What Is Your Budget?

When I ask prospective nonprofit clients, “What is your budget?” they often don’t know the answer, which doesn’t surprise me.

They might be tracking expenses and know which grants have been awarded or the rough number of donations so far., but they aren’t always 100% sure about their total revenue, total expenses, or what running the organization truly costs.

Knowing how much money is in the bank is not the same as having a budget.

A nonprofit budget is more than a spreadsheet for the accountant or treasurer. A budget is one of the most important management tools available to an executive director and the board. The numbers provide a clear picture of how the organization is functioning and help leadership make informed, proactive decisions about the future.

Know Your True Costs

A good budget starts with a complete picture of expected revenue and expenses.

Revenue might include individual donations, grants, corporate support, event revenue, program fees, contracts, and other funding sources.

Expenses include salaries, benefits, rent, insurance, technology, fundraising, marketing, supplies, professional services, and program costs.

Knowing the total cost of running the organization helps leadership answer important questions. Is current revenue enough to support operations? Are expenses growing faster than revenue? Does the organization have enough funding to expand a program or hire another employee?

Those decisions should be based on numbers, not guesses.

Don’t Forget In-Kind Donations

In-kind donations are another piece of the financial picture that nonprofits often overlook.

Organizations might receive donated supplies, equipment, meeting space, professional services, or other noncash support. Some donated goods and services also have specific accounting requirements.

From a management perspective, significant in-kind support helps leadership understand the resources required to operate the organization,

Ask this question: If the donated product or service disappeared tomorrow, how much would the organization need to spend to replace the resource?

Understanding those costs provides a more accurate picture of the resources required to fulfill the mission.

Every Program Needs a Budget

The organizational budget only tells part of the story. Each major program should have a separate budget.

A program budget should include direct expenses along with an appropriate share of staff time, facilities, technology, insurance, administrative support, and other shared expenses.

Without those numbers, leadership might assume a program costs far less than the true amount.

Program budgets also strengthen fundraising. When preparing a grant proposal, the organization should know exactly how much a program costs and how much funding remains to be secured.

The Board Needs More Than an Annual Budget

Creating and approving a budget once a year isn’t enough. Leadership and the board should review budget-to-actual reports throughout the year. Compare projected revenue with actual revenue. Review expenses. Look for significant differences and understand why those differences occurred.

Board members have financial oversight responsibilities. Accurate and timely financial information helps board members fulfill those responsibilities and make informed decisions.

A budget should guide conversations about programs, staffing, fundraising, growth, and sustainability.

When someone asks, “What is your budget?” every nonprofit leader should know the answer, and should understand the numbers behind the answer.

Cheers,  

Michelle Crim, CFRE 

Dynamic Development Strategies can help. We offer coaching, program design, grant writing, and fundraising services for our nonprofit clients. We specialize in small to mid-size organizations because we understand your challenges. Please contact us for more information.