Practical Strategies for Managing Resources, Monitoring Performance, and Planning Ahead
The not-for-profit world is a unique industry where there are multiple organizations serving different missions. From food banks to healthcare foundations, not-for-profit organizations are a valuable part of our society. Because not-for-profits are diverse, funding can originate from different sources and expenditures can serve different purposes. One thing that ties all not-for-profits together is the need for forward-looking strategic planning by those at the helm. Budgets, for example, can be a useful vessel to bring those at your organization into alignment on what should be accomplished for the upcoming fiscal year.
Why do budgets matter?
Developing and adhering to budgets is important for many reasons, such as:
Monitoring of Performance
Budgets serve as a benchmark for performance. A well-designed budget and adherence to it signal to those within and outside of your organization that the financial performance of your organization is consistently monitored. External parties, especially banks and donors, value seeing that the money they donated or invested in your organization is being treated judiciously and with proper stewardship. Additionally, some donors and lenders may wish to review budgets to see how their funds are being used.
Proper Allocation of Resources
As previously indicated, not all not-for-profits are created equal. While it may be the dream of many organizations to be teeming with donations, the reality is that many not-for-profit organizations operate on limited funding. Therefore, budgeting is helpful for effectively serving your organization’s mission to the maximum extent, even with very limited resources by assisting in allocating those resources responsibly.
Financial Planning
Budgets forecast revenues and expenses for an upcoming period of time. In doing so, budgets can help your organization identify potential liquidity issues before they occur. This allows your organization to plan appropriately and take proactive measures such as increasing fundraising efforts and mitigating unnecessary spending.
Monitoring of Compliance
Your organization, either in the regular course of operations or simply on occasion, may receive contributions where the donor only wants their money spent on certain programs such as athletics, free lunches, or whichever one of the many altruistic efforts your organization may specialize in. By building and monitoring a budget, your organization can more effectively track whether restricted funds are being spent in accordance with the donor’s wishes.
How do I create a budget?
Budgets are a very important vehicle for performance and compliance monitoring, resource allocation, and financial planning. If we’ve convinced you to roll up your sleeves, march to the drawing board, and begin budgeting for your next fiscal year, here are a few key tips to keep in mind for proper budgeting:
Strategic Mission
Before you start number-crunching, take a step back and remind yourself why your organization exists. What is your organization’s key overarching mission? What are its main services? What does your organization want to accomplish in the next year? Ask yourself these questions to properly put yourself in the right perspective so that you can go about budgeting in a way that is best tailored to the unique specifications of your organization.
Consider Historical Data
Effective budgets are backed by tangible historical data. If your organization has been established for at least a few years, then luckily you don’t have a shortage of historical data. With historical data, you can establish realistic budgetary expectations that are supported by recurring costs and funding challenges. While historical data can provide a firm bedrock, your Organization should also consider known or anticipated changes in funding, programs, staffing, inflation, and other factors that could cause future results to differ from prior periods.
Build Projections on Revenues and Expenses
Based on your historical data, make projections of how much your organization expects to receive in contributions, grants, and fundraising, and how much it expects to incur in expenses. One thing to keep in mind is donor restrictions. If you have contributions that were restricted for a specific purpose, make sure this is reflected in the budget.
Review and Approve the Budget
Budgeting should be a team effort, and various levels in the organization such as program directors, the accounting department, and the board of directors should have the opportunity to provide their input. Consider implementing a formal, multi-layered budgetary review process so that multiple individuals can provide input and suggest revisions.
Monitor the Budget against Results
The budgeting process continues past the mark of board approval. Once the budget is made and approved, be sure to compare the budgeted revenues and expenses against actual results throughout the year. This is beneficial because it allows you to investigate significant differences and adjust operations or forecasts accordingly. For example, if you receive lower-than-expected contributions, then this could be a signal to make revisions on spending expectations. A recurring budget-to-actual analysis can also provide your organization with timely information to make informed decisions rather than waiting until year-end to address financial challenges.
Proper financial planning is key to the success of any not-for-profit, and budgets remain one of the most valued tools for planning success. Building and monitoring a budget can help your Organization plan for the future and navigate the year ahead.
If you have questions or would like additional guidance, contact your Keiter Opportunity Advisor | Email | Call: 804.747.0000.
About the Author
Dylan Smith
Business Assurance and Advisory Services, Senior Associate
Dylan Smith is a Senior Associate in Keiter’s Business and Advisory Services department. He is focused on delivering value added services to his clients by understanding their unique organizational missions and providing tailored engagement services. Dylan is a member of Keiter’s Real Estate & Construction team.
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.
