Tips for Fine Tuning Your Budget Process

A budget shows a clear picture of how a nonprofit plans to earn money in the fiscal year and how that money is supposed to be spent on the organization’s programs to achieve its goals and mission. So what does this process entail? It requires that you set goals and a schedule, understand the financials and their impact, set basic parameters, develop and review the budget, approve the budget with a summary of key factors, and implement the discussed budget.

Here are some factors to consider when building your budget:

Donors like programs. Your donors want to see their dollars have impact. Consider organizing your fundraising budget by program rather than by function and attribute a percentage of indirect costs to each program so that mission fulfillment is crystal clear.

Boards like balance. It takes money to make money, so highlight any capacity-building investments you intend to make in your operating budget showing a payoff in increased revenue next year and the year after that.
Identify the Risks. Highlight potential gaps in your budget and provide more than one scenario for filling them. Give your staff and your board a way to identify the roles that they can play in filling the gaps and realizing your collective vision.

Decision makers like information. A narrative should accompany your budget, and should be more robust than mere footnotes. Peg the prose to each major budget category to complement your spreadsheet, adding nuance and demonstrating a firm grasp of the numbers and their origin.

Give staff latitude. Set a reasonable dollar threshold for budget modifications during your fiscal year; small changes should need no management approval. You increase efficiency and give department managers a healthy degree of control over changes that are unlikely to impact the organization overall.

Keep the board at a strategic Level. Set a reasonable threshold – by percent of overall budget – below which changes in budget allocations need no board approval. This keeps the board focused on the big stuff – issues and opportunities that have real impact.

Handicap your fundraising goals. When budgeting, enumerate the funding sources you can really count on; apply a small discount as a hedge for disappointment. For less certain prospects, list an ask amount for each; then apply a hefty discount to set a credible projection.

Minimize your line items. Avoid adding too many line items or making them too specific. This can cause your budget to become overly complicated and lengthy, and it reduce the flexibility you have in allocating funds and costs throughout the year.

Budget by month. Use a format that allows you to budget your activity per month of your fiscal year, rather than on an overall annual basis. This allows you to track your monthly progress accurately and foresee any realignments that may be needed earlier, so you can reallocate funds or plan to raise more revenue if needed. Additionally, focusing on shorter time periods helps break down the specific activities that will occur per month and account for special events, one-time costs, etc.

Create an annual total. Include an overall annual column to roll each monthly estimate up to and budget on a year-to-date basis. Having the overall view along with the month-to-date view will allow you to measure progress against the overall goal as you move through the fiscal year.
Account for inflation. Use prior year results as an estimate to begin from. Be sure to account for inflation for the following year. When creating a multi-year budget, account for inflation on each line item, over each year.

A good budget is a guide towards good financial health for your company, but the benefits don’t stop there. It will allow you to know how much cash is coming in and how much is going out. You can put limits on the expenses to increase your income or to avoid overspending. Your organization will also have the capacity to move money around and allocate it efficiently.

This budget offers your organization help in focusing on its goals and mission. Don’t forget that budgets are constructed based on the different activities and programs the organization plans on doing over the year. This obviously goes along with the company’s goals and mission. As a result of this tailored budget, you can stay focused on what’s important and ensure that every financial decision you make is getting you closer to your goals.

Lastly, budgeting shows accountability, transparency and good faith from your organization. It showcases exactly where the money given to you is going, which is often a concern for donors or grant-makers. This leads to another benefit of budgeting, which is better oversight and review.

Knowing where the money goes, how much cash is spent on projects/programs and how much revenue is coming in to help assess your organization is essential. It enables you to keep a close eye on everything and to avoid errors—to consequently make better decisions for your organization.

The best solution for building and maintaining a successful budget is to reach out to your CPA and discuss a proactive course of action moving forward. This will ensure the health and success of your organization for years to come.

By: Josh Tyree, Harris


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