Planning for non-budget items: The key to a charity’s financial stability
Overseeing a charity’s finances isn’t easy. You focus on every penny, making sure costs stay within budget. But what about those costs that don’t fit neatly into a budget line? That’s where many charities and nonprofits trip up. Planning for non-budget items is crucial for financial stability.
It’s the unplanned repairs, unexpected fees and sudden needs that can throw you off course. Ignoring these can jeopardise your mission.
With insights from our guide to planning for non-budget items, we explore how to plan for non-budget items to make sure your charity is not just surviving but thriving.
Risk and uncertainty are here to stay
Results from the last World Economic Forum’s Global Risks Perception Survey were short on optimism. Respondents anticipated serious instability, with some even predicting all-out global catastrophes. Among other factors, concerns around climate change, conflicts and economic uncertainty drove this sense of uncertainty.
Whatever the causes, the upshot for charities is the need to foster even greater resilience than ever. For organisations that rely on donors, grants or other unpredictable sources of funding, financial resilience becomes especially critical.
Against a backdrop of uncertainty, charities and nonprofits need to not only plan their budgets carefully but also prepare for unplanned costs. Non-budget items, which are too often overlooked in financial planning, comprise a wide range of unexpected expenses: from sudden repairs to properties, to natural disasters, to staffing issues, to compliance costs.
Knowing how to address these unexpected expenses can help ensure a charity’s financial stability. But doing so requires careful planning that all too often gets lost in the day-to-day scramble of pursuing organisational goals on the one hand and maintaining basic financial stability on the other.
Planning for non-budget items helps safeguard your nonprofit against unforeseen expenses, enabling it to continue operating smoothly — even in difficult times. Your board software can support the board and committees as you go through your planning process. This blog will walk through how to anticipate and manage these expenses, offering practical steps to keep your organisation resilient and adaptable.
What are non-budget items? And why is planning for them important?
Briefly, non-budget items are unforeseen expenses that aren’t planned for in an organisation’s budget. The annual budget is a powerful instrument for nonprofits to plan expenses and income, but it’s not able to capture everything. Invariably, unexpected costs arise over the course of a year. These unplanned expenses might stem from a variety of sources, including software needs, regulatory changes, equipment breakdowns or staffing problems.
For example, a charity might be forced to manage a sudden, costly regulatory requirement or need new software to mitigate unforeseen operational complexity.
Most nonprofits can manage a few of these unexpected expenses. But too many can threaten to divert funding from a charity’s core programming, and in some cases, pose existential threats.
At this point, charities and nonprofits face a somewhat paradoxical question: how to expect the unexpected? While it’s true that non-budget items can be prepared for in their specifics, there are several general strategies that can help organisations ensure financial stability by proactively addressing them.
Download our free guide to planning for non-budget items
Non-budget items can be managed much easier with the right tools. Download our essential budget planning guide for charities for strategies and best practices designed to help you build a resilient financial plan that accounts for unexpected expenses.
Four steps to plan for non-budget items
To capture non-budget items, the first step is to build a strong annual budget that follows best practices and captures every possible foreseeable expense. But apart from that, there are also practical steps charities can take to prepare for non-budget items and strengthen financial resilience:
1. Identify risks
Charities should work to understand where non-budget items might emerge. This requires a powerful risk assessment strategy that accounts for:
- Maintenance or unexpected repairs
- Regulatory and compliance changes
- Emergency staffing needs
- Adjustments to programs or services
By predicting possible areas of unexpected expenses, you can begin to build a financial plan that incorporates these risks.
2. Build a strong policy framework
Having a strong policy framework around non-budget items is one of the most effective ways to manage them. Essentially, these policies will involve allocating funding from different sources to address non-budget items, with strong guardrails governing amounts, access and reporting.
These could include reserve funds, contingency funding or emergency expense policies. In any case, charities should:
- Allocate a portion of their yearly budget for non-budget items (percentage will vary depending on organisation size)
- Adjust reserves based on risk assessments and potential areas of unplanned expenses
- Secure unrestricted funding to help build up these reserves
3. Institute flexible budgeting
Non-budget items require flexible financial management. Charities and nonprofits can’t predict the future, but their financial plan should allow regular adjustments. Some strategies include:
- Reviewing the budget quarterly to account for unexpected costs.
- Using scenario planning to anticipate different financial outcomes, helping you prepare for any sudden changes.
4. Engage the board
The board’s role in financial oversight means they need to be intimately involved in discussions and decisions about budgeting and non-budget items.
Tools like BoardEffect can help keep board members and staff on the same page, granting targeted access to relevant, real-time financial data, enabling faster, smarter financial decisions in the face of uncertainty.
How BoardEffect can help
At Diligent, we understand the importance of robust budgeting for a nonprofit, and we’ve designed BoardEffect to be a flexible solution to support your efforts to see what’s ahead. BoardEffect provides a secure platform for boards to:
- Manage board meeting agendas.
- Prepare for budget planning meetings.
- Communicate about the budget securely and confidentially.
In addition, BoardEffect also:
- Allows administrators to set granular permissions so that only the people involved in budget planning can access the planning documents.
- Offers secure workrooms for planning committees or working groups to collaborate as the budget goes through its process.
- Stores key budget and planning documents in a resource library for board members and staff to access easily in a secure, centralised location.
Whatever shape your organisation’s budget process takes, BoardEffect can be a valuable tool for financial oversight, board effectiveness and good financial planning. Find out how we can help today.
