Jun 11, 2019
Budget Season is Coming: Budgeting for Nonprofits
It’s hard to believe that we are almost halfway through the year and before you know it, budget planning will begin. Our team of association experts has over 35 years of experience with nonprofits, especially budgeting for nonprofits. We’ll share our top four tips to help you make it through budgeting season.
Why is financial management important for nonprofit organizations?
Just like for-profits need to closely monitor their finances, nonprofit organizations have added layers of responsibility to ensure that funds are being used appropriately. Since associations need to report to both their boards of directors and donors, strict financial management is a must. Budgets help keep everyone on track and satisfied with clear allocations of funds.
How do you manage a nonprofit budget?
1. Bring in your area experts
It takes more than just one person to adequately prepare a budget. As you start the process, make sure to pull in all of your resources. Meet with your program managers, fund development directors, leaders and stakeholders. Each team member will play an important role in gathering the information necessary to complete the mission and end up with a comprehensive and realistic budget. It will be vital to ensure that everyone is aware of the role that they will play in the process, the timelines involved and that they are invested in the successful outcome of the process.
Ultimately, your board will have the most control over the budget planning process. They are responsible for ensuring that your organization’s budget meets any applicable regulations or requirements, then approving and enforcing it. However, any number of your volunteers and members can be involved in the budget planning process, especially during its implementation.
When you roll out a new budget, your board and your department heads need to be aware of changes and how it will impact their work. Involving everyone in the budget planning process early will keep everyone aligned and help make the implementation smooth.
2. Evaluate your departments separately
An association typically has many departments or divisions that contribute towards a consolidated organizational budget. Each one of these components will need to be evaluated independently of the whole. Some common areas of review will include membership, conferences and events, and administrative just to name a few.
For example, when evaluating your membership revenue, review your membership counts, make any necessary updates for either attrition or growth and then assign the dues amount to the total membership numbers to calculate the projected membership revenue budget for the coming year. When evaluating the conference budget, begin by estimating attendees which will allow you to then calculate both revenue and direct expenses, such as food and beverage. Once you have captured the activity for each of the individualized program areas, roll those up into one master budget in which they are each contributing towards the support of the overall organization.
3. Learn from The Past
As nice as it would be to have the power to see into the future when preparing an annual budget, what we do have the power to do is learn from the past. Having a solid understanding of both current and past activity can help us to learn important lessons, evaluate trends and then apply what we have learned towards making predictions on future activity. It is important to review at minimum a full program cycle in order to account for cyclical activity. This historical activity can often serve as the starting point for budget preparation to which current and future assumptions can then be applied.
Consider both the macro and micro trends that you notice. Did you have a severe over or underspend in one area? What adjustments can you make to reallocate funds so you don’t have the same issue again? Or on the other hand, do you see a trend in increasing or decreasing overall budget? How can you prepare for changes in either direction?
Looking at the past can’t guarantee how your next year will turn out, but when you compile several years of data you might find opportunities to improve your budgeting. It’s also especially helpful when you take a qualitative approach and analyze the decisions you made for the previous year to improve your decision making for years to come. Reflecting and analyzing past budgets doesn’t have to be an arduous, formalized process, but it is important to take the time to evaluate the results of your budgeting.
4. Reevaluate at the end
Finally, when all is said and done, the results might not always be what you may have expected. Programs might need to be restructured, sometimes not all will survive. There might even be a few team members who don’t agree with all of the decisions made. This is all ok. It is part of the process and oftentimes can spark creative discussions on alternative strategies or approaches. Just remember that whatever the results may be, it is in fact a budget. Something to work towards and benchmark against but it is not set in stone and can be impacted. And for those who just can’t accept the end results, there is always the opportunity to reevaluate your work and rework your budget for next year..
If you find yourself fearing budget season, the Accounting Team at Talley can help with whatever your needs are, even if it’s just for a one-time project.