When & How to Adjust Your Nonprofit's Budget Mid-Year
- Nonprofit Learning Lab
- 1 day ago
- 5 min read
This is a guest blog.
Your nonprofit’s operating budget is the foundation of your financial planning efforts. By outlining how much you’ll raise from different sources and spend on various programs and operational needs throughout the entire year, your nonprofit can make the most of its resources for its mission.
Although your organization should stick to its budget as much as possible, it’s impossible to predict everything that might come your nonprofit’s way during a given fiscal year. So, there may be times when you need to adjust your budget during the year so your remaining projections reflect your new reality.
In this guide, we’ll discuss when it is (and isn’t) appropriate to revise your nonprofit’s budget mid-year, as well as some ideas for how to do so to maintain financial stability. Let’s get started!
Situations Where Your Nonprofit Might Adjust Its Budget
Generally speaking, your nonprofit should adjust its budget mid-year when your actual revenue and expenses deviate significantly from your projections. Significant is the operative word here—a $2,000 difference in spending or fundraising would be enough for most nonprofits to report, but a $20 change likely wouldn’t be. Your organization should work with its accountant or CFO to determine a numerical or percentage-based threshold for making a budget adjustment that aligns with your financial position.
When you think about these types of significant deviations, the first situations that likely come to mind are negative ones, such as:
Crises like natural disasters or legal difficulties that require additional spending
Economic turbulence that causes individual donors to give less
Losing out on a grant you were counting on securing
Utility companies or vendors increasing their prices (which can add up over time, even if the initial cost change seems small)
However, there may also be positive reasons for your organization to adjust its budget, such as:
A new community program being so popular that your nonprofit needs to add another staff member to its payroll to keep up with the demand
A fundraising event or campaign majorly exceeding its goal due to high supporter engagement and satisfaction
A donor making a bequest to your nonprofit that you don’t find out about until you’re contacted by their estate after they’ve passed away
A business contributing an expensive good or service (e.g., a new van or a website redesign project) in-kind that you expected to pay for, meaning you can reallocate the revenue you would’ve spent on it
All of these hypotheticals (which have happened to real nonprofits) underscore the importance of revisiting your budget regularly throughout the year. CFO Leverage recommends that your organization’s financial professionals, leadership team, and board representatives meet at least once a month for a budget review in which they determine if adjustments are necessary.
Ways to Adjust Your Budget Mid-Year
During budget review meetings, your team should review multiple resources (e.g., your nonprofit financial statements, budget vs. actual comparisons, and treasurer reports) to get an accurate picture of your organization’s financial standing. Once they’ve come to data-backed conclusions about how much your budget should be adjusted and whether you should re-examine your revenue, expenses, or both, you can implement some of the following strategies to get your budget on track with reality.
Revenue
Naturally, if your organization incurs unexpected expenses, you’ll typically need to generate more revenue to cover them. While it’s tempting to make ambitious plans at this stage, you first have to consider your organization’s resources and bandwidth, especially if you need a quick turnaround. Here are a few tips for increasing your revenue responsibly:
Launch low-lift but engaging campaigns. Chasing down a major gift or adding another event to your fundraising calendar may seem like the most lucrative revenue generation options, but they require large upfront investments of time and money to succeed. Instead, start with cheaper, quicker initiatives that will pique supporters’ interest, like a crowdfunding campaign or branded merchandise sale, and build from there.
Enable and promote recurring giving. Ensure your nonprofit’s online donation page securely stores donors’ contact and payment information and allows supporters to change their donation from one-time to monthly with one click. If you can already receive recurring donations via these features, mention monthly giving more frequently in your marketing and reach out directly to donors who might be interested in contributing to this reliable revenue stream.
Only dip into savings when it’s absolutely necessary. Infinite Giving’s nonprofit cash management guide advises keeping at least six months’ worth of operating expenses in your nonprofit’s reserve funds so you can weather emergencies effectively. However, you should also create a policy that stipulates what counts as an emergency and how much you can withdraw from your organization’s savings at a time. And if you can make up a difference in funding without spending reserves, all the better!
Your nonprofit can also prepare in advance for revenue fluctuations by regularly adding to your reserve funds, investing some savings in low-risk vehicles to grow them, and diversifying your funding model so you aren’t overly reliant on any one revenue source.
Expenses
On the flip side, if your organization experiences a revenue shortfall, the budget adjustment you’ll likely need to make is reducing spending. Always begin by cutting overhead costs—don’t take funding away from mission-critical work unless it’s absolutely necessary.
Remember, though, that your organization needs some overhead (i.e., spending on fundraising and administrative needs) to run. For example, if you only planned fundraising campaigns that cost you nothing to execute, you’d probably miss out on engaging many donors who expect a higher-quality giving experience than free tools and resources can provide. Or, if you reduced compensation for staff members who are performing well in their roles, you could negatively impact your organization’s work culture and increase employee turnover.
Instead, go through your overhead expenses and think critically about where you could reduce spending without impacting performance. For example:
Are you paying for duplicate software subscriptions? Cancel the one that’s more expensive, less useful, and/or isn’t built into another tool you use.
Do you need new office furniture and supplies? Create an online wishlist of these items so donors can buy you exactly what you’re looking for.
Does your facility’s electric bill skyrocket in the summer months because of your air conditioning usage? Assess whether installing a smart thermostat would save money in the long run.
If your organization brings in significantly more revenue than expected (and the donor didn’t designate it for a specific purpose), be strategic about how you spend it. Saving it or putting it toward a program are usually the best options, and if you use it for overhead, make sure your donors or employees (meaning all employees, not just leadership!) benefit from it.
Your nonprofit’s annual operating budget should be its financial source of truth throughout the entire year, which is why updating it to reflect reality after significant changes is critical. Use the tips above to get started, and remember that budgeting should be a team effort by your board, leadership, and financial professionals all year long.