Tips for Nonprofit Budgeting in 2022

While figuring out your budget for your organization this year, know that it will require careful record-keeping and assessments to make improvements. Keep in mind that budgets are never going to be perfect. The purpose of a nonprofit budget is to determine financial goals for the upcoming year and offer a roadmap to help you get there. A nonprofit budget is an important financial management and vital strategic tool.

Types of Nonprofit Budgets

Understanding the types of budgets will be helpful to determine what method would work best for your organization. Since each type has a different purpose, being aware of these will help you create a budget that will suit your needs.

The Incremental Budget:

Based on your organization's financial history. It builds on the previous year's budget, adjusting figures and adding or removing as needed.

The Zero-Based Budget:

This type of budget starts from scratch with a blank slate every year. While you should use the previous year's numbers to make estimates, this method carefully evaluates each income and expense.

Surplus Budget:

Allows you to set aside funds for a rainy day, pay off debt, or cover an expected decrease in funds.

Deficit Budget:

This plans for expenses to exceed income. There are a few exceptions to operating with a deficit budget, such as if the deficit has a time limit and will turn into an investment (i.e. expansion project).

Break-Even Budget:

Reflects an upcoming deficit or shortfall in funds. It focuses on fundraising to increase funding and address the deficit.

“Known Risk” or “What If?” Budgets:

This is an excellent method for evaluating potential risks or unexpected costs that may lead to a cash flow shortage. It uses current conditions to establish a budget for a worst-case scenario to prepare for financial shortcomings.

Don't Get Stuck on Being Right

No budget is exact, as the future can not be predicted with certainty. While establishing a budget for your nonprofit, keep in mind that the numbers you choose to put down reflect an estimate, and nothing will be set in stone. Although, it may help you to stay on track with your goals with a budget guide.

Follow a Process

The best time to create a budget is right now. However, ideally, you will begin the process a couple of months prior to your next fiscal year to allow ample time to gather all the information needed to present the budget to the nonprofit board to get approval.

Work as a Team

Delegate parts of the process out to development employees, program directors, and finance committee members as much as possible. Consider having each program director determine the budgets for their programs. This will significantly help cut down the portion of the data needed to make the overall budget. Then the rest of the organization's funds and expenses can be tackled.

The Importance of Context

The context of every item must be taken into consideration. Assess where the organization is, the current donor status, and the current expense climate. Where might you come across unusual expenses, fund shortages, or fundraising windfalls? You should make plans for those.

Use Real Data

Rely on your numbers when creating a budget, not what you feel. Looking at your actual data will be your best source of reliable information, as long as the numbers are timely and accurate. To forecast future expenses and revenue, the numbers don't lie.

Be Realistic and Sort Expenses

Optimism is helpful at times, although it is time to be highly realistic when creating a budget. It is also helpful to sort your expenses into “fixed” and “variable”  categories. Be sure to keep your capital expenditures budget separate from your operational budget.

The Non-Monetary Contributions

It is important to record and track non-monetary contributions with your budget, whether volunteer hours, non-monetary contributions like equipment, or in-kind donations. Be sure to list these so that the value zeroes out, but they are still accounted for.

Focus on Cash Flow

Paying attention to your cash flow will be important in the process. For instance, with significant expenses coming up without having the majority of your funds until year-end fundraising, know that you may experience a cash shortage that you should have a plan for. Nonprofit insurance will be your safeguard when things do not go as planned.

Revisit Your Budget Every Month

Budgets are always a work in progress. Your goal should be to be assessing and improving constantly. To do so, you will have to revisit the budget every month and compare it to the true numbers. Paying close attention to the strategic plan and where the actual performance is coming from.

About David G. Sayles Insurance Services

At David G. Sayles Insurance Services, we help our clients decide which of these options is best for them based on their current situation and risk factors.  Contact us at 1-855-977-1842 or insureme@dsayles.mysites.io for a consultation!