Part two of a mini-series on nonprofit budgeting
Nonprofits big and small focus on fundraising as pivotal to ensuring sustainability. But that’s not enough. Like it or not, budgeting is as important as fundraising. We are collaborating with John Bazzanella, COO of Tennessee Nonprofit Network, to bring you information you can use to strengthen the budgeting process at your nonprofit. Here are three questions we asked John, and his responses. Our goal: to help you improve the financial sustainability of your nonprofit.
What are the key components of a well-defined nonprofit budget?
A well-defined budget provides meaningful information to guide financial assessment and decision-making and is easy for staff and board members to understand and use. Specific components include a clear presentation; a format that allows for tracking and monitoring of actuals in comparison to projections; allocation of expenses to show full program costs and the distribution of spending between program, administrative, and fundraising; and the overall net between revenue and expenses reflects a planned budget surplus. Importantly, a well-defined budget also reflects the use of data, research, or financial analysis in developing figures for both expenses and revenue.
Who should be involved?
Everybody. It may be one person who ultimately assembles the final product, but everyone can be engaged in different ways and to different degrees. The budget represents all the activities of the organization, so it makes sense to engage all internal stakeholders who can contribute data for those activities. You can use questionnaires and online surveys to simplify the process of getting data and feedback. You can incorporate interviews and meetings to dive deeper into detail. If you’re using a budget task group, have representation from program staff, administrative staff, and fundraising staff, as well as representation from your board. The budget process is a great opportunity to expand your board’s understanding of what you do as an organization. Getting buy-in and ownership from staff during planning can also increase the likelihood of staff using and monitoring the budget during the year. No single person knows every aspect of the organization. Don’t try to do it all yourself.
Why is it important to work with an annual budget?
The budget can be a financial guide that connects your program plans and your revenue strategy together in one place and allows you to plan, monitor, and understand the relationship between resources you expect to generate and resources you expect to spend. Because the budget is an internal tool, it’s not bound by reporting standards like other financial statements. This means you can adjust the budget to best fit your needs. The budget can also be a tool for understanding full program costs if you allocate expenses across programs and overhead, and the budget is a tool to plan for sustainability, projecting to meet current needs while also generating a surplus to build toward future viability. A budget gains the most value when an organization utilizes it for both planning and for tracking and monitoring actual performance through the period covered by the budget.
Next installment: But our revenue is unpredictable
Copyright 2023 – Mel and Pearl Shaw of Saad&Shaw – Comprehensive Fund Development Services. Let us help you plan for 2023! Video and phone conferencing services are always available. Call us at (901) 522-8727. www.saadandshaw.com