Deficit Budgets Aren’t Always Bad – Here’s When to Use Them

Deficit budgets often get a bad rap in the nonprofit world. We’ve been taught that running a deficit signals poor financial management, a lack of planning, or a looming crisis. But what if I told you that a deficit budget, when used strategically, could actually be a powerful tool?

In this episode, I break down the difference between an accidental deficit and a strategic one. I’ll explain why a well-planned deficit can help your organization navigate uncertainty, maintain mission-critical work, and set the stage for future growth. The key is intention—knowing when, why, and how to use a deficit budget as part of your larger strategy.

In This Episode, You’ll Learn:

• The difference between an accidental deficit and a strategic deficit
• When and why a nonprofit might choose to run a deficit budget
• Key questions to ask before deciding on a deficit strategy

Key Takeaways:

1. Not all deficits are bad. Accidental deficits can create instability, but strategic deficits can be a valuable tool for growth and sustainability.
2. Intentionality is key. A strategic deficit should be time-bound, have clear objectives, and include an exit plan.
3. Risk-taking can be smart. In an unpredictable funding landscape, a strategic deficit can give you the runway to adapt and emerge stronger.

Steps to Consider Before Using a Strategic Deficit:

1. Assess your external environment. Are funding shifts or sector changes on the horizon?
2. Evaluate your internal capacity. Do you have reserves that can be strategically deployed?
3. Get board buy-in. Ensure your leadership understands and supports the rationale for a strategic deficit.
4. Define your exit plan. How and when will you return to a balanced budget?

Want to work together?

Apply for the Next Level Nonprofit Accelerator, a high-touch coaching and training accelerator for established organizations that want a smart, powerful playbook for taking their growing organization to the next level.

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