Part three of a mini-series on nonprofit budgeting
Not knowing where your money will come from doesn’t mean you don’t need a budget. That’s a “bottom line” fact. Your budget is a numerical presentation of your destination, and as Yogi Berra noted, “if you don’t know where you’re going, you might wind up someplace else.” In part three of our interview with John Bazzanella, COO of Tennessee Nonprofit Network, we share answers to common questions that can help you reach your destination.
Why should a nonprofit focus on budgeting when revenue in most cases is uncertain?
While revenue isn’t always certain, some revenue streams are more reliable and predictable. Part of budgeting revenue is understanding your confidence level in the different projected streams and anticipated amounts. I recommend starting your budgeting process by projecting expenses for what you’d like to do. Then you can make reasonable revenue projections and gain a better understanding of what is feasible and where to make corresponding adjustments to expenses. You can take this a step further to consider different revenue scenarios based on your level of confidence in a revenue stream and assess the related impact to planned expenses.
How does an organization keep their budget up-to-date?
I suggest building the budget in a spreadsheet or software that allows you to easily track actuals in the same place. This makes it easier to monitor performance and potentially reforecast or amend your budget as needed. There are many options for systems that can be set up to do calculations quickly and generate the information you need to review your spending and revenue, understand variances between budget and actuals, and make decisions. Using a template, whether something free online, something purchased, or something you create yourself, adds efficiency and allows you more opportunity to use data from past budgets in your process.
How far out in time should an organization think/plan when creating a budget?
No timeline exists that fits every organization. The key is to understand your level of complexity; the time you need to gather data; and the time needed to assemble a budget, get feedback, and revise. I highly recommend creating a calendar to guide your process. Start with the date you want to have the budget approved and work backwards to allow time for all the elements of your process. Creating the calendar can be a helpful tool in thinking through the components of your budget process. I typically plan for about three months for the formal process, but I usually start thinking about next year’s budget the day after the current budget is approved. I recommend having a system for collecting notes throughout the budget period to capture ideas for the next budget. This can include new items you want to add, changes you want to consider for existing line items, or simply adjustments to layout and presentation. If you can collect and archive those notes throughout the year, you’re set up for a smoother process when it’s time for the next budget.
Next installment: The board and the budget
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