Nonprofit Fiscal Rules for the "New Normal"

Governing Magazine's December issue offered six fiscal rules for what (political) leaders must learn in a post-recession economy.  I believe at least five of the rules can be helpful to the majority of nonprofit boards and execs.  Here they are.

1. Live within your means. Set expectations that focus on realistic five-year revenue projections.

2. Look to the future.  Set long-term priorities and stick to them -- even though governing bodies tend to focus on the issue du jour and react to the current developments without putting all competing priorities in perspective.

3. Stop deferring expenses.  When the economy enters a recession as deep as this one has been, it is natural to cut back on equipment replacement, infrastructure and capital maintenance.  But deferred expenses don't go away.  They come back and bite you later.  Budget officers should prepare a list of all on-going deferred spending and that way the board and management can see what needs to be funded before discretionary programs can be restored.

4. Dedicate your surplus.  At some point, state and local revenues will once again exceed budget estimates.  When they do, it will still be necessary to focus on fiscal catch-up.  Depleted reserves will have to be restored. 

5. Set up a rainy-day fund.  This may be the most important fiscal policy decision any governing body can make.  Once the revenue revival comes and stabilizes, it will be important to set money aside from the operating budget for lean periods in the future.  The time to enact such a policy is now, when memories are fresh and the pain of recent retrenchments is vivid.

Comments

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This blog is designed just for people like me will have to give everything step by step to understand everything right, thank you very much, it's all very well!

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Living within your means is something that a lot of nonprofit organisations are struggling with at the moment. In hard times costs go up and their fund comes down.

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Number 3, stop deferring expenses, is one that is applicable across the board. It is a company's natural tendency to cut back when times are tough, however these moments in time also offer a great opportunity to find talent and negotiate deals that you may have not been able to during the good times...nice article.

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Nonprofits will be important to set money aside from the operating budget for lean periods in the future.

[Mike Burns]

While perceived as a pipe dream, you are absolutely right that nonprofits should set money aside for lean periods. Lean periods likely include when governments delay their contractural payments. Of course there are lines-of-credit and in that case, the nonprofit should budget the cost.

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Thank you for the tips. I think that they are live saving tips. I have an uncle who lost a lot of money while trading with stocks, I am sure that if he would have read this post it wouldn't happen, or at least he would have been well prepped for the landing. To set up a rainy day fund is a really good idea.