Preparing your not-for-profit’s annual budget is probably one of the least appealing parts of your job. Here’s how to make the process a little less painful.
1. Before you start allocating resources, figure out what they are. This includes not only the amount of your income, but its nature. Remember that restricted or planned gifts aren’t necessarily available for spending.
2. With the input of staff and board members, determine the costs of current programs and what your nonprofit expects to offer in the next year. Be careful not to underestimate needs. Make necessary adjustments to the previous year’s expenses for inflation and other higher costs that may disproportionately affect your nonprofit.
3. List your direct expenses, breaking them down into specific line items. Payroll is probably the largest item. Add to current salaries any expected salary increases and payroll taxes and benefits. Other direct costs may include rent, utilities, supplies, equipment maintenance, insurance, contracted services and transportation.
4. Account for indirect expenses as well. These benefit multiple programs, such as costs related to payroll for business management, recordkeeping and financial reporting. You may have to allocate salaries for certain positions to several categories.
5. What you have at this point is a rough draft. You’ll need to make at least some adjustments to your numbers, assumptions and plans before finalizing — whether you break even, spend from reserves earned in prior years or plan for a surplus.
Be sure to compare your budget to last year’s and to the actual results, paying attention to large variances. An unanticipated one-time event might explain going over budget. But if you routinely overspend, you probably need to be more realistic about your income and expenses.
6. Don’t hesitate to get assistance if you need it. Your board members may be able to help you prepare an effective budget. But if you’re uncertain, contact us. After all, your annual budget is one of the keys to current and long-term financial stability.