How to Set Up Budgets for Nonprofits
Nonprofit budgets are very detailed, including funding from governments, businesses, individuals and foundations. Managing costs is a priority in any nonprofit organizations, so budgeting for expenses is a major part of this planning.
Below are some steps to set a budget for a nonprofit:
1. Prepare the budget about 3 months before the budget year starts
Starting the budget process earlier than this may not work well because things change and those changes must be incorporated into the budget. Budgets should be done as close as possible to the beginning of the year, while giving sufficient time for management and accounting to analyze the numbers and to provide well-thought out numbers.
2. Print out / download an Income Statement / Statement of Activities
Review current or prior years' actual income and expenses as basis for next year. The best approach would be to download the numbers into a spreadsheet, so that numbers can be changed on that spreadsheet. For example, if program income this year shows at $ 10,000 and management thinks that this number would increase by 10% for next year, this formula could have been entered in the spreadsheet easily.
3. Document the process in detail
When decisions are made about income and expenses, the support documentation for these decisions should be available. Oftentimes, when there are large variances between actual / real numbers and budgeted one, management wants to analyze it to make decisions about it. For example, the reasons for an increase in rent expense should be documented, so that if this increase does not happen in reality, this variance can be easily explained.
4. Include all managers
All managers in the organization should give their input into the budget. The board of directors may set up the basic numbers, but without information from managers, the budget may not be realistic. Members of management should be engaged in the budget process and should take responsibility over their areas. For instance, the fundraising department should set up the numbers for brochures and event planning and take responsibility over them.
5. Create written policies and procedures regarding the budget
Budget preparation and approvals should be taken seriously by management. Typically, a nonprofit's budget is approved by the board of directors or a finance committee. Policies and procedures in this area are critical to keep the process straight and standard over the years. A policy, for instance, could be about deadlines for budget approvals and situations where a budget may need to be re-approved by the board.
(This article is designed to provide authoritative information. The author or publisher is not engaged in rendering legal, accounting, or other professional services.If legal or other expert assistance is required, the services of a competent professional should be thought.)
