtual meetings may be necessary for the foreseeable future, thus, this should be budgeted for. Your organization may also want to consider any other additional costs incurred because the COVID-19 pandemic may continue into 2021.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.