You are a small nonprofit organization, committed to an important cause. Maybe you are completely run by volunteers and really; you could not be any busier. So who wants to spend the time hashing out expenses, looking at cash flow and analyzing numbers? Who has the time for budgeting when you’ve got work to do?
“Is nonprofit budgeting really necessary?” This is a common question in the nonprofit sector and the short answer is “yes”. For the novice who is just starting the budget process, there are a number of reasons that nonprofit budgeting is absolutely necessary. Here is the good, the bad, and the not-so-ugly reasons why you need a budget and a few tips on how to take the sting out of crunching numbers:
Why Budgeting is Necessary:
A Budget is really a roadmap. It’s a spending plan that ensures you have money for all of the things that you want to accomplish in order to fulfill your stated mission. Budgets not only track income and expenses, but they can be useful in planning for the future and assessing the financial soundness of the organization. A budget is an important document for all stakeholders to reference, say at periodic Board Meetings, and may be requested by outside parties like banks and grant makers.
How To Develop a Budget:
- Write down your budgeting process in a timeline checklist. This might seem like a silly step, but systematizing with a timeline will keep the steps and responsibilities transparent, it will come in very handy in future years.
- Decide a draft and approval process. Usually the treasurer creates the budget and it is presented and approved by the Board of the Directors. Sometimes approval is done by a Finance or Executive Committee. You decide who is involved.
- Set a timeline. Aim for at least 2 months before the new fiscal year begins for your budget to be approved and finalized, earlier is even better.
- Assign tasks within the timeline/checklist and include a deadline. Have one person be accountable for submitting expenses and researching forecasted costs.
- Income and expenses should align. If they don’t, consider increasing income, like with fundraising, or decreasing expenses, like activities or events.
Working with a Budget:
Many suggest being realistic with your expenses and estimating conservatively for your income. Some suggest referring to the budget throughout the year and making needed adjustments. If you decide to amend your budget later in the year, be sure to have them approved.