Top performing nonprofit organizations large and small have one thing in common, they are continually planning for their success. Creating a budget is a huge part of a successful plan, and it’s a tool that aids in the implementation of your organizations mission. When both management and your board of directions have this tool they are able to sufficiently oversee your organization’s financial health.
Having an operating budget approved in advance of the beginning of the fiscal year is a common best practice. Often times, in order to achieve this goal you must begin the process at least three months prior to year-end. In this blog we will address some general tips to help increase the effectiveness of your budgeting process. If you’ve already begun this will be a helpful tool to measure your current progress. For those of you that have yet to get started, now is a great time to begin.
Having a budget that actually works requires a little time and energy devoted to development and implementation and should include the following components:
Clearly defined and itemized objectives:
Most likely you have multiple projects and programs planned throughout the year. Each one should have its own budget and then once those have been completed, they should be compiled to complete the overarching operating budget.
Having defined budgets for each project allows you to see areas that may require additional consideration so that you can fully understand the financial implications of each objective and how it works together with the overall goal of the organization.
Clearly defined time period.
Although your budget will likely cover a one year period or fiscal year it is also helpful to further divide the budget into smaller portions such as months or quarters. In so doing, you will have the ability to be proactive with any variance as the year goes on. If you find yourself overspending in a particular quarter you will have the benefit of making necessary adjustments in the remaining quarters. This also provides you with a great tool to reflect on at years end and use to strategize for the future.
Realistic expectations.
Having a realistic estimate of revenue and expenditures is so important. All too often, expenses are underestimated which leads to overspending and improper allocation of resources. When this happens the budget fails to be a useful tool for your organization. Be sure to use last year’s actual numbers coupled with future predictions. Take the time to truly analyze expenses and income to help you create a budget that is based on realistic expectations rather than assumptions.
In addition it can be helpful to have a plan “B” with your board of directors in the event that something does not go according to plan you know exactly how you will handle it. For example, which initiatives can be bumped to next year or executed using a smaller budget.
Measurable goals.
Create your budget based on the same accounting method with which your books are kept and monitored. Doing so allows you to compare the predicted budget against actual income and expenses as they happen. When variances arrive, which is inevitable you must have the flexibility to make adjustments and address cash shortages and/or inflated expenses. Maintaining your budget this way will allow you to assess and correct your budget as needed, while flexibility will enable you to alter your budget when necessary.
At the end of the day the most important part to planning your budget is to ensure that you were able to move forward the mission of your organization. Keeping these helpful tips in mind as you begin the budget planning process will set your organization up for success.
In our next blog we will get into the budget process in further detail. Here at Beck and Company Certified Public Accountants and Business Advisers we are committed to assist you with your back-office accounting and financial needs so you can focus on your mission. Contact us to learn more about our planning and budgeting services.