Seven Tips That Make Creating a Budget a Little Easier
June 30 marks the end of the fiscal year for many nonprofits. In the weeks prior, these organizations are busy setting the strategy for the year ahead and creating a budget that will help them achieve their mission goals. But creating (and passing) a budget in a timely manner isn’t as easy as it may seem. It requires strategic planning, resources, and project management skills that many organizations fail to employ. If you are in the middle of your budget season, or want to make some improvements to your process next year, here are seven tips to consider that will simplify the process for everyone involved:
- Give yourself plenty of lead time. Plan to have the final budget approved at least two months before the beginning of the new fiscal year, and give yourself at least two to three months to create the new budget. It is important to allow enough time to carefully research current expenses and contracts, seek competitive bids from suppliers, and bring leaders together for review, feedback, and discussion.
- Document roles and responsibilities. This is where your project management skills come into play. Develop a spreadsheet to track all of the tasks that are required for your budget process along with the names of those responsible for each task and their deadlines. A formal, socialized document will keep everyone accountable for providing their deliverables according to the project timeline and will keep you on schedule.
- Engage the right people. Naturally, budget committees should be comprised of financial leaders and senior staff, but your program directors can also provide invaluable insight on how budget cuts or increases will impact the quality of your programs, and ultimately, your organization’s ability to achieve your mission goals. Their input provides a perspective beyond dollars and cents, so it is a good idea to allow program directors to provide budget worksheets that can later be reviewed and vetted by budget committee members. Engaging staff at all levels will go a long way in gaining buy-in and developing good will on your team.
- Be realistic about revenue projections. Create detailed worksheets that outline the different kinds of revenue by source: earned revenue, contributed revenue, grants, contracts, in-kind contributions, etc. and identify whether these sources of income are reliable or transient. It is a best practice to establish “what-if scenarios” to map out how you will modify your programs if any of these forms of revenue are lower (or higher) than expected.
- Carefully evaluate expenses. Look at last year’s documents to identify excesses or shortages and how these will be managed in the new fiscal year. Determine fixed versus variable expenses and how your reliable income aligns to fixed expenses. A financial consultant can help you decide if and when a deficit, a surplus, or a balanced budget is the best strategy for your unique, organizational goals.
- Develop a summary budget. It isn’t always necessary or expedient to provide your board of directors with a detailed budget that gets too deep “into the weeds.” Consider creating a high-level version of the budget where items like auto insurance, liability insurance, etc. can be lumped into a single category. These items can be linked in a spreadsheet to the detailed budget when more granular information is required.
- Summarize your approach. Provide a summary statement that explains the approach your budget committee took in creating the budget – your assumptions, your expectations, and your plans for dealing with variances. This context will ensure that your budget is perceived as more than just numbers on a spreadsheet, but as a carefully constructed, strategic plan for achieving the goals you’ve set for the upcoming year.
Hopefully, by July 1 your staff will have begun implementing your new budget and will have refocused their attention to executing the new year’s programs. By becoming operationally efficient at creating a budget (or any other administrative task) you empower your team to do more in the communities you serve. Take some time to review your budget process and how these recommendations translate to greater impact for your mission.