How to Master Your Nonprofit Budget for 2023Jan 09, 2023
An annual nonprofit budget is crucial when planning how the fiscal year will go for your organization.
Budgets are a document that will help you visualize how your nonprofit will be spending its money throughout the year.
Having a detailed annual budget will allow you to make informed decisions throughout the fiscal year and will serve as a roadmap for continued financial success for your nonprofit organization.
Why is a Budget Important to Nonprofit Organizations?
A budget provides financial structure to your organization. Using this financial document, it becomes much easier to develop a financial plan that suits your nonprofit’s needs specifically.
In addition, a nonprofit budget serves as a benchmark and helps you monitor your progress throughout the year. Referring back to your budget regularly will help you keep a pulse on your nonprofit’s finances. You’ll aim to stick to your budget as closely as possible because when you do, it indicates a financially healthy organization.
Budgets are also a great way to keep board members and donors informed - both financially and organizationally. They are also essential when applying for grants and other funding because they are oftentimes required during the application process or to secure funding.
It’s clear the importance of a nonprofit budget cannot be overstated. Continue reading to learn how you can create an effective budget for your organization.
Tips for Creating a Nonprofit Operating Budget
1. Clarify Goals for the Budget
When creating your nonprofit’s budget, it is important to go in with full knowledge of your goals. Your budget, then, should be a financial framework intended to guide your organization toward meeting these goals.
A good place to start is your existing budget and your financial reports. Ask yourself:
- Was it a good budget?
- Did it help your nonprofit organization meet its financial goals?
- Were you off in your projected expenses? Did we hit our expected revenue?
- Did unexpected expenses take over?
- Were there any major donors who influenced your income?
- Did you have any changes to fixed costs throughout the year? Variable costs?
- Do you have any new income sources that affected cash flow projections?
- Will your operational expenses be the same in the year ahead?
- How much revenue do you hope to generate this year? Is it more or less than the current fiscal year?
The answers to these questions can make all the difference in how you create a budget for the year ahead.
Allow yourself and your team ample time to adequately review your existing budget, your new goals, and discuss the best options for your organization. Having a date set to have your nonprofit budget completed and approved by the board also helps to keep your team focused during the budget planning process.
2. Work with Your Team
As stated above, planning a nonprofit budget is a team effort. Throughout the budgeting process, be sure to involve:
- Board members
- Program leaders
- Key team members
Each member brings their own insights into the organization and its financial needs. For example, board members may have insight into the expenses needed for fundraising efforts, while program leaders will have a good idea of program expenses.
Utilizing these different points of view will help your team build the best version of your yearly budget.
3. Review Your Current Data
Using the data from your current fiscal year can help you make informed decisions for the following year.
When working with your current data, determine what the remainder of the year will look like for your organization. With this information in front of you, take time to identify areas your nonprofit could improve and also the areas where you performed exceptionally well. You'll be able to use some of the answers you provided when you set your goals.
You will use this current data to guide your budgeting decisions and allocate money where it can best be spent to achieve your nonprofit’s vision moving forward.
4. Project Your Income and Expenses
Using the information you have on hand, do your best to determine your operating expenses and how much income you will generate in the year ahead. (Note: a cash flow projection may be helpful for this step in the budgeting process.) Referring back to previous years can also be helpful when determining this evaluation.
With a new year ahead, it is quite possible that your organization will have new expenses or income streams. Make sure to account for any known changes as well when designing next year’s nonprofit budget.
5. Get Approval
Once the team has finished the nonprofit budget, you will send the draft to the board in order to get approval. Remember, it is still a draft at this point and can be sent back for revisions if necessary.
If the board decides there is still some work to be done, take this input into consideration and make the necessary changes to the budget.
However, since you included the board in the nonprofit budget process initially, this step shouldn’t take too long.
6. Monitor the Nonprofit Budget Throughout the Year
Having your budget approved does not mean that it is the end of the road. Once the budget is in place for the year and your nonprofit begins to implement it, you will want to monitor expenses and income against what you predicted in the budget.
Prior to any large purchases or expenditures, the budget should be referenced as well. Remember, the budget was put in place to be a framework for income and expenses for your nonprofit for the entire year. Sticking as closely as possible to what you expected will ensure your organization stays on the right track and keeps a balanced budget.
Revisit your budget on a quarterly basis (at least) to see if your financial assessments were correct and that you are meeting the budgeting goals you set for your organization. If not, changes may need to be made to the budget or in your spending.
Work with an Experienced Accountant to Create an Annual Nonprofit Budget
A carefully crafted budget is essential for the financial health of your nonprofit organization. It keeps your spending on track and guides your decisions throughout the fiscal year.
If your team needs help creating an annual budget, consider reaching out to Morris Verdonk Accounting. At Morris Verdonk, we are experts in creating budgets specifically catered to the needs of nonprofit organizations.
Contact us today to see how we can help you create a budget for your nonprofit. We look forward to working with you!
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