Budgeting for Nonprofits Checklist
Two Key Components When Budgeting for Nonprofits
Most nonprofits don’t want to spend their time thinking or worrying about money, but recognizing revenue and expenses in a timely manner is essential when budgeting for nonprofits.
- Revenue: how a nonprofit plans to get its money for a fiscal year.
- Expenses: how a nonprofit will spend its money to achieve its mission.
The first step in budgeting for nonprofits is to determine your timeline. Start by setting a target date for your board’s approval. Make sure your board reviews and discusses each step. Remember, part of budgeting is understanding your current financial status. Budgeting also signals donors that you are accountable and transparent. Read more about nonprofit transparency measures here.
Once your board has agreed on your goals, prioritize your nonprofit goals with a strategic plan. This may include assigning roles and responsibilities. Who has the authority to make decisions? Because there is always a level of uncertainty, determine how many unknowns can be included in the decision making process.
Evaluate and Adjust– A budget isn’t something set in stone. Rather than abandoning a sound budget, be prepared to adjust your nonprofit’s budget depending on how things are moving. Bylaws should be examined for guidance on how an adopted budget can be altered if necessary.
Reality vs. Fantasy
You are planning for revenue as well as expenses. Revenue can come from many sources. What new activities will provide new income? Is there a history of increases in past years? What about the economy? Be realistic when you estimate grants, ticket sales, auctions, and contributions.
What will it cost to reach your goals? Every expense should be evaluated and tied to the program and activities.
Nonprofit Expenses can be categorized:
- Direct Costs relate to a specific project or program.
- Capital Expenditures for items such as cars or real estate provide benefits for the organization long after the budget period ends.
- Overhead Costs may not relate to a specific project but may be necessary for its completion.
- In-kind Contributions of Goods and Services (“free” expenses and costs) should be budgeted at fair market value (FMV) for the new Form 990.
Does your draft meet your nonprofit’s goals? Compare your previous year’s operating results with your new budget. Assumptions should be discussed during the review process. Next, your nonprofit should make the necessary adjustments to match income and expenses.
Approve and Implement It
When budgeting for nonprofits, present a consolidated budget spreadsheet to any boards or committees for final approval. Assign management responsibility to compare with the actual experience on a regular basis (i.e. monthly). This will allow board members and executive officers to measure whether the nonprofit’s goals, set by the budget, are being met. Monitor and respond to changes as needed.
Budgeting for Nonprofits Conclusion
In conclusion, your annual budgeting process should be documented with tasks, responsibility assignments, and clearly stated deadlines. A budget is a planning tool and should be arranged well in advance. Plenty of time should be allowed for presenting the budget to the board of directors for approval and modification. Budgets should be a major part of every nonprofit’s plan. This plan should allow the flexibility needed to achieve goals with order and success.
Non Profit Accounting Solutions
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Macon, Ga 31210
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