While budgeting isn’t everyone’s favorite activity, here’s a brief breakdown of both its purpose and the process.

The Purpose

A budget serves many purposes. It is:

• A guide for the future, providing a roadmap to where you’re going and how to get there.
• A planning and communication tool showing how you can achieve your mission and where your priorities lie.
• A financial management tool, against which you can monitor and measure your progress throughout the year. It allows you to compare your performance against the plan and adjust course as needed.

While a budget can be ambitious, it also needs to be realistic and backed by assumptions recorded for future reference. A budget is not a “one-time process,” since you’ll reference it year-round as an integral part of ongoing financial management.

The operations budget includes your income (whether earned or unearned), and your expenses (where you’ll spend money).

The Process

A successful budgeting process includes this basic preparation:

• Assemble a team: Include all perspectives (programs, development, the executive director, and board) and designate a team leader to keep the process on schedule.
• Create a calendar: Start with the budget approval deadline, work your way back to allow time for each step, and keep the same schedule every year.
• Gather information: This should include historical data, last year’s actuals, trends over time, this year’s actuals-to-date and year-end forecast; program goals (including things such as capital purchases), funding sources, and reserves.

With this preparation in place, schedule a kickoff meeting to ensure the team has the same information, schedule, and is operating from the same information. Consider these types of questions: What did we earn from this revenue source last year? What do we expect will be different this coming year? What are the trends over time? Are we maintaining or changing our program offerings? What did we spend on these expenses last year (and this year)?

The answers to these questions, among others, will become your assumptions (which could include considerations such as rent increasing by 4%, offering one more workshop at the same cost, hiring two full-time staff in the spring, or a funder indicating they will increase their funding amount by 25%). Record these assumptions alongside the budget numbers, as a reference for how the numbers were developed.

Once you’ve developed your budget, allow time for the board’s review and any revisions. When the board has approved the final version, circle back to your team to let them know, so your staff are working off the same approved budget.

Whether it’s your first year developing a budget or your twentieth, setting up some systems, developing assumptions, and comparing the budget to financial reports during the year will set you up for success.

Need assistance with your budgeting process? Our Financial Services team is here to help! Start a conversation with us today about your financial needs.