Deficit Reduction

An occasional deficit is not the end of the world. However, an organization where operating shortfalls are chronic and the balance of net assets without donor restrictions is persistently negative and worsening, will find itself in a financially precarious position. Staff will be stressed. Donors may be wary of investing in such an organization. It will be difficult or impossible to build or replenish an operating reserve. Deficit reduction will need to be a top priority, and the organization should set a deficit reduction schedule and include specific funding strategies in its budget. Meanwhile, it should look into the reasons for repeated operating deficits. They’re often the result of poor budgeting, especially resulting from overestimating revenue potential, and may indicate that the budget vetting process should be more vigorous.