A Simple Formula for Developing a Sound Nonprofit Budget
Would you believe that Team Budgeting is my Absolute Favorite Accounting Theme? Yes, I love a good budget! One of the best parts about budgeting is tracking your progress throughout the year. Once you hit or exceed your revenue goals, do you celebrate your wins? If you’ve done a good job controlling expenses, do you treat your team to a special lunch?
Those are two positive scenarios, but what if you fall short on revenue and your expenditures skyrocket beyond your budgeted expenses? How do you deal with that?
First things first. I strongly encourage you to wholeheartedly embrace the importance of the budgeting process. For many, the idea of crunching numbers and presenting a budget makes their heads swim. For others on the opposite extreme, the process of establishing a sound budget can be exhilarating! Whether you consider budgeting an arduous task or an achievable endeavor, your organizational budget is a critical element to your nonprofit success.
I consider these to be my top 3 reasons you must have a solid budget:
Budgets direct management decisions
Budgets track financial activity for Board reports
Budgets supports effective grant proposals
Now that we’ve briefly explored the importance of a budget, I will share my “N-T-N” formula to guide you through the process. “N-T-N” simply stands for NOW, THEN, NEXT.
And should be applied to three main areas of your organization; 1) Programs, 2) Fundraising, 3) General Management.
Step 1: NOW
What is your financial status right now? Are you maintaining accurate and timely financial reports?
Since your organization is about 75% through the current year, you should be able to pull your Budget versus Actual financial reports and detect any areas that you missed the mark OR areas you exceeded your goals.
Take a moment to examine any variances of 25% or more (either positive or negative ranging below 75% or above 125%) You’ll want to document these variances so you can use this information to plan your upcoming budget.
If you need more clarity, I wrote about this process in my blog post entitled, “RISE ABOVE UNCERTAINTY: Gaining Clarity with a Quick Financial Planning Strategy”
Step 2: THEN
Take a look at your financial performance from last year. Did you achieve your budgeted goals? What were your victories? What were your shortcomings?
Briefly document these areas so you can use this data to help develop your upcoming budget
Step 3: NEXT
Where is your organization going in the next year? Are there significant changes to programs, staff or other aspects of your operation?
Take time to thoughtfully document the goals for the upcoming year, then incorporate this information into your upcoming budget.
This NTN formula may seem like a lot to digest, but keep in mind that a carefully developed budget has long-term benefits to help your organization succeed. It is essential for you to compile all of the historical data and combine it with your vision for the upcoming year.
Once this phase is complete, you’ll want to start working through a budget template to transfer the numerical data, along with your notes from current and previous history, so you can draft a comprehensive forecast for the upcoming year. Ideally, this can be drafted in an Excel spreadsheet that lists each of your financial accounts. If you’re not sure how to create this document, feel free to send me an email to star@npaccountingbliss.com
In closing, I want to share an article from Propel Nonprofits, “ Budgeting: A 10-Step Checklist” as a handy tool to help you along the way.
Cheers to your Nonprofit Budgeting Journey!
P/S I have an upcoming 5-Day Challenge launching in October entitled:
Roadmap to a Stellar Nonprofit Budget
Step-By-Step Guide to Conquering Nonprofit Budgeting Overwhelm while Saving Time, Money and Heartache .
Stay tuned for more updates!
