While every organization needs a budget that guides its finances, budgeting often has a particular importance for nonprofit organizations because they need to keep donors informed, prioritize their mission goals, and structure annual plans.
Learning the fundamentals of budgeting – including how to create and manage an effective budget – is an essential step to success. Even if you decide to hire professional accounting services, knowing these fundamentals helps position your organization for success.
How Nonprofits Benefit From Budgeting
Creating and managing a successful budget helps nonprofits:
- Release reports showing donors and board members how money was used to reach mission-critical goals
- Find opportunities to trim unnecessary spending and redirect money to essential programs
- Complete grant and other funding requests
- Track spending to avoid debt
- Time incoming funds with big expenses
- Measure the effectiveness of fundraising campaigns over time
Budgeting might help your nonprofit in other ways, too, depending on the unique role it serves. Regardless, it's always a good idea to track where your money comes from and how you spend it.
Learn to Set and Reach Financial Goals
Every nonprofit leader wishes they had unlimited funding to fulfill their missions. That isn't going to happen. In fact, you'll get better results by accepting reality so you can set achievable financial goals.
Keep Goals Reasonable
How can you learn to set and reach sensible financial goals? Start by looking at your income from previous years. If you raised $1 million last year, you almost certainly won't raise $5 million this year. You can increase your target amount, but keep it within reason. Anything over a 10% increase is probably too ambitious.
You also need to consider how you will reach the goals you set. If you have donors you can rely on for financial support, keep them engaged so they continue sending you money. The same goes for any private and government grants you've gotten in the past.
Grow Your Funding Sources
Don't forget to explore new fundraising opportunities, though. Could you partner with local businesses? Would a new marketing campaign reach more donors?
Consider these and other options, but keep in mind that you have limited resources. Instead of starting several new fundraising campaigns at once, introduce new opportunities slowly to see how well they work for you.
Explore Different Budgeting Methods
Organizations and households have a lot of budgeting methods to compare before deciding which option fits their needs. If you struggle to choose a budgeting method, accounting services can help you select the best option for your organization.
Zero-Based Budgeting
With zero-based budgeting, you know exactly how you plan to spend every dollar. It tends to work well when you have fixed expenses that rarely fluctuate.
At the end of the year, you might have a $0 balance. That's OK because you've covered your expenses and have more funds coming in for the new year. If you happen to have some money left over, that's even better. Move the excess funds to savings or add them to next year's budget.
Incremental Budgeting
Incremental budgeting uses this quarter's budget as the foundation for the next quarter. You can adapt this concept to monthly budgets if you prefer.
With incremental budgeting, you review what has already worked well and look for anticipated changes. For example, your Q1 budget might have included a lot of fundraising expenses. Your Q2 budget, however, might have lower expenses and higher income as your fundraising efforts pay off.
The advantage is that you can tweak your budget as needed to meet the upcoming period's financial needs.
Discover Tips for Tracking Expenses and Adjusting Budgets
Budgeting has a steep learning curve for some people. Investigate some tips that make tracking expenses and adjusting budgets easier. You can start with:
- Including donated items and services that offset some of your expenses
- Creating Google Alerts that will let you know about potential funding sources like new grant and corporate giving opportunities
- Maintaining a spreadsheet of real-time expenses and funding
- Reviewing receipts and balance sheets for discrepancies
- Consulting with accounting services that have experience working in the nonprofit sector
The Importance of Regular Budget Reviews and Adjustments
Creating a budget will help your organization make smart financial choices. A budget can't anticipate every expense you'll encounter, though. It also can't predict whether you'll win a grant that adds thousands of unexpected dollars to your coffers.
These possible events highlight the importance of regularly reviewing and adjusting your budget. Your leadership and board can decide whether to reassess budgets monthly, quarterly, or annually. Just make sure you set aside time for it. Otherwise, you could face financial "surprises" that interfere with your mission.Simplify Your Budgeting With Professional Accounting Services
Creating and managing a budget successfully isn't impossible by any means. It does take quite a bit of work, though. Many nonprofits decide to outsource their accounting services so they can focus on doing important work instead of tracking numbers. After all, you probably didn't get into the nonprofit sector because you want to spend your time filling out spreadsheets.
Enkel offers straightforward, cloud-based professional bookkeeping and accounting services designed for nonprofits.We'd love to talk about how we can help your organization achieve its goals. Contact us to learn more about how our experience can help your NPO succeed.
