How to Work with Your Nonprofit Budget - dummies

How to Work with Your Nonprofit Budget

By Stan Hutton, Frances Phillips

Your nonprofit budget isn’t capable of getting up and walking out of the room, but it needs to be an “active document.” If you simply create it once a year to keep in a file folder and submit with grant proposals, it doesn’t do you much good. A good budget is crumpled, coffee stained, and much scrutinized. A good budget guides and predicts.

Numbers in your budgets are meant to be compared. One critically important comparison looks at actual income and expenses alongside the original projections you made in your budget. Most organizations create a spreadsheet that includes columns for:

  • Annual budget

  • Year-to-date income and expenses

  • Current month’s budget (1/12 of the annual budget)

  • Current month’s income and expenses

Pay close attention to where you’re exceeding your budget and where you’re falling short. Use your progress as a guide to adjust your fundraising or your expenditures.

Other useful exercises to make sure your budget is “living and breathing” include the following:

  • Involve your staff (paid and volunteer) in the early stages of drafting the coming year’s budget. If you can’t afford all their dreams, involve them in setting priorities.

  • Three months before the beginning of your new fiscal year, meet with a small committee of board members to review and refine a budget draft. Present the draft with options and recommendations to the entire board for discussion and formal approval.

  • If your organization’s situation changes significantly, prepare and adopt a formal budget revision. Budget revisions are time consuming, but don’t try to proceed with a budget that doesn’t reflect the size and scope of your organization. You don’t want to try to find your way through Maine with a map of Utah.

  • Provide copies monthly or quarterly to your entire board or board finance committee. Encourage your board treasurer to summarize the organization’s financial situation and invite questions and discussion at each meeting.

  • Keep notes in your budget file about changes you recommend for years ahead.

Because revenues aren’t earned, grants aren’t received, and expenses aren’t incurred in equal amounts every month throughout the year, you should also project your cash flow.