For nonprofits, budgeting is never a clean and simple process. The expenses frequently outweigh the revenue and it takes a continual yoga-like twisting of numbers to build a solid budget that will keep your board happy. As 2017 closes, nonprofits need to know these three tips when budgeting for the new year:
1. Plan for a surplus
Many nonprofit leaders try to ensure their budget will balance perfectly, with income and expenses canceling each other out. Rather, a nonprofit should approach budgeting like a for-profit business and plan for a surplus.
In almost every case, nonprofits should create a budget where the year ends with a positive net income. This income margin won’t be a large sum, as with some profit-driven businesses, but it should be enough to pay for unforeseen expenses and prevent board members from thinking your nonprofit is on the razor’s edge of financial trouble.
2. Include Everything You Need
Itemizing every detail can be a tiresome and daunting process (particularly when creating your first budget), but it is essential. Don’t be a hero and ask for help from your staff. Start by having everyone list the resources they truly need, without worrying about how it will fit into the budget. Separately, have your development team create a list of your revenue streams.
From there, you can compare and negotiate expenses versus revenue and hammer out a realistic budget. Keeping the resources and expenses as a separate exercise that doesn’t initially include numbers will help you ensure everything you need is accounted for in the budget.
3. Assess Risk
Due to uncertainty in the political and social spheres, 2017 brought some big changes to the funding sources for the nonprofit community and 2018 predictions show similar trends. Any nonprofit budget should include flexibility so your organization can easily and quickly adapt if funding decreases or is lost.
For example, each quarter should have clear delineations of what are “mandatory essentials” for your organization and critical to operations. Keep informed of any negative scenarios brewing that could affect funding and include tactical options and stop gaps in your budget if those were to come into play.
For nonprofits, 2018 is the year of flexibility and planning for the unexpected. With a strong budget, your nonprofit can be as successful as ever.
Don’t miss our upcoming webinar for nonprofits on Thursday, January 11th at 2 PM EDT. Register now!