What are the steps to create a flexible budget for your non-profit program?

1 Identify your program goals and activities

The first step is to define what your program wants to achieve and what it needs to do to get there. This will help you determine the expected outcomes, outputs, and inputs of your program. Outcomes are the changes or benefits that your program aims to create for your target population or community. Outputs are the products or services that your program delivers to achieve those outcomes. Inputs are the resources that your program uses to produce those outputs, such as staff, materials, equipment, or facilities.

2 Estimate your program costs and revenues

The next step is to estimate how much your program will cost and how much revenue it will generate. You can use historical data, market research, or benchmarks to estimate your program costs and revenues. Your program costs include both fixed and variable costs. Fixed costs are the ones that do not change with the level of output, such as rent, salaries, or insurance. Variable costs are the ones that change with the level of output, such as supplies, utilities, or travel. Your program revenues include both earned and contributed income. Earned income is the money that your program earns from selling its products or services, such as fees, tuition, or tickets. Contributed income is the money that your program receives from donors, grants, or sponsors.

3 Create a baseline budget

Creating a baseline budget that reflects your best estimate of program costs and revenues for a given period, such as a year or quarter, is the third step. This budget should be realistic and based on your program goals and activities, and can be created using a spreadsheet or software. The baseline budget should include your program name, period, and assumptions; outcomes, outputs, and inputs; costs broken down by fixed and variable categories; revenues broken down by earned and contributed sources; as well as the surplus or deficit, which is the difference between your revenues and costs.

4 Develop alternative scenarios

The fourth step is to develop alternative scenarios that reflect different possibilities or risks that may affect your program costs and revenues. These scenarios can be based on internal or external factors, such as changes in demand, funding, regulations, or competition. You can use a percentage or a dollar amount to adjust your baseline budget for each scenario. For example, you can create a scenario that shows what would happen if your program's demand increased by 10%, or if your program's funding decreased by $50,000. You should create at least three scenarios: a best-case scenario, a worst-case scenario, and a most-likely scenario.

5 Compare and analyze the scenarios

The fifth step is to compare and analyze the scenarios to see how they affect your program surplus or deficit. Utilize charts, graphs, or tables to visualize and compare the scenarios. Additionally, consider how sensitive your program is to changes in costs or revenues, what the main drivers of your program surplus or deficit are, what potential opportunities or threats exist for your program, and what the trade-offs or implications of each scenario may be.

6 Adjust and monitor your budget

The final step is to adjust and monitor your budget based on the scenario analysis and the actual performance of your program. You should use the most-likely scenario as your working budget, but be prepared to switch to the best-case or worst-case scenario if needed. To ensure you are staying on track, you should update your budget regularly and track your actual costs and revenues against your projections. A variance report can help you observe the difference between your actual and projected costs and revenues, while a contingency plan and revision plan can guide you in taking actions or making changes if your program encounters any deviation or permanent/long-term change in costs or revenues. By applying these steps, you can create a flexible budget for your non-profit program that will help you plan and manage finances in a dynamic and uncertain environment.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?