Monitoring Budget Assumptions: The Not-for-Profit Revenue Cycle
Typically, once management has prepared the annual operating budget and gained approval from the finance committee and the board, a sense of accomplishment is felt – and a sigh of relief is earned.
Once the budget is completed, the plan’s execution commences, and the budget assumptions used are up for evaluation and validation. As the close of the first quarter of the calendar year approaches, it’s time to analyze budget assumptions in the context of effort and events.
Effort: Analyzing the actual revenue to budget assumptions is a necessary process and is critical in determining the allocation of effort and staffing levels.
Events: Recent government events regarding the funding of existing contracts and availability of future funds for the organization’s mission bring a new urgency to not-for-profit finance equations, particularly funding for organizations focused on activities deemed DEI-related.
Common Questions Asked
Some questions management and those charged with governance have commenced to ask are:
- Has the management conveyed to the board the status of grant renewal in revenue assumptions?
- Will approved indirect rates be recalculated, impacting contribution to nonprogram and unfunded program activities?
- Has the development team increased the likelihood of closing open opportunities?
- Have new opportunities been included in the pipeline and assessed?
- Has the organization funded major programs and initiatives through state and government funding?
- Is the organization’s mission being scrutinized differently by funding agencies?
- Are philanthropic organizations a component of the organization’s revenue development process?
- Has the organization explored mitigation efforts to offset the negative impact of historical funding sources being reduced or eliminated?
- Does the strategic plan contemplate an alliance with like-minded organizations to reduce or share the administrative burden of fundraising?
- Have metrics been monitored for the activities of the organization development team?
Evaluating the validity of revenue assumptions is always important. The recent increase in uncertainty associated with developing revenue assumptions in the nonprofit sector warrants additional assessment.