[By Richard Male, Professor for Regis University's Master's of Nonprofit Management degree program and founder of Richard Male Associates.] Some nonprofits have a large enough staff to have a financial officer who is tracking and analyzing trends in revenue and expense year-round and developing 18- or 24-month projections from a variety of perspectives; some nonprofits have one person who spends time over a weekend drafting a budget and submitting it a few days later to the board for approval. No doubt your organization is somewhere in between these two extremes. One thing that many of us have in common is we have likely begun the budgeting process for 2013.
Here are some reminders to improve your budgeting process.
1. Allow sufficient time for your data gathering, discussion, presentation to the board, questions, and final vote. Whether you have a finance committee or not, 2-3 months is about the average time you should spend on this process.
2. If your program/fiscal year follows the calendar year, appreciate that this is an imperfect process: it is a fact of life that you will begin your work before you have your third quarter results in hand, and your board will be asked to approve your budget for 2013 before you’ve actually closed the books on 2012. Use precise data when you can, make reasonable projections when data is not at hand, and most of all, use common sense.
3. Define what a budget truly means for your organization. It is not merely “something that the accountant” (or finance committee chair, or executive director) manages in order to meet legal requirements. A budget is ademonstration of your mission priorities–a method of communicating what your nonprofit exists to achieve.
4. Consider this a learning exercise, not a bookkeeping task. The budgeting process should ideally involve different individuals around the table, helping to bridge the all-too-common gaps between board members, between board/staff, and between various program areas. Do not risk doing this critical work in “silos” or a vacuum. At best, your time spent as a team working on a budget will uncover any potential weaknesses in your assumptions about what is working well.
Continue reading this Nonprofit TIP at richardmale.com.
Reprinted with permission from Richard Male and Associates, www.richardmale.com, 303-355-2919.