Part one of a mini-series on nonprofit budgeting
Isn’t it enough to secure the funding you need to operate your nonprofit? Do you have to be involved in the organization’s budgeting process? Here’s what we have learned: budgeting doesn’t have to be dreaded, avoided, or a “good enough” estimate. We are collaborating with John Bazzanella, COO of Tennessee Nonprofit Network, to bring you information you can use to strengthen the budgeting process at your nonprofit. Whether you are a grassroots organization or an established and successful nonprofit you have to project revenue and expenses and manage your cashflow. Like fundraising, you can’t delegate this responsibility to someone else and have them “take care of it.” Incorporating the budgeting process into all aspects of an organization creates solutions, avoids disasters, and builds sustainability.
Here’s what we know: fundraising is all about securing the resources that a nonprofit organization or institution needs to deliver on its mission and vision. Budgeting helps you project how much you will need, where it might come from, and how (and when) it will be spent. John Bazzanella shares his guidance on budgeting to help you get started with the process and to take your budgeting process to the next level. Here are two questions we asked him to start our conversation.
Are there standards an organization should follow in developing an annual budget?
There are common priorities for a budget to meet, but the unique value of a budget is that as an internal guide it does not have to follow reporting standards required of financial statements. An organization can adjust every aspect of a budget to best fit their needs and generate information that is meaningful to that nonprofit. In terms of commonalities, a budget should provide an understanding of how an organization generates and distributes its resources. Projections for each allow an organization to plan for and monitor the relationship between revenue and expenses. The budget should include all relevant activities of the organization; integrate as much reliable data as possible; cover a specific time frame; and be approved by the board. This last item is important for engaging the organization’s governance in setting financial direction or at least affirming what is recommended from staff.
What are the biggest challenges that nonprofits encounter in terms of budgeting?
There are some simple challenges that often trip us up in budgeting. The challenges I see most often are nonprofits trying to make a budget perfect and then rigidly adhere to it throughout the year. Another is trying to build a budget without enough data or without understanding all their expenses, especially indirect costs. I also see organizations struggle when they overestimate revenue or choose to add revenue, often without engaging fundraising staff, rather than adjusting expenses. Along those same lines, I’ve seen nonprofits be challenged when they don’t involve enough people in the process. When there’s staff and board participation you have more complete information, more buy-in, and more eyes checking the work to reduce or catch errors.
Next installment: working with an annual budget.
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