The word “forecast” can sound intimidating, but it doesn’t require sophisticated software or a crystal ball.
In fact, the easiest place to start is with the same format you already use for your Statement of Activities.
Project your major revenue and expense categories forward two or three years and apply a few reasonable assumptions.
For example:
| Assumption | Typical Range |
| Inflation | 2%–3% |
| Salary increases | 3% |
| Employee benefits | 5%–6% |
| Occupancy costs | 2%–4% |
| Individual giving growth | 2%–5% |
| Foundation grant growth | 0%–2% |
Will those assumptions be exactly right?
Probably not.
That’s okay.
The goal isn’t to predict the future perfectly. The goal is to think intentionally about the future.
Budget Once, Forecast Continuously
One of the most useful habits a nonprofit can develop is incorporating a mid-year reforecast into its annual planning process.
Think of it as a financial checkup.
About halfway through the year, pull out the budget and ask:
- Are revenues tracking as expected?
- Have donations or grants changed?
- Are expenses coming in higher than planned?
- Have staffing needs shifted?
- Are there new opportunities or challenges we didn’t anticipate?
Then update your projected year-end results and refresh your three-year forecast.
The question isn’t:
“Did we predict everything perfectly?”
Because nobody does.
The better question is:
“Based on what we know today, are we still on track?”
Organizations that ask this question regularly are often able to make small course corrections before they become major problems.