As we enter the new calendar year, it’s possible that many of us are still wrestling with our 2015 annual budget. Depending on the kind of organization we work for and the business lines that support it, budgeting can involve a wide range of issues. For example, you might have to nail down sales projections, consider the likelihood of receiving a major grant, plan out staff increases in response to growth, or price out an IT upgrade. But regardless of the particular questions you’re working through, there’s one thing that’s going to be pretty constant: uncertainty.

The budgeting process is an exercise in trying to predict the future, so there will inherently be places where the black and white numbers on the page belie grayer areas in our actual expectations for the coming year. The need to put definitive numbers against an indefinite situation have the potential to cause a bit of budgeting paralysis, but there are strategies you can use to gain clarity and confidence.

Maintaining Realism

It can be tempting to start the revenue budgeting process by identifying your financial needs, then backing into numbers that depict those needs being conveniently met. This kind of aspirational process often leads to a budget that looks great on paper but will ultimately bear little resemblance to the actual year ahead. That document will not be a helpful tool for ongoing management and planning. Here are a couple of things to keep in mind in order to make sure you’re building a reality-based budget:

Stay on the conservative side of reasonable. When estimating unknowns, aim to depict the most conservative scenario that remains within the bounds of what might reasonably occur. This means estimating revenue on the low side and expenses on the high side. This isn’t to say that you should base your budget on a worst case scenario, but if your baseline allows you to navigate through tougher conditions, you run a better chance of only needing to course correct in response to positive surprises.
Be clear about what you do and don’t control. Early on in the process identify the areas where revenue and expenses are truly fixed, the areas where you can make relatively easy adjustments to respond to uncertainty, and the areas where you could make difficult adjustments if necessary. This way, you’ll be able to focus your efforts on manipulating a smaller set of numbers.
Build on concrete. Basing your budget figures on abstract assumptions about growth percentages is unlikely to yield realistic results. Instead, build your budget from the bottom up with clear data on what happened last year and what specific drivers will lead those numbers to change in the year ahead. Note: Do still adjust for inflation.

Understand What Success Looks Like

Be clear about what you ultimately need your budget to do for you this year. Zeroing out revenue and expenses to break even is often not sufficient for organizations that need to pay down debt or build funds for investment in future growth or help mitigate financial risk. This goes for nonprofits just as much as for-profit businesses.

Consider Multiple Scenarios

Even though you’ll need to settle on one primary budget for the year, it can be useful to work out one or more alternate versions in order to get a handle on how you’ll manage if circumstances turn out differently than expected. For example, proactively planning how you could navigate through an unfavorable scenario can help you avoid scrambling to cut spending quickly toward the end of the year if revenue comes in lower than expected. And here’s the really important part: all scenarios, from best case to worst case, should fit within an overall vision for maintaining long-term financial sustainability.

Use Your Budget in Ongoing Planning

Regardless of how your upfront budgeting process is structured, you can maintain the budget as a relevant planning tool throughout the year by undertaking a structured reforecasting process. On a quarterly basis (or even monthly if you’re going through a rough patch) you can update your budget based on what’s actually come to pass since the beginning of the year and determine whether you need to change course in order to hit sustainable year end results.