The world we live in today changes more quickly than any time in our history. Access to information and news can cause people’s opinions and actions to turn on a dime.
The financial position of a nonprofit can be a victim – or a benefactor – of these changes. But traditionally, nonprofits have relied on annual budgets to understand their financial position. Annual nonprofit budgets inherently don’t take into account fluctuations in areas like donations, grants, and even sudden market opportunities, leaving nonprofits scrambling to adjust or missing chances to help.
A rolling financial forecast on the other hand, is specifically designed to address the kinds of changes that nonprofits have needed to adapt to. Rolling forecasts increase your understanding of your budgets, create opportunities to be proactive, increase accuracy and improve flexibility.
Increase Understanding with Added Insights
Past performance is a great place to start with a budget, but it won’t provide all of the answers. Unfortunately, annual budgets are typically built solely on knowledge gained from what has come before.
Because of the added insights gained from rolling financial forecasts, nonprofits always have an updated view of their current financial situation. This allows leaders and board members to make decisions based on what is happening in the present, not the past.
Be Proactive with Improved Cash Flow
It’s difficult for a nonprofit to plan its programs without a clear understanding of its cash flow. Annual budgets provide almost no visibility into where an organization is on a month-to-month basis, forcing nonprofits into a defensive stance for projects and spending.
A rolling financial forecast is updated regularly, even monthly and provides real-time numbers on cash flow for decision-making.
Better Data Visibility Increases Accuracy
Nonprofits are familiar with this scenario: Your budget has been approved. You enter the first month of the year and donations are down or a grant falls through. Instead of adjusting, that gap in funding just gets moved to the next month, or the next quarter. Annual budgets are out of date almost as soon as they are approved.
Rolling financial forecasts are updated frequently, increasing the accuracy of the budget. It’s easier to see where you stand more quickly and adjustments can be made on the fly to absorb the ups and downs. It means leaders need to spend time monthly on budgets instead of once a year, but the regular time investment is smaller and leads to big gains.
Flexibility Means Improved Identification of Opportunities and Risks
The world of a nonprofit is unpredictable. Environmental events, political turns, even today’s news can change their financial position, for better or for worse, at the drop of a hat. Worse, annual budgets provide little flexibility to leverage a new opportunity or address a risk until the next budget cycle. This might not be a detriment when an event happens in November, but it makes a world of difference if that same event happens in February.
Flexibility is an inherent part of rolling financial forecasts. Adjustments can be quickly made to avoid the significant impacts of risks or to expand operations to encompass new opportunities in the moment. Part of this flexibility comes from being able to run “what-if” scenarios based on timely and accurate data, creating a clear picture of today’s financial position.
It seems the world today changes faster than ever before. Nonprofits can adapt and change with today’s events only if they have a current and up-to-date understanding of their budgets, and flexibility in their financial forecasting. For these reasons, rolling forecasts can help nonprofits proactively address changes and react more quickly to the needs of the community.
In order to increase flexibility with rolling financial forecasts, hundreds of nonprofits as well as businesses of every description rely on the Budget Maestro™ software solutions by Centage Corporation. Budget Maestro improves the efficiency and effectiveness of business budgeting and planning, financial forecasting, financial consolidation and reporting processes. For more information, take a tour of Budget Maestro, contact Centage, or call 800-366-5111 now.