Making it Count: Developing an Effective Budget for Your Organization

Algebra. Geometry. Trigonometry. Calculus. Does the mere mention of these subjects send a shudder down your spine? You love serving the community and leading the organization you serve, but no one said there would be math! Take heart and remember that you don’t have to be afraid of the BBBD (Big, Bad, Budget Development, not the test answer of your nightmares). Marketing guru Tere Stouffer affirms that, “used correctly, a budget doesn’t restrict you; it empowers you.” Nonprofit Navigators is committed to empowering your organization and equipping you to best serve the needs of your community. No matter how you choose to add or subtract, no matter the ways you multiply and divide, the bottom line is that every good leader knows you must do what it takes to make your financial resources count! Here are a few tips for developing a solid budget that can equal success for your organization:

1- Ground Zero- Make sure that the budget aligns with your nonprofit’s mission, vision,

and strategic goals. Perform a careful review of your past financial performance.

Where do you begin? At the beginning! Before you can see the path in front of you, take the time to consider where you have already been financially. A careful and objective assessment of your organization’s current situation provides the financial foundation you need to move forward. Solving your organization’s budget issues takes time, but it is well worth it. Analyzing past performance is a logical start that enables you to identify trends, recurring expenses, and any potential areas of improvement. Dust off those files you haven’t seen in a while. Gather your records and statements. Subtract distractions so that you can properly focus on this necessary step. Add a positive attitude and you are ready to get started!

2-Easy, Effective Estimating-Projecting and formulating your plan is as simple as 1-2-3 (E’s)

You’re off to a great start, so continue to build momentum! Next, perform revenue projections for your organization by estimating all sources of income. Divide these items by categorizing sponsorships, major gifts, individual giving, general donations, Government/Foundation grants, membership dues, fundraising/special events, and any other revenue streams you may receive. Once this step is complete you can calculate your expense projections by forecasting your regular operational expenses (categories such as rent, utilities, and salaries), your more program-specific expenses, along with any one-off or unexpected expenses. Include the cost of goods sold projections, too, for accurate measurements.

3-Go with the Flow…the Cash Flow, that is!

As you determine the budgetary needs of your organization, remember to maintain a balance between your income and expenses throughout the year, and don’t forget to account for any seasonal variations in cash flow over a complete, twelve-month period. Concerned about future funding? Reserve Funds by deciding on an appropriate amount to set aside for emergencies or unexpected shortfalls. Prior to the pandemic, an industry standard of six months was acceptable. The volatility of a largely post-COVID world has taught us to expect the unexpected. Instead, our recommendation is that you establish a more sufficient level of twelve months of operating reserves.

4-Adding and Subtracting What Matters Most

Everyone needs to dream and set meaningful, aspirational goals. It’s important, however, to remain squarely grounded in the reality of your organization’s needs and current capacity. Program and Project prioritization is a critical element of effective budget development. Leadership should identify vital programming and projects based on their alignment with your mission and their expected impact, then allocate funds accordingly. Carefully consider capital expenditures and budget for any large, one-time expenses such as equipment purchases or facility improvements. Salaries and benefits should be competitive, fair, and sustainable. Establishing fundraising goals affords you the opportunity to determine what income is needed from fundraising/special events, campaigns, private donations, and grants. It is easy to fall into the trap of adding unnecessary items to your budget. Contemplate external economic factors also at play. Account for potential increases in costs due to inflation. Wider economic trends and potential challenges on the horizon could be detrimental to your revenues and expenses. Be sure to include enough income to cover these unexpected occurrences. Add what is needed and subtract what is not. Most budgets go through three or more rounds, as income and expenses need to meet in the middle. These simple actions can make all the difference!

5-The Whole is Greater than the Sum of its Parts-Lean on your team!

You know who truly adds value to your organization? Your leadership team of key staff and your Board of Directors. This group can multiply your resources in many ways. Stakeholder involvement in the budgeting process offers a comprehensive view, critical buy-in, and can foster crucial relationships. At the end of the fiscal year, review the budget’s accuracy and effectiveness as you solicit feedback from your leadership team. Maintain best practices in transparency by keeping your budget accessible to your stakeholders and ensuring that your budget meets all legal and regulatory compliance requirements. Further, set up monitoring and reporting mechanisms to regularly track and report on financial performance against the budget. These mechanisms can be utilized weekly, monthly, or quarterly. Your team should also consist of your organization’s accountant, any key staff members such as your CFO, and your Board Treasurer. These individuals can provide essential feedback that enables you to develop alternative scenarios and cost-saving opportunities that identify where costs can be reduced without compromising the mission. Your leadership team’s engagement is not intended to cause division, but to enhance your budget’s effectiveness and add value to your organization.

Still having trouble making sense of the numbers? Don’t pull out the abacus just yet, external assistance may be needed from qualified financial professionals, especially if your organization is large or has complex financial needs. Are you currently seeking assistance in this area? For a simple solution, find a Nonprofit Navigators sample budget template here! Perhaps you could benefit from the guidance of a financial professional to add some order to your operations. A financial consultation can help you find the root of the problem and result in a favorable outcome for your organization.

Nonprofit Navigators is driven by the needs of our clients and the communities served by the work they are doing. Annual budget development is one of the many ways we can assist you in reaching your goals. Interested in learning more about partnering together to map your organization’s path to success? Please contact us at (303) 910-9415, or email our President at Lara@Nonprofitnavigators.net

Morrisa Tuck has been committed to serving the needs of nonprofits for nearly fifteen years and is the author of two novels.