Manage a Budget
A budget depicts what you expect to spend (expenditures) and generate (revenue) over a specific time period, normally your fiscal year. It is essentially a document that translates the organization’s plans into dollars.
It answers 2 questions:
- How much money do we need to spend to meet planned goals?
- How much money do we need to generate to cover those costs?
Why do we need a budget?
- tells you how much money you need to carry out your activities
- tells you WHEN you will need money
- forces you to thoroughly think through and assess your action plan
- helps you monitor income and expenditures and identify problems
- is your basis for financial accountability and transparency
- is required by many donors, to ensure your ask is reasonable and well- planned.
What are the basic principles of developing a budget?
- Program staff and financial staff should work with the executive director and board to develop budgets that reflect organizational priorities and guide spending and decision making. The budget should fit into the organization’s strategic plan.
If you are a small agency without staff who can manage the budgeting process, make sure you have someone on your board with financial skills who can help.
- Don’t just use last year’s budget and increase it by an arbitrary percentage. You can rely on past history as a starting point, but you must consider changes that aren’t reflected in the prior year’s number (increases in insurance and utility rates, etc.).
Base your budget on reasonable assumptions that are supported by history, new information, statistics, etc
How do we develop our actual budget?
- Look at the next year’s budget 2 or 3 months before the beginning of your next fiscal year. (Your budget should correspond to your operating cycle. If you rely on government funding, your fiscal year might end June 30.)
- Review organizational achievements and financial results of the year just ending.
- Determine your goals and objectives for the next year.
- Estimate the costs of achieving those objectives. Include cost of new staff, additional supplies needed, etc.
- Project the amount of revenue from your funding sources. The financial staff, executive director and fundraising committee must make the most realistic assessment possible.
- Compare revenue and expenditures to see if the preliminary budget results in a deficit, surplus or breakeven situation. If results are not acceptable, review revenues and expenditures to see where you can make changes until the budget is acceptable.
- Once the budget is done, the full board must approve it.
Create a realistic budget that helps you see and address changes (good or bad) right away:
- Create a separate budget for every program of the agency, to assess each program independently.
- Divide the budget by month to reflect timing of revenue and expenses
- Don’t divide your budget into 12 equal parts. (If the entire insurance premium is due January, the full cost should be in that month.)
What do we do with the budget once it is done?
Use it! Use your budget to make sure you are operating according to plan. Update it regularly, to see if you need to cut down on costs or build up on revenue.
Every month, update your budget report with actual revenue and expenditures. Then compare your planned revenue and expenditures to your actual revenue and expenditures.
If used properly, the budget also allows you to: report how you are doing financially to staff, board and donors; do cash flow projections; and make financial decisions.