Does your nonprofit start its budget process from scratch each year or do you mostly make adjustments to the previous year’s budget? Either way, if your organization operates on a calendar-year basis, now is a great time to start thinking about this important annual process. Opportunities such as diversifying grant funding and meeting growing service needs benefit from thoughtful planning. You may also want to build on lessons learned from previous years.
Holistic Approach
Your nonprofit can enhance its budget process by taking a more collaborative approach. For example, rather than building budgets in silos with limited consultation among departments, consider bringing teams together. While executives may set goals, individual departments develop their own budgets, and accounting or finance crunches the numbers, there’s an opportunity to strengthen this process.
A holistic approach can yield better results. This encourages collaboration and communication between units. Rather than forecasting revenues and expenses independently, your accounting or finance team can gather information from all departments first, then perform their financial calculations.
Forecast and Be Flexible
You can also improve budget accuracy with techniques such as forecasting, which means projecting financial performance based on variables like historical data (for example, giving patterns), economic trends, and assumptions about circumstances expected to affect your organization during the budget period (such as a major capital campaign). Forecasting generally takes a longer-term view than budgeting—say, three years versus the typical one-year budget. It also provides valuable information to guide budget allocations and strategic planning.
Consider budget modeling, where you explore different scenarios. Think through your options if, for example, you experienced changes in major donor support or needed to adapt a big fundraising event to a virtual format.
Or consider switching from your annual budget to a more flexible rolling budget. You’d still budget for four quarters but set certain intervals during which you’d adjust the numbers as circumstances evolve.
Plan for Reserves
Be sure to support your budget with a reserve fund. If you already have operational reserves, maintaining consistent contributions to this fund during each budget period strengthens your financial stability. For more help building a better budget, contact us.