For many human services organizations, budgeting season has traditionally been viewed as a necessary annual exercise. Finance teams build projections, department leaders submit requests, boards review assumptions, and eventually a budget is approved.
However, it is no longer that simple. Providers are currently navigating workforce shortages, rising labor costs, increasing program expenses, delayed government funding, reimbursement pressures, and ongoing uncertainty around future federal and state funding. Against that backdrop, the budget can no longer be treated as a compliance requirement or a box to check before the new fiscal year begins.
Rather than treating budgeting as a once-a-year exercise, organizations should use it as an opportunity to assess what’s working, address challenges, and plan proactively for the future. Below are eight budgeting tips to help human services organizations navigate the year ahead with greater confidence.
1. Start With a Reality Check
One of the most common budgeting mistakes is using last year’s budget as the starting point for next year’s plan. While it may seem efficient, it often overlooks what actually happened over the past 12 months.
A stronger approach is to begin by comparing budgeted expectations to actual results. Where did performance exceed expectations? Where did it fall short? Which programs generated surpluses, and which operated at a deficit? Were staffing assumptions realistic, or did vacancies, turnover, and overtime significantly impact results?
Looking backward isn’t about assigning blame. It’s about understanding what the organization’s financial story is telling you before making decisions about the future.
Before building next year’s numbers, leadership teams should ask:
- How did we perform compared to expectations?
- What unexpected challenges affected results?
- Which assumptions proved accurate and which did not?
- What would we do differently if we were building the budget from scratch today?
Those answers often reveal opportunities that wouldn’t be identified by simply carrying forward last year’s assumptions.
2. Take a Fresh Look at Revenue
Revenue assumptions deserve more scrutiny than ever.
Many human services organizations rely on a mix of government funding, Medicaid reimbursements, fee-for-service revenue, grants, fundraising activities, and investment income. Each of those revenue streams comes with its own set of risks and uncertainties.
It’s tempting to assume that revenue will remain relatively consistent from year to year. In practice, funding changes, utilization shifts, contract renewals, and reimbursement adjustments can significantly affect an organization’s financial outlook.
As budgets are developed, leadership teams should evaluate:
- Potential changes in government contracts
- Medicaid and managed care reimbursement rates
- Grants approaching renewal dates
- Fundraising expectations and event performance
- Investment income assumptions
The goal isn’t to predict every variable perfectly. It’s to ensure revenue projections are grounded in current realities rather than past expectations.
3. Personnel Costs Require an Even Deeper Dive
For most human services organizations, personnel expenses account for the majority of operating costs. In many cases, they represent 70% to 85% of total expenditures.
That reality makes staffing assumptions the most important components of the budgeting process.
Organizations should be evaluating:
- Cost-of-living and merit increases
- Minimum wage changes
- Vacancy rates and hiring timelines
- Overtime trends
- Recruitment and retention initiatives
- Employee benefit and insurance costs
One area that deserves particular attention is vacancy planning.
Many organizations continue to budget as though every approved position will be filled for the entire year, even when historical data suggests otherwise. While the intention is understandable, budgeting for a fully staffed workforce that has never existed can create unrealistic expectations and distort financial forecasts.
A more effective approach balances operational needs with actual staffing trends and recruitment realities.
4. Let Data Guide Program Decisions
Every human services organization has programs that are central to its mission. Some of those programs may generate financial surpluses, while others operate at a loss.
The challenge isn’t necessarily eliminating programs that lose money. In many cases, mission-driven organizations intentionally provide services that are critically important despite limited funding.
The key is understanding the true financial impact of those programs and making informed decisions about sustainability.
Leaders should regularly examine:
- Cost per participant
- Program margins
- Utilization rates
- Outcome measures
- Funding adequacy relative to service costs
5. Don’t Underestimate Inflation
The impact of inflation remains very real for human services providers.
Utilities, insurance, transportation, technology, and other operating expenses continue to increase. Even modest annual increases can create significant budget pressure when multiplied across an entire organization.
One of the most common budgeting mistakes is assuming these costs will remain relatively flat.
Building realistic inflation assumptions into the budget helps reduce the likelihood of unpleasant surprises later in the year.
6. Plan for More Than One Outcome
If the past several years have taught nonprofit leaders anything, it’s that circumstances can change quickly.
Funding may be delayed. Utilization may shift. Expenses may rise faster than anticipated. Opportunities may emerge that weren’t part of the original plan.
That is why scenario planning has become an essential part of the budgeting process.
Rather than developing a single budget and treating it as a certainty, organizations should consider multiple scenarios:
- What happens if funding is delayed?
- What happens if reimbursement rates change?
- What happens if staffing shortages persist longer than expected?
- What happens if program demand increases significantly?
Thinking through these possibilities in advance allows leaders to respond thoughtfully rather than react under pressure.
7. Make Budgeting an Organization-Wide Conversation
The strongest budgets are not created in isolation.
While finance teams play a critical role in building and monitoring budgets, organizational leaders, program directors, and board members all bring valuable insights to the process.
Program leaders understand operational needs. Board members provide strategic perspective. Executive teams help align financial decisions with long-term priorities.
When these voices are involved early, budgeting becomes a strategic planning process that helps the organization move forward with greater clarity and alignment.
8. Remember: Cash Flow Matters Too
A balanced budget doesn’t always mean an organization has the cash it needs when it needs it.
This is particularly important for providers that experience delays in reimbursements, government payments, or grant funding.
Organizations should be evaluating cash flow projections alongside operating budgets to ensure sufficient liquidity throughout the year. Understanding when cash is expected to come in can be just as important as understanding how much revenue is expected overall.
Strong financial performance on paper does not always translate into strong cash flow.
Next Steps
Building a budget in today’s environment requires more than updating last year’s numbers. A thoughtful budgeting process can help leaders better understand their financial position, evaluate program sustainability, and prepare for multiple scenarios before challenges arise.
The Bonadio Group’s Human Services team works with organizations across the sector to navigate budgeting, financial planning, and operational challenges. If you’re preparing for the year ahead and looking for an objective perspective on your budget assumptions, program economics, or long-term financial strategy, we’d welcome the opportunity to start a conversation.
If you have any questions or are interested in learning more, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
