Nonprofit organizations constantly strive to maintain and improve operations. Sustainability is dependent upon the ability to appropriately disperse and creatively utilize the limited resources. Lack of resources is not limited to the budgeting process. Often times, it translates into a number of obstacles for organizations. However, when it comes to planning and management, the absence of a budget can prove to be fatal.
A well-planned budget will focus on the primary goals and objectives of an organization and provide financial and programmatic adaptability — key ingredients to maximize sustainability. The budget should serve as a tool for the Board to provide governance regarding ongoing programs. An organization’s budget should be treated as a living document which should be referred to, reflected on, and updated based on changes in programs, funding, and other circumstances.
What are some of the most common problems when establishing a budget for a nonprofit organization?
1. Lack of collaboration. Each program or department generates their own, personalized budget. There is an absence of collaboration and each individual budgets remains isolated without integration causing a diversion from the organization’s mission.
2. The individual budgets do not account for necessary overhead which creates inaccuracies.
3. Viewing the budget process as an “annual project” and not adhering to it after it has been established.
4. Inability to allocate overhead costs to specific programs to capture funding for capacity
5. Overestimating the fundraising abilities of the organization
6. Failure to consider cash flow versus revenue and expenses
Executive Directors and governing boards should be aware of these pitfalls and remain cognizant of their organization’s budgeting process.
Does your nonprofit organization have a budget process and do they know how to create a budget? Do you have the tools to avoid these pitfalls? In prior posts, we have addressed allocating overhead costs. More can be said about this topic and our next post will give some additional guidance on establishing a budget and the types of budgets to consider.
Your nonprofit’s budget process, its creation, and monitoring is a critical component of its programmatic and financial management. Creating and following a budget allows you to establish benchmarks, determine priorities, and gauge your organization’s financial health from one year to the next. Our WVC RubixCloud team can help your nonprofit generate a budget and ensure you are on the right track to accurately analyzing the health of your organization. Download our whitepaper, “There Is Gold In Your Numbers,” to learn more about outsourced accounting and how it can be the game changer for your organization.