Every successful nonprofit organization has a budgeting process.  As a nonprofit planning to scale, grow and become sustainable, you must put considerable effort into your budgeting activities. Budgeting is the core of every successful nonprofit especially later when it comes time for nonprofit financing. Nonprofit budgeting helps you control your spending, track expenses, and save more money. 

Nonprofits that are good at budgeting make better financial decisions, prepare for emergencies well and avoid the danger of getting entangled in debt. In addition, they stay focused on achieving their long-term goals as they know the critical areas to appropriate funds to facilitate their operations effectively. In other words, budgeting will allow money to flow to the areas it will do the greatest good.

With this in mind, knowing the keys to the nonprofit budgeting process is essential to preparing a working budget document that will guide the financial decisions of your nonprofit. 

Below are the ten important keys to the nonprofit budgeting process:

Assess Your Financial Statements

The first step is to determine your monthly nonprofit cash flow. Your financial statements tell you your nonprofit’s financial performance and earning potential. A thorough assessment of your financial statement will clearly show your ability to generate income on which you will base your budget. Additionally, evaluating your finances will help you have your income and expenses at your fingers tips which will help you make a prudent financial plan. 

Know Your Expenses

You should figure out how you spend money by reviewing your financial records. To keep a clear financial record, you should form the habit of tracking your nonprofit daily expenses on a regular basis. This will give you a clear picture of your spending pattern to know whether you are making expenses on worthy causes. In addition, once you identify your spending pattern, you will know if you might make readjustments to certain expenses. 

You can consider using accounting software for small businesses to track your nonprofit expenses. This software will help simplify the arduous task of manually tracking expenses by classifying them correctly and allowing for up-date financial information. 

Set Your Nonprofit Financial Goal

Make a list of what your nonprofits want to achieve within the fiscal year and beyond and keep those goals in front of you always. What are the KPI’s (key performance indicators) to get to those goals? For example, it can be financing the purchase of properties, providing aid and relief to people, hiring professionals to perform specific functions, and more.

Gather Information from Key Stakeholders

It’s important to work hand in hand with critical stakeholders while preparing your nonprofit budget. These people include your treasurer, the program managers, the board members, and the CEO; the more inclusive the budgeting process, the higher buyer-in, and accountability. In other words, you should carry your board and team members along to produce a working financial plan.

Use Essential Information

Too much information can make the process of budgeting daunting and overwhelming.  Start small and do a great job with those numbers. You should figure out the necessary information to include in your budget. In other words, your budget should have enough lines to provide a comprehensive understanding of your nonprofit financial condition. The budget should serve as a tool for a sound financial decision, allowing your nonprofit’s managers to make decisions pretty fast. Less is more!

Use A Template

Instead of creating a budget yourself from scratch, which can be tasking, it will help if you consider using a budget template that will give you insight and help facilitate the entire process. With a budget template, the outline is already there for you to fill in with your budget specifications.

Plus, a budget template is a useful tool that you can customize to suit your nonprofit financial needs. Most accounting software programs have excellent reports that can often be used in your custom spreadsheet. 

Establish Financing

Any budget with no means of financing is dead on arrival. For your budget to become operational and practical, you must match it with adequate financing. That financing could be through fundraising, grants, etc but it is still considered financing like a for-profit business would. 

Ensure you have available financing options that will allow you to implement your goals. Some of the go-to funding sources for nonprofits are fundraising events, crowdfunding, grants, loans, nonprofit lines of credit, and income from investments. 

Separate Operational From Capital Budget

It will be proper if you have a separate budget for capital projects. For instance, if you plan to purchase a vehicle that will aid your nonprofit functions, build a new website or buy some office equipment, you should create a separate project budget for them to help keep your operational budget focused. 

The biggest mistake in funding that small nonprofits make is not raising funds for indirect expenses like employee salaries, rent, and general operating expenses. You would be surprised how much your donators understand the need for this.

Align the Budget with Your Nonprofit Objectives

To create a working budget, you must align it with your nonprofit mission. Your budget must reflect the strategic goals of your nonprofits. A disconnect between your budget and your nonprofit’s mission can result in ineffectual budgeting and poor implementation, which could hamper the smooth operation of your nonprofit down the line.

It also provides a reality check against what you want and what you are really capable of doing.

Track Your Progress

To ensure the success of your nonprofit budgeting, you should periodically re-evaluate it. You can do monthly or quarterly appraisals by comparing your actual expenses and income to your budget. A periodic assessment will help you know if the budget is still on the right track. Otherwise, you will make appropriate adjustments.  

Final Thought

Any organization that operates without a financial plan is like a ship on a voyage without a compass. Budgeting helps nonprofits track revenue and expenses, limiting the chance of your organization discontinuing its noble projects resulting from cash shortages. Additionally, it gives you financial control and allows your nonprofit to operate over the long term as you will have a complete understanding of your cash flow and avoid overspending.  

Does Your Nonprofit Need Financing? 

There’s no doubt that the major challenge facing small nonprofits today is the issue of funding. Even those with excellent programs are not left out in this unsettling condition.  It’s not enough to have a worthy cause; you should also have the financial flexibility to bring them to fruition. Many nonprofits primarily depend on fundraising and grants to generate revenues. While these funding sources can be good options, they don’t always guarantee regular and even cash flow. And there’s no need to re-echo what cash shortages mean for your nonprofit. However, having a reliable financing source can make a great difference in your organization. 

At Financing Solutions,  a leading provider of business loans for nonprofits in the form of a 501c3/not-for-profit nonprofit line of credit, we understand how hard it can be for nonprofits to get bank loans so in 2012 we decided to put in place an easy-to-get unsecured nonprofit line of credit to help facilitate nonprofits have easy access to financing for their numerous programs.

Our nonprofit line of credit costs nothing to set up, nothing until used, and when used, it is inexpensive. In addition, the nonprofit line of credit requires no guarantee or collateral. 

If you want to see if your nonprofit would be approved and for how much, please fill out the no -obligation, 2-minute nonprofit line of credit.