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A Nonprofit Budget Planning Strategy

best practices board finances foundation funding reporting Jul 13, 2023

A Nonprofit Budget Planning Strategy

      Well, for some of you, it's budget time. So, I wanted to provide some quick tips that create a good budget strategy.  Budgeting is a critical part of your process, but I know it can feel daunting! Today, I hope to make it a little bit easier and give you a little more confidence. 

     Let's start by looking at the things that you can be doing right now to begin your budget preparations for your next budget year. As I write this, it’s currently July. I’m not sure what your year-end is,  but let's just assume your year ends in December, in which case, you're right on time. If your year ends in  September, you're probably a little bit late. Of course, if your year just ended in June, and you’re reading this in July without your next budget, well… better luck next year…? But seriously, in a perfect world, this process should be started at least four or five months prior to your organization’s year end. Whether you’re an early bird or arriving fashionably late to your budget process, I recommend following these simple steps to guide you along the way. 

1. Review with key stakeholders

     Before you quantify or calculate anything, you need to gather your most important people for an essential conversation. So, who are these key stakeholders? They can include your board of directors, the program staff that are running the ministry and the functions on the frontline, your finance team, any other key stakeholders, and of course, your executive director. By involving each of these stakeholders right from the start, you can better balance your priorities and allocate your resources more strategically and efficiently. 

2. Set your goals

     Once you’ve assembled your key stakeholders, it’s time to set your goals for the coming year. This can be as practical as putting together a calendar for the new year. What are you going to do this year? What activities are you going to need to engage in? This is the time for a really healthy look back. How have we done with programs, missions, and ministries? What things have we done that worked effectively? Are there some things we should stop doing? Are there some things that we should start doing?

3. Look back at your finances

     I often compare the responsibility of nonprofit finance to driving. As you safely steer your organization forward, you have two “views” to keep track of- the rear view mirror and the windshield. Of course, you need to keep your eyes on the road ahead to know what’s coming and plan accordingly, but you also need to look back. Checking the financial rearview mirror to see what happened in the past is often an indicator of what’s to come in the future. Have you overspent in areas like utilities where dramatic cost increases exceeded your spending expectations? Do you need to budget more for that next year? Perhaps you budgeted for something last year that was provided inkind or as a non-cash donation and you didn’t spend any of that budgeted amount as you expected. Before you map out your next financial year, take a look back at how well you kept it between the lines last year. Being mindful of the circumstances behind these deviations can help you plan more effectively for the coming year. 

4. Estimate your income and expenses

     Start with your income. If you are primarily funded by donations, this is the time to look critically at where those donations are coming from and how those donors may be affected in the year to come. We’ve gotten some helpful reports on current giving trends, which you need to consider as you estimate your donations for the upcoming year. 

      Likewise, If you receive grant revenue or other sources of government funding, be looking towards those funding sources to get an indicator of what might be happening this year. What are the trends? Do you anticipate any changes that should be factored into your budget? 

     When it comes to expenses, now is the time to put every single cost on paper and start asking the hard questions: Does it help you achieve your goals?  is it really necessary or have you just always done it? A classic example of the need to ask these questions is in recurring software subscriptions. Sometimes we sign up for a service, but later on we look back at it and realize we’re only benefiting from a fraction of its cost. Don’t forget to take a moment to ask yourself, “Is the cost commensurate with the value we currently receive?” You might just consider cancelling it when you take the time to reevaluate its current cost and benefit. 

     Other common areas that may need budget reconsideration are salary costs and facility costs. (see my related articles on 2023 compensation considerations, managing personnel costs, and nonprofit personnel expense ratios) Don’t forget to compare budget to actual cost when looking at your previous year’s spending on utilities and insurance. Lastly, you’ll want to look through your specific program costs for any unexpected trends in those expenses that are directly associated with your programs. Where else do you need to adjust your spending expectations to keep your budget realistic?

5. Balance the budget and follow your approval process

     The final step is to pull it all together by giving every dollar a name before the year begins so that your bottom line number is zero. As you move through that process, you’ll need to obtain the approvals needed for your organization. For example, you may have an executive team or a senior leader that needs to review it. Of course, any nonprofit’s budget should always be approved by the board. So make sure your budget goes to your board and you may even have a finance committee in between. Be sure you fully understand the process for approval and then be certain that it’s all pulled together, signed, sealed, and delivered in time for your new year to begin. 

     I hope this has been helpful. If you have a situation that feels unique or if you're new to your role and just not sure where to get started in that budgeting process, I’m here to help!  I'd love to spend a few minutes with you to equip you and build your confidence for your specific journey. You can book a strategic consult with me here! 

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