I am pleased to share this guest post from my colleague Joanne Oppelt, MHA (see more about Joanne below.)
We’ve all been hit hard by COVID. Every nonprofit I know has experienced some kind of negative financial impact because of the pandemic. Expenses went up as cleaning guidelines got stricter. Your nonprofit may have had to invest heavily in personal protection equipment. Revenues are down as community events were cancelled. Downsizing and layoffs are common. Nonprofits today have even fewer resources than before to meet the increased demand for services caused by the economic downturn. Organizational wealth is decreasing as agencies tap into their reserves, if they had them, and sell off assets. And, although we see an end, the pandemic continues to go on. How do you rebuild your nonprofit’s finances after such a prolonged, hard hit?
Today, we’re going to talk about budgeting. Next time we’ll cover other, just as important, techniques to help you improve your financial position.
Free, Online Training
For those auditory and person-to-person learners, I talk about how to recover from being poor in my free, online training From Poor to Prosperous: How to Grow Your Nonprofit in Six Essential Steps which can be found here.
Reversing Negative Agency Financial Trends
In times of decline, most often expenses are more than revenues. At least at the start of the curve. You need to reverse the curve so that more revenues coming in than expenses going out. Ans how do you do that? You have no control over the greater environment. And early conjectures were that the pandemic wouldn’t last long. Now we are almost a year in and probably have more time to go. And then the overall economy needs to catch up.
Hopefully, you had a few months operating reserves, assets you could liquify, and/or a healthy line of credit. You may have now used up your reserves or maxed out your line of credit. And, even though it was difficult, you reduced your overall costs so that you are at least breaking even. But how do you get ahead?
Projecting Revenues
Budget revenues first. Develop your income projections assuming that revenues will continue in the same pattern you see now. If you set unrealistic expectations, you are setting your organization up for failure. Forecast your revenues based on past performance, not budget deficits you want to fill. Then cut them by 5 percent. You want to budget lower than expected revenues in case that happens.
Projecting Expenses
Next, budget your expenses. And budget 5 percent higher than expected expenses. If your expenses are higher than your revenues, cut your expenses. Yes, it may be painful. But you have to reverse your negative financial trend.
Budgeting Net Income
Then make sure you have more than a break-even budget. You may need to revisit expenses again and make more hard choices. Your survival is at stake. You need to start budgeting realistically for positive net income so you can rebuild your reserves and increase your assets.
It may not be pleasant. One of the hardest things I ever had to do as an executive director was cut staff. And, when that didn’t totally stop the bleeding, cut more staff. If you are in that position, I feel for you.
The next steps are easier. Stay tuned to part two coming soon.
About the Author
Joanne Oppelt collaborates with nonprofit professionals to help build revenue streams, create sustainable funding, and increase positive net income. Joanne is a seasoned rainmaker with a distinguished track record of success. During her more than 30 years of working in the nonprofit arena, she has built successful fundraising programs at every stop, helping her organizations grow capacity and more effectively fulfill their missions. Joanne is also the author or four books and co-author of twelve She can be found at https://www.joanneoppelt.com/