Springtime Brings Budget Planning for Non-Profits

By: Karen Greve Milton, Senior Consultant, Danosky & Associates

Spring is here and for non-profit organizations that means financial planning for the upcoming fiscal year should be well underway. Every non-profit organization, regardless of size, should develop and implement a financial plan — an operating budget — for each fiscal year. 

Financial planning is the key to a non-profit’s success and sustainability. A well-developed operating budget allows for future use of limited non-profit resources and focuses on the priority goals and objectives of the organization. Non-profit organizations functioning without an annual budget are operating in the dark and risk being unable to navigate a changing fiscal landscape. Annual budgets shed light on the organization’s financial picture and keep the organization focused on its programmatic purpose as the fiscal year progresses.

Developing the operating budget is a team effort involving board members, staff, volunteers and other stakeholders. If the non-profit organization has paid staff, the responsibility for developing a proposed annual budget for the upcoming fiscal year falls to the staff. Board members have responsibility for reviewing the proposed budget carefully and ultimately approving the budget for the next fiscal year. Where the non-profit entity relies solely on volunteers, the responsibility for developing the annual budget falls to the board’s finance committee members or other volunteer members of the organization.

A non-profit’s annual operating budget serves as a financial management tool for the organization.  It provides a guide to the organization’s financial functioning during the fiscal year. The approved budget allows the board and staff to gauge how the organization is operating during the current 12-month fiscal year and whether adjustments to any financial assumptions included in the budget need to be adjusted. 

In preparing an annual budget for your non-profit, it helps to use a step-by-step checklist of basic steps: 

1. Set the timeline for budget preparation, review and Board approval.
2. Agree on the non-profit’s budget goals for the new fiscal year.
3. Understand the current financial status of the organization.
4. Use the current and prior fiscal years to forecast financials for the next fiscal year.
5. Develop an income budget of anticipated revenue from all sources.
6. Develop an expense budget of all anticipated expenses.
7. Review the draft budget with the Board Finance Committee.
8. Obtain full Board approval of the budget.
9. Implement the budget at the beginning of the new fiscal year.
10. Monitor the budget throughout the fiscal year and adjust as necessary.

You can find checklists, templates and advice from various associations and entities, such as The National Council of Nonprofits (www.councilofnonprofits.org), and Propel Nonprofits (www.propel.org), among others.  

Good budgeting signals good fiscal health and represents a key component of financial sustainability. The annual operating budget is one of the fundamental building blocks of sound financial management.  Non-profits can use the annual budget as the basis for financial reports to donors, lenders, foundations and government agencies and the new Form 990. See https://www.councilofnonprofits.org/running-nonprofit/administration-and-financial-management/budgeting-nonprofits   

A few recommended tips for getting started: 

• Set a reasonable timeline several months before the start of the new fiscal year.
• Identify your income by categories (individual donors, institutional donors, foundations, events, programs, etc)
• Separate firm expenses (rent, insurance, etc.) from variable expenses
• Major events/programs and capital projects should have their own budgets
• Keep fiscal assumptions realistic and note them separately in the budget

Preparing the annual budget should be viewed as an opportunity to review financial priorities, assess the organization’s financial health and forecast for the future. Remember, the operating budget is not “etched in stone,” but constitutes your financial management guide for the fiscal year. It should be reviewed at each Board meeting during the fiscal year and adjusted as necessary.

The next question is whether the annual operating budget needs to be balanced. We’ll address that issue in our next article. Meanwhile, let’s get started on our spring-budgeting for your non-profit.