TOP FIVE BEST WAYS TO EFFECTIVELY MANAGE YOUR NONPROFIT’S BUDGET
As this Blog addresses the nuances of the Nonprofit’s budget, keep in mind that the key word in this document’s title is “Manage”. We’re assuming here that everyone reading this understands and embraces the incorporation of line item budget comparatives in an organization’s Financial Statements.
Be as realistic as possible – In an organization that is funded in a large part by grants or contracts, the bottom line is that if an award is written for 2.35 million dollars and you have enough allowed expenses to draw down the entire 2.35 million dollars, that’s the exact amount you will receive from the funding source and not a penny more. However, you don’t want to let that fact control your creation of an internal budget. If you know that the actual costs to operate this program will end up being 2.5 million dollars, the 2.5 million is the amount you want to appear in your budget column, not the 2.35. You need to make sure you are using every available tool properly within a finance department to give you an accurate picture of what it takes to operate a program. Remember, a funding source can tell you they will not reimburse you for costs exceeding the budget, however they cannot prevent you from recording them internally to generate accurate financial reports.
Remember that program staff can be a valuable resource – During the process of creating a program budget, what an employee in the fiscal department may lack is hands-on knowledge of the actual costs incurred within the program activities. Program directors and staff may have a better understanding of actual costs incurred within their programs due to the very nature of hands-on involvement. This can make them a valuable resource in budget preparation. In addition to having Program Directors review their programs’ financial reports on a regular basis, use their perspective and make sure they are very involved in creating and modifying program budgets.
Include all programs no-matter how small – When developing an agency-wide budget you want to make sure that every program is accounted for. At times agencies have a tendency to not include a very small program budget from an agency-wide perspective because is plays no real part in how you may do your forecasting. There are two things to consider here. First of all even if it is a very small budget, if it is ignored in an agency-wide picture, you really are not presenting all of the organization’s activities. And secondly, you have the same fiduciary responsibility for a very small program that you do with a major funding source. Make sure an agency-wide picture is truly agency-wide.
Don’t “bury” a funding source budget restriction in creative coding – There will be times when funding source money comes with strings attached. These strings may be in the form of certain types of unallowed costs or ceilings on the amount of money you may spend on a certain line item or group of line items. These types of restrictions are not reporting problems, they are budgeting problems. When a funding source puts a set of requirements on the use of their funds, no matter how much you may disagree, they have every right to ask “How bad do you want our money?” If you want it bad enough you will need to come up with a solution. Make sure that the solution you choose does not sacrifice the integrity of the budgets you create for a particular program. Again, being accountable for the accuracy of a budget is just as important as the accuracy of a financial statement. Accounting gymnastics for reporting and budgeting purposes is never acceptable.
Don’t get pulled into the “Balanced Budget Requirement” myth – A lot of non-profit finance professionals are driven to present nothing but balanced budgets on their financial reports. If all of your budgets have a zero balance at the bottom they are not truly representative. This goes along with the realism I spoke of in the second paragraph of this blog. The amount of the grant or contract award is only part of the costs of operating a program. Your accounting software, such as the GMS Accounting and Financial Management System, needs to contain the actual projected budget of every program within your organization. This is imperative to produce truly helpful financial reports. If a program is expected to run in a deficit or show a surplus, your budgets need to represent that. If you don’t have an official budget for a program, at the very least you could take the previous years final report and insert it as a budget. A simple comparative to the previous year with any known changes is better than no budget at all.
