Budgeting, in general, can be challenging. Budgeting for nonprofits, however, can be downright frustrating without the proper tools and strategies. Nonprofits create budgets to show their donors how funds are allocated throughout the organization, make smarter financial decisions, determine if they have the necessary resources to begin new programs and, ultimately, to save money. The following strategies were developed to help nonprofit organizations maintain an effective and realistic budget.
1. Determine Your Budgeting Cycle
Most organizations have an annual budgeting cycle that consists of the Board-approved budget. Because these often have 3-4 month cycles and are rarely completed prior to the beginning of the fiscal year, many nonprofits would be better off switching to a mid-year or quarterly budget review. This frequent budget review could be either a formal or informal meeting to determine the organization’s progress as compared to the budget. If any mid-course corrections need to be made, they can be discussed and determined during this budget review.
While most companies stick to yearly budget cycles, nonprofits benefit from more frequent budgeting cycles. This gives them the opportunity to make adjustments for unexpected funds or re-evaluate the distribution of stated funds.
2. Determine the Programs and Activities to be Included in This Year’s Budget
A budget cannot be created until staff, volunteers and board members have determined the programs and activities for the upcoming year. What programs are expected or desired? If your organization needs to make some budget cuts, what programs or activities will be cut?
3. Practice Income-Based Budgeting
The most reliable budgets are those that are conservative and income-based. Nonprofit organizations should always budget for income first. Income projections should be based on realistic expectations and only include reliable income. Never include an income projection to merely fill in a gap in the budget; this will set you up for a budget deficit if your organization fails to meet the income targets. In addition, make sure that your expenses are always lower than your dependable income.
4. Budget Expenses and Revenue
This is the most time-consuming step of the budgeting process, yet it is also the most necessary. Your expenses and revenues will be based off of historical data and assumptions. The differences in previously budgeted amounts and the actual amount will factor into the current budget, as will a realistic view of the economic conditions on revenue and the demand for services.
5. Align Your Budget with Your Organization’s Mission and Goals
A nonprofit’s budget should reflect the organization’s commitment to its mission through numbers. Ask yourself the following questions to ensure that your budget is aligned with your mission and strategic goals:
- Does the budget reflect the organization’s mission by the way the resources are allocated?
- What types of grants are we pursuing? Are we going after grants because they are easily attainable or because they pertain to our mission?
- Are all of our programs either contributing to the organization’s mission or helping to financially support the organization?
6. Invest in Budgeting Software
Finding the right solution for your organization can provide you with the tools and processes that are necessary in reaching your budgeting goals. There is a multitude of budgeting solutions to choose from, making it easier to invest in a solution that fits the needs of your specific organization. A comprehensive budgeting solution will:
- Effectively align your strategy with the execution of your operations
- Shorten planning cycles to allow executives to concentrate on meeting strategic goals
- Free up time and money to explore new areas of growth
- Deliver current and relevant information to assist with better decision making
- Provide analytical capabilities
- Eliminate reliance on spreadsheets and their associated errors
For more information about developing a nonprofit budgeting, click here.