Planning for the Next Annual Budget Cycle: Where Do You Start?[SUBSCRIBERS-ONLY]

Compiling the annual budget for the next fiscal year is always a challenge and requires as much pre-planning as possible. During periods of unpredictable volatility, we need to get started early and consider new strategies we might not have used in the past. Top-down budgeting and stress testing your funding sources might be the best way to get started on next year’s budget.

A bottom-up budget approach is driven by mission and program planning, with an expectation that sufficient funding will be obtained. This approach has been common during the past three to four years, in which nonprofits have been riding a wave of strong economic conditions. In contrast, a top-down (or “revenue aligned”) budget approach is driven by expected funding levels that can be counted on with a high degree of success, with mission and programs goals aligned accordingly.

To be safe and conservative, we should assume that obtaining funding could be more of a challenge next year than in recent years. During these unpredictable times, next year’s budget should include conservative and obtainable (rather than aspirational) funding targets that can be met with a high degree of success. This not the time to assemble a budget that could drift to deficits quickly if all does not go according to plan.