Nonprofit Budgets Defined
A Budget is a financial plan for a preset period, usually one year.
A budget is plan that reflects, in monetary terms, how resources are acquired, allocated and spent. In the case of any business – nonprofit organizations included – your budget is an essential tool used in the fulfillment of your chief business aim and for acquiring additional funding.
As a matter of fact, many grant-making organizations will not consider applications for funding without a budget that reflects how spending will occur. In review of your request for funding, prospective grantors will consider how well your plan for implementing program activities align with your budget. In other words, your program goals should dictate your program activities; and, your program activities should dictate your program spending. Budgets should always show a clear linkage to program goals and activities.
- A budget is based on a mission, goal, or well thought-out plan.
- Budgets are time-limited, usually for a year
- Budgets are based on past spending, experience, known best practices, or projected costs.
- Budget estimates come from somewhere! Cost estimates should not based on what we think or want to be true at the moment; rather, estimates should be based on what we know to be true as evidenced by valid research of similar costs.
- Budgets are only as good as the information contained in it.
- Budgets are living documents and are subject to change during the program year.
The Benefits of a Good Budget
- Budgets help everyone in the organization understand the current goal
- Budgets list resources that are available and the resources that are needed to implement the work of the organization
- Budgets are time-limited projections which helps organizations adhere to deadlines
- Budgets, when monitored, help organizations anticipate and avoid spending deficits
- Budgets inform future revenue and expenses – based on past history assessments.
- Budgets inform decisions for program operations and sustainability
Budget Purpose and Uses
- Planning: Allocating nonprofit resources and implementing strategic plans effectively
- Program Execution: Providing guidelines to nonprofit program personnel and enabling them to measure their accomplishments and respond to unexpected changes
- Financial Evaluation: Measuring financial health and identifying any problems that could arise
- Staff Evaluation: Evaluating employee performance
Who Creates the Budget?
Budgets are prepared by the staff of the organization. However, the board of directors offers important thought leadership and direction at the start of the process and is responsible for approving the final budget annually.
The Executive Director
To begin, Executive Directors or individuals in the highest level of leadership within the organization should have a high-level, facilitated discussion with the board to identify strategic, programmatic, and financial objectives, in addition to mission priorities that are to be accomplish in the year.
It is extremely helpful to also create a budget advisory team that includes selected staff and board members to guide the budgeting process in alignment with program, financial, and mission priorities identified by the board. This select group will engage in big-picture thinking and eventual support for budget implementation.
In many larger organizations, the program directors are responsible for creating their own budgets each year; however, in smaller organizations, the executive director creates the whole budget, which may include smaller budgets for specific programs and projects. Regardless, input from staff can be very useful about what worked and what didn’t work last year, and offer new ideas for the coming year. Including staff in the budget process and monitoring of financial results can motivate them to be more fiscally minded.
- Your budget is first and foremost a “plan” which should be well thought-out.
- Budgets are developed by organizational (leadership) staff. Budgets are approved by the Board.
- With careful attention, budgets can be a useful tool for program implementation and delivery.
- Budgets are a living document and budgeting is an ongoing process.
- Simply stated, your budget is a road map for the year.