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How Will COVID-19 Impact Your Organization’s 2021 Budget?

August 4, 2020

by Victoria Holthaus, CPA

How will COVID-19 impact your organization’s 2021 budget?

To say the last few months have been stressful is an understatement. Life as we know it has shifted, and a return to normalcy is hard to fathom at the moment. As a result, non-federal government entities are dealing with unexpected revenue shortages and increased expenditures—all against the backdrop of funding ambiguities. In the midst of these challenges, budgeting season looms, bringing with it a difficult question: How will COVID-19 impact your organization’s 2021 budget?

Here are a few steps you can take to begin formulating an answer.

1. Don’t rush to cut capital funding.

One of the easiest ways to pare down a budget is to slash funding for capital projects. Doing so, however, can lead to maintenance issues for critical systems (e.g., road, sewer, and water systems) down the road. Instead, start by seeking to get a full picture of your organization’s financial situation.

2. Conduct a cash-flow projection.

Understanding your organization’s financial situation starts with understanding its cash flow—what it looks like now, as well as what it will be in six, 12, and 18 months. This is where the Cash Flow Projection Toolkit piece of our AEM Recovery Plan can help. Using this toolkit, we conduct an initial assessment of your organization’s finances. Then, to help you gauge the risks involved with budgeting decisions, we model best-case, probable-case, and worst-case scenarios for future cash flow. We provide you with guidelines on how to prepare for each scenario.

3. Reference your organization’s long-term financial plan.

A long-term financial plan serves as a five- to 10-year roadmap for your organization’s future. Ideally, this plan will identify your organization’s capital needs over time, as well as its operational and programmatic goals and debt portfolio. In this climate of uncertainty, a long-term financial plan can be a valuable tool for determining which actions are sustainable.

We’re in this together.

By understanding your organization’s current and future financial situation, you can better budget for 2021—and whatever it may bring. The more clarity you have, the more likely you’ll be able to take advantage of opportunities you may not have seen before. The AEM team is here for you. By supporting you with our AEM Recovery Plan, we can guide you through this “new normal” as it continues to evolve. If needed, we can also help your organization establish a long-term financial plan.

No matter where you are in your 2021 budgeting process, we can help you develop a strategic plan to answer tough questions—and move forward with confidence. Contact us today to get started.

Vicki Holthaus, CPA, is a Partner with AEM Financial Solutions. She provides financial management services and customized solutions for local governments and nonprofit agencies.

You can reach Vicki at 952.715.3069 or click here to contact her via email.

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