In the four previous blog posts, we’ve highlighted end-of-year tasks that every nonprofit should be doing or at least thinking about to prepare for the upcoming year. Now, as the year comes to a close, we want to emphasize the importance of creating a projected budget — a financial roadmap showing how you will finish the fiscal year or what you anticipate for the year ahead, with a clear overview of expected revenue and expenses.
Without a yearly budget, your organization faces heightened risks of financial instability and a lack of accountability among staff and management. Decision-making becomes challenging when there’s no framework to guide resource allocation associated with organizational priorities and goals — and it’s hard to make a compelling case to your stakeholders about why they should invest their time and talent in your organization. Additionally, your board is responsible for ensuring the organization is fiscally healthy, and without a budget, they can’t do their job effectively. Neither can your development team, as most grant-making entities require a well-defined budget as part of applications.
Wondering how to start your budgeting process or feeling too overwhelmed to think through it alone? Here’s a breakdown of three essential steps to get started:
#1 Examine Your Finances
Examine your organization’s financials, such as income statements, balance sheets, and cash flow statements, to gain an understanding of recent spending patterns, sources of revenue, and overall financial well-being. Assess the organization’s assets, liabilities, and available funds. Consider outstanding debts and obligations and what you need to meet them. Use a good tech tool for tracking and organizing, such as Excel or Google Sheets.
#2 Set Clear Goals
Work with your team to clearly define your organization’s short-term and long-term goals and get a sense of what resources — time, people, and money — it takes to get there. These goals should be specific and measurable and may include objectives such as program expansion, fundraising targets, or capital improvements. Identify your essential programs and initiatives, then allocate resources based on their importance and impact. Consider your budget in terms of scenarios, including cost-saving measures for the least critical activities. Think through what you’ll do if something doesn’t work out or if you receive a windfall. Categorize your revenue goals according to high, medium or low risk. By defining your goals in detail, you create a plan for your organization’s growth and development and ensure everyone involved is working towards a common purpose. Remember, your budget reflects your values.
#3 Develop a Realistic Budget
Your budget is a measured assumption of how you think the year will unfold. It should be aspirational but also clear, achievable, accurate, and justifiable. Anticipated expenses for each program or activity should include personnel, operations, marketing, development, and administrative costs. Estimate all potential sources of income, such as donations, grants, sponsorships, earned revenue, and other fundraising activities. Strive to create a balanced budget that allows for financial uncertainties.
Prioritizing this process now will help your organization identify essential programs or initiatives, address urgent needs, and allocate funds where they’ll have the most impact. A well-constructed budget and plan before the year ends also gives your board and staff adequate time to review it, fosters trust, and provides a basis for effective communication — the foundation of any healthy organization.
To read the other blog posts in this series, click the links below:
- Six Things Nonprofits Should Be Doing Now to Prepare for the New Year
- Fall Into Action: Data Collection and Analysis for Nonprofit Success
- The Annual Appeal – A Labor of Love
- Navigating Government Proposals
- Five Ways to Navigate the Holidays with Grace
Founded and led by a Bronx-born Puerto Rican with lived experience of the challenges our clients work to address, Lydia Sierra Consulting is a full-service firm providing all the administrative, technical, and strategic support of a complete in-house development department.
