[ASK AN EXPERT] How to Balance Your Nonprofit's Budget in a Crisis

Our Ask An Expert series features real questions answered by Claire Axelrad, J.D., CFRE, our very own Fundraising Coach, also known as Charity Clairity.

Today’s question comes from a fundraiser who isn’t sure how to approach their next fiscal year’s budget in the midst of COVID-19.

Dear Charity Clairity,

I am curious if you have any advice for developing budgets for the next fiscal year, beginning 7/1. My crystal ball is looking a bit cloudy today!

— Cannot Predict Now

Dear Cannot Predict Now,

We’re all looking at that same crystal ball, alas.

Honestly, my advice is no better than a Magic 8 Ball at this point in time. There’s no “You may rely on it” answer right now. Mostly, we’re stuck with:

• Ask again later.
• Don’t count on it.
• Reply hazy, try again.

Let’s stick with those answers for a minute, however.

Ask again later.

If we learn nothing else from this period we’re in, we’re learning the importance of agility and adaptability. Being nimble and quick are great assets. In fact, I’m reminded of Daniel Pink’s excellent book, To Sell is Human, in which he posited the new ABC for our age is not the traditional salesperson’s “Always Be Selling;” rather it’s “Attunement, Buoyancy and Clarity.”

Don’t count on it.

Today’s budget may not look like next month’s budget. Or even next week’s budget. Things are changing that rapidly. You probably need A, B and C budgets (Best, Middle and Worst case scenarios). Begin with what you know is certain — both in terms of expenses and revenues. Then look at what is uncertain, and project the best you can — also in these two areas of costs and income.

Reply hazy, try again.

You’re likely going to have to try a bunch of experiments. Don’t feel constrained by the need to come up with the perfect fiscal year budget right now. That’s not possible right now. There are too many unknowns. But there are knowns as well.  And one thing it’s good to look at is the tools at your disposal.

Cutting expenses.

Don’t make the mistake of looking only at cutting expenses.  That’s one tool. Yet once you’ve cut programs and let staff go, they’re hard to bring back. At the very least, try not to take a sledge hammer to things. Go slow and incrementally – projecting month by month. For example, maybe you can keep staff on for now, but perhaps you’ll need to cut back later. Maybe your contribution income and/or reserves can see you through for a number of months, but perhaps you’ll need to adjust later.

Generating income.

Generating additional revenue is (IMHO) a healthier tool than expense cutting. Because it’s something you’ll be able to build on moving forward. 

• Adding new donors (perhaps via a targeted peer-2-peer fundraising campaign). 
• Upgrading donors (perhaps via a focus on monthly giving). 
• Converting folks who were previously members, volunteers, clients, ticket buyers, etc. to donors.  

Don’t divide your pie in 12 pieces.

Expenses and income are never divided evenly over your 12 month budget. Yet too often nonprofits project this way, and then constantly must explain budget variances to their boards and funders as “timing issues.” You need to project specifically the month(s) in which you anticipate expenditures and revenues will occur.  Maybe you can push some of the expenses out and accelerate the income. Or alter them somewhat.  Here are some things organizations are doing:

EXPENSES

• Asking employees to temporarily forego paychecks, with assumption they’ll receive the money (or a percentage thereof) at a later date.
• Asking employees to accept a pay cut (e.g. 20%) for the foreseeable future.
• Asking employees to move to part-time hours.
• Asking employees to move to a rolling furlough schedule. They keep their jobs, but work a couple of weeks off; a couple of weeks on.
• Leaving vacant/open positions unfilled.
• Temporarily reducing employer contributions to retirement or health savings plans.
• Eliminating no-longer-needed expenses like free parking or commuter reimbursements.
• Asking landlords to forgive rent, or delay payment (it’s possible they’ll be able to get an SBA loan or CARES Act grant so they’ll no longer need to charge rent during this period).
• Asking vendors to allow you to delay bill payment (if this will not cause extraordinary hardship for them)

INCOME

• Asking individual donors to make their 2020 gifts early.
• Alerting individual donors their companies may be offering larger matching funds right now.
• Asking foundation and corporate funders to pay their full grant now, rather than in previously planned installments. Or to pay installments intended for future years (say for a 3-year grant commitment) now. See what some foundations are doing to speed up payments here.
• Asking foundations to consider a special grant. Some are considering digging into their endowments as well as exceeding the 5% minimum distribution many have formerly considered a ceiling.
• Asking donors to allow you to release restrictions on gifts or grants they previously earmarked for specific projects, so you can use them for unrestricted operating for now. Nearly 550 grant makers have now signed a pledge to provide more flexibility to the nonprofits they support. 
• Asking people to join a targeted COVID 19 Response (or Resiliency) Fund initiative with ‘plus’ donations to help with a shortfall or launch a coronavirus-related response program.
• Adding new revenue-generating online programs. These might be virtual versions of programs previously offered offline. They might be new classes (e.g., art appreciation; bird watching; foraging; house cleaning; activities for kids; etc.). Consider charging a modest fee and/or welcoming donations.
• Selling stuff you have hanging around (e.g., swag like tee shirts, tote bags, socks, pens, coffee mugs, etc.) Consider charging a premium (e.g., more than you did before; then throwing in a ‘gift’ like a video or PDF with “How to Do XYZ” — something your organization is skilled in — or a couple of recipes for sheltering in place that come from your staff or an expert chef you’re able to recruit).

Here are some additional resources you may find helpful:

• Fundraising in a Pandemic and Economic Downturn: What Will Happen, How You Can Succeed? This is a free whitepaper to help you through expected phases of the downturn and recovery:
• Financial Leadership in the Face of Impossible Choices. The title of the article speaks to the times we’re all in. Yet while we may be behind the 8-ball – in a tight spot – winning is not an impossibility. 

I’ll close by quoting one of my favorite nonprofit leadership writers, Nell Edgington:

[W]hile this crisis is destructive and challenging on every level, it may also offer an opportunity to uncover and finally fix the many broken aspects of our society. It is possible that we are in the midst of a great resetting. A resetting that will first uncover all that is wrong about our current systems and structures and then force us to create better ones.

As the Magic 8-ball would say: “It is decidedly so.”

— Charity Clairity

Have a question for our Fundraising Coach?

Please submit your question here. Remember, there are no stupid questions! If you need an answer, it’s likely someone else does too. So help your colleagues by asking away. Please use a pseudonym, like “Cannot Predict Now” did, if you prefer to be anonymous.