How to Budget for Your Non-Profit Organization: A No-Nonsense Guide
Chances are, parties looking to transact with your non-profit will request to have a look at your budget. How prepared are you for this?
To ensure you keep providing vital goods and services to those who require them, you need to focus on financial sustainability. Both board members and staff need to understand the significance of proper financial management to your continued existence in the marketplace.
Of course, one of the best ways to plan for your finances is by coming up with a budget. A well-thought-out budget will serve as a guide to the future and help your non-profit organization make the most of limited resources.
The thing is, it’s never too late to start budgeting. We recommend coming up with a budget at Fuelled Networks at least three months before the fiscal year ends. This allows you enough time to receive approval from the board of directors before the start of the New Year.
What Are the Benefits of Budgeting to Your Non-Profit?
In a nutshell, a well-formulated budget allows you to evaluate your non-profit’s performance against your pre-set goals, specifically, areas where you may be overspending or underspending. This means you can have greater control over your finances.
We’ve discussed the benefits of budgeting to your non-profit organization in detail below. A proper budget will:
- Keep You Focused on Your Mission: the timing of financing of activities plays a key role in ensuring you meet your short and long-term objectives. Beyond making you aware of your resources, a proper budget enables you to leverage them at the appropriate moment.
- Keep Board Members Satisfied With Progress: budgeting will paint a clear picture of your non-profit’s performance, which makes for happy board members.
- Keep Donors in the Loop: the greater transparency of a well-formulated budget assures donors that their contributions are being put to good use. This, in turn, ensures they continue making donations in the future.
What Costs Should You Include in the Budget?
Throughout delivering essential needed goods and services, your non-profit runs up several expenses. These can be grouped into:
- Direct Costs: can be related to a particular project, like ordering crucial supplies, hiring new staff.
- Indirect/overhead Costs: although not related to a particular initiative, they are still necessary and include internet and phone bills.
- Expenditures: these are needed to buy and maintain fixed assets like your building or cars.
- In-Kind Contributions of Services or Goods: these are offerings that facilitate projects but don’t involve cash such as parking or security.
What Steps Should You Follow When Budgeting for Your Non-Profit?
- Create a Process: More likely than not, each aspect of your organization follows a defined process. Why should budgeting be any different? You need to define roles such as information gathering, analysis, and decision making.
- Identify the Main Purpose: What is your main reason for coming up with a budget? It could be funder compliance, cutting down on costs, or enhancing your transparency. The bottom line is you need one, whatever it is. This will allow you to structure your budget to support this goal. You need to find your reason for budgeting early on.
- Assess Your Performance in the Past: While budgeting is focused on the future, you need to evaluate your current financial and resource management capabilities to formulate an accurate budget. Why? To learn from your mistakes and make the necessary changes. If you can identify any strengths or weaknesses from your past performance, account for them in your budget.
- Find Out Your Income: Much more challenging than foreseeing expenses is forecasting your income. You can begin with organizing charitable income by source. Start from the most to the least reliable. Say you expect a 40% chance of getting a $1,000 contribution, budget for $400.
- Account for Your Expenses: Your staff constitutes roughly 70% of your non-profit’s budget. After staff, consider any of the expenses mentioned above.
- Prioritize Cash Flow Predictions: In simple terms, you need to assess what’s coming in and going out and what remains every month. You also need to account for months without any cash flow.
- Keep Your Capital and Operational Budgets Separate: Your central budget needs to be focused on your daily functions, rather than one-off projects.
- Monitor the Budget Regularly: As a bare minimum, you need to review your budget once a month. It’s essential to evaluate your projections against the actual figures. If there are any discrepancies, why? Which step did you miss?
Fuelled Networks is ready to help you address any budgeting concerns you may have. Let us help you leverage information technology to make your budgeting process smoother. We offer top IT services for businesses in Ottawa, Kingston, Brockville, and Eastern Ontario and throughout the National Capital Region.
Contact us now.
Published On: 15th October 2020 by Ernie Sherman.