Developing the budget. It may be one of the most dreaded aspects of running a nonprofit organization, especially over the past few years when donors dried up and investments shrank. However, this task doesn’t have to be so daunting. Here are a few tips.
Have a clear mission and objectives for the organization. It may sound simple, but before a nonprofit organization can begin to work on budget decisions, the group must establish a clear mission and objectives. Sometimes organizations have an informal mission that many not be well communicated or even shared by all those involved. By developing a formal, written mission and objectives, everyone understands the purpose of the organizations and what programs and services it will provide. With a clearly defined mission, the organization can then begin considering the financial resources that will be needed to carry out its purpose.
Have people on your finance committee with financial experience. Whether they have a banking, accounting, investment or business owner background, having professionals with an understanding of finance will greatly help your board of trustees understand its financial situation and work toward sound financial decisions. It is important to establish a balance of talent on your organization’s board between those who understand and are passionate about the organization’s mission programs and those who have financial expertise to help carry out the mission.
Start budget planning early. Allow plenty of time for the budgeting process, which also allows you to spend more time on projections and bring additional people into the planning process.
Create multiple scenarios. If you develop three-five scenarios based on funding forecasts, you’ll have contingency plans to fall back on if your original budget numbers are not achieved. The reason to do this now is that it will be easier to make decisions when you are not under duress. Developing a solid, logical contingency plan will allow your organization and its board to move forward more confidently with needed changes.
Involve more people. Obtaining input from more people than you might have included in the past can provide additional insights that you might not otherwise receive. This means including everyone from donors to board members to key internal personnel.
Get creative. Although some organizations are beginning to turn the financial corner, others continue to struggle. Now is the time to think creatively about alternative funding sources. Opportunities might exist with current donors, government, community or organizational grants, or even joint ventures with related organizations.
Budget assets to liabilities. For most organizations, the traditional income statement does not provide sufficient information for your budget.
Review budgeted versus actual financial performance frequently. Remember that the budget is a management tool and is not set in stone. An organization’s budget should be reviewed monthly when financial information is presented to the board. If the group observes the established budget is falling short, consider making a mid-year revision. Mid-year budget changes might include rethinking expenses or cuts in services if financial resources are not available. If the group had developed multiple scenarios and contingency plans during the initial budget planning process, these mid-year revisions can follow a more logical and less stressful process.
Be realistic, not optimistic. Unfortunately, establishing a budget that is hopeful that donations will come through the door will not help the organization realistically plan its financial future. A group with a budget that errs by estimating its income more conservatively will benefit more from news of an unexpected surplus more than a group that optimistically budgets its income and experiences a shortfall at the end of the year.
The budgeting process, especially after the economic experience of the past few years, has not been easy. However, when trustees have a strong understanding of the organization’s mission and take time to thoughtfully plan the future of the organization, the budget process can be less a less daunting task.
Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.