Contingency Budgeting

July marks the beginning of a new fiscal year for many nonprofits. If you are one of them, you have just begun working from your new organizational budget. Congratulations!

July marks the beginning of a new fiscal year for many nonprofits. If you are one of them, you have just begun working from your new organizational budget. Congratulations!

But don’t put your calculator away yet. One budget may work if your funding for the year is known with a high degree of certainty. If it is not, you should be thinking of plural “budgets,” not singular.

One type of contingency budget is a budget you may submit for new funding which includes new or expanded programs. It represents what you will do if you get the funding. It’s usually not too hard to develop an up-side contingency budget. It’s exciting to think about what you could do with more money, and you have to develop those budgets if you want to apply for the grant or award.

Budgeting for a funding shortfall is another type of contingency budget exercise, and one that’s typically much more onerous. Still, it’s an important part of your annual budgeting work. If you do the planning for a funding shortfall now, you can probably approach the task without as much emotional burden, since it’s still somewhat hypothetical at this point.

If you can identify critical dates or events which would trigger adoption of the contingency budget, it may reduce your overall anxiety. You’ll know when to worry, instead of worrying all the time!

Step One: Review Your Current Funding Carefully

What do you know about your existing funding sources: your grants, contracts, other awards, major gifts, events? How are they likely to be affected by the economic downturn?

  • Remember that foundations are required to distribute a percentage of their assets, and that when the value of those assets plummets, the dollars associated with the distribution generally fall accordingly. Some foundations will increase the percentage they give upward, recognizing the critical importance of the work they fund. But not all can afford to. The foundation directors are caught between wanting to address current needs related to their mission, and ensuring that the funds are prudently managed and preserved for the long term.
  • As to government grants and contracts, the prospects tend to be tied to whether the funds originate at the federal level or at the state or local level. It’s obvious that federal funds for some programs are more plentiful this year, while pretty much all state and local governments are struggling. 
  • Finally, there are few individuals who haven’t been affected by the economy – either through job loss, salary reduction or declines in investment income.

Regardless of the source of funds, the best thing you can do is be in touch with your funders and aware of developments.

Step Two: Keep Focused on Your Mission

Print a copy of your mission in large print, and post it where you see it frequently.

This should be your touchstone for tough program and budget-related decisions. What decisions will best help me fulfill the mission of my organization?

It may be surprisingly helpful to keep that foremost if/when you have to make really heart-wrenching decisions. (If your mission isn’t helpful, it may be time to update it and/or to clarify your ideas about the central purpose of your organization and to prioritize activities.)

Step Three: Connect the Dots Between Your Funding and Programs

Are your grants and contracts restricted to certain programs and for a specific period of time? What does that mean for running those programs? Can you run the program at a reduced level of effort, or would it be better to continue the program intact for four months, and then terminate it if you haven’t been able to raise more funds at that time?

Don’t be afraid to discuss your options with funders if you want to revamp programs, consolidate programs or ask for a no-cost extension. You and your funders share a common objective, to serve a certain set of needs, and most will favor flexibility to better accomplish their purpose over rigid adherence to a pre-established plan.

Government agencies have less flexibility in general, but can still make budget or contract amendments. After all, the mechanisms for amending or changing the awards exist because circumstances change!

Step Four: Think About Staffing Changes

What staffing changes will you need to run the programs which aren’t fully funded for the year?

Cutting everyone’s pay or hours proportionally may seem the fairest course, but it’s often not the best course in terms of carrying out your programs.

If you don’t have enough money to fund a position for the full year, you may want to budget the person for part of the year at full salary, and then plan to cut their hours if additional funds aren’t raised. For example, if you have funding for 85% of a staff person’s time, they can work at 100% for six months and 70% for the second six months if needed. In the event that staff members end up on unemployment, they are likely to be better off financially if they are kept “whole” for a shorter period of time than if you whittle away at their pay or hours over time.

Step Five: Think About Your Other Expenses

Chances are that you have already pared your expenses as far as you can. Most of the groups we work with spend the large majority of their budgets on personnel costs.

The other largest line items tend to be consultants and rent. Landlords may be willing to reduce rent, at least for a limited time. It’s better than having space unoccupied.

The key word here is negotiate, defined in the Merriam-Webster online dictionary as meaning “to confer with another so as to arrive at the settlement of some matter.

Keep a Clear Head

While a few of us may thrive on crisis and uncertainty, a more common response is anxiety and fear. I’ve already seen a few instances where program managers or executive directors seem to be changing plans to protect their own positions or salaries. Challenge yourself to step up as a leader of your organization and have your mission and the needs of your constituency guide your decisions.

Kay has been at TSNE since 1998 and currently serves as program director for TSNE’s Fiscal Sponsorship Program.

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