A nonprofit budget is a building block to sound financial management. That said, there are times and reasons to make changes to your budget.
Generally speaking, the budget is prepared by the staff and reviewed and approved annually by the Board of Directors. This is a financial map of all income and expenditures to follow throughout the year.
When to Review
A great time to take a long hard look at your budget is a few months before your year-end or during any significant change. Look at your numbers and take special note of revenue that falls short. This could be a budgeted donation that hasn’t been received or say other fundraising goals haven’t been made.
When not to Amend
A few steps should be taken before you change an approved budget. Look at revenue forecasting for the next 90 days and see where costs can be minimized. With good planning, a nonprofit should be able to continue operating within its approved budget.
Some advocate not changing the budget unless there is a major change of structure to your organization. Instead, it is suggested to simply add columns to your budget which explain a “Year-End Forecast” or “Year-End Variations.” Proponents state that the forecasted information is the most accurate to use to build your next year’s budget.
When to Amend
If the shortfall is considerable think about changing or amending your nonprofit budget. Please review your organization’s bylaws by doing so, as each organization is different. Generally speaking, small changes can be made by executive directors, and larger changes must be approved by the Board of Directors.
Process
Careful planning provides several budgeting choices. You may seek other sources of funding that weren’t in your original budget. A gifted asset may be listed and provide budget relief. If possible the start of a program may be postponed to the next quarter, therefore moving the expense into a new fiscal year.
As with any budget work, keep careful notes. With the proper documentation, policies and procedures can be improved upon year after year. We are not tax professionals, we must recognize the importance and utility of a good solid budget.
Having a nonprofit budget is important to operations, financial soundness and even funding. If your budget does require changing please consult your bylaws, directors and eventually your board. Budget changes can be made but they are not done lightly.
VSCPA, Nonprofit Accounting Basics
You may also like these budget-related videos from MoneyMinder:
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Keep your budget fresh:
Develop Next Year’s Budget:
Reallocate Funds if You Deviate From Your Budget:
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2 Comments
The nonprofit I work with did a zero-base balanced budget this year. They based it on the previous year’s membership fees. Fundraising money is specifically used for scholarships and community based programs. Apparently all money raised is targeted in the bylaws for outreach. A huge donation came in a couple years ago. The donation was put in several CDs. One came due at the beginning of the fiscal year. The interest accrued was almost more than the entire yearly budget! Is it possible for the budget to be revised using part of the interest to keep the nonprofit running in the black and allow for the reinstatement of member programs that were zeroed out or underfunded in the original budget? The budget committee states this “interest” money is not able to be included as part of the base budget although from here on out, it will be a constant source of funding. Is this true? They will allocate a portion of this money, provided they follow the nonprofit guidelines on approving proposals, However, they continue to state we are operating in the red. How can the budget base be revised to demonstrate the nonprofit is now operating in the black?
Hi Karen,
That’s an interesting situation and great questions. You will probably need to work with your board and/or budget committee to work this out based on your by-laws and guidelines.