An Exploration of Nonprofit Budgeting Basics

Following last year’s blog series on Best Practices for Nonprofit Financial Health, Alice Antonelli has developed a new series to guide nonprofit leaders through the ins and outs of budgeting, including tips to get started and advice to navigate periods of change or uncertainty. Alice is a Director in NFF's Advisory Services practice with extensive experience working with small and mid-size organizations throughout the budgeting process. Woven throughout the series are themes drawn from a year-long series of coaching assignments Alice led with eight executive directors of small nonprofits. These coaching assignments often began by incorporating strong budgeting practices as the underpinning for making strategic financial and programmatic decisions.

Read on to discover how a thoughtful budget can serve as the backbone for your organization’s mission, and a compass for the future. Topics explored in this seven-part series include: budgeting basics, best practices, budgeting for restrictions, below-the-line budgeting, forecasting, the art of reforecasting, and using your budget as a tool to communicate your finances.

Introduction

Imagine that you are the founder of a small nonprofit – Help for Homeless Youth (HHY) – that offers food, clothing, mentorship and job opportunities to homeless youth in the community. You have a $675,000 budget that pays the salaries of eight positions, in addition to program supplies, rent, utilities, and youth stipends. As executive director and founder, you are responsible for not only developing and implementing the dream and vision, but also fundraising, bookkeeping, managing logistics, and (occasionally) fixing toilets. When you first began the organization 20 years ago, you could cobble together $25,000 from friends and family; now, you raise funds from government, foundation and corporate sources, in addition to hosting a small annual fundraising event. Staff are pushed to their limit responding to an all-time high need for HHY’s services at the same time that once-reliable funding sources are starting to dwindle and/or disappear. You know that you have created an organization that makes a difference in the lives of many teens and youth in your community, yet you wonder why you still feel like you are running on a treadmill each day. Sound familiar?

This is the composite picture of many of the executive directors of smaller organizations (i.e., organizations with budget sizes of $1 million or less) that I’ve worked with over the past 12 months. As you can imagine, these smaller, grassroots organizations play a critical role in many communities around the country. Yet, their potential impact is often stymied when leadership struggle with insufficient capacity or the absence of back-office infrastructure. To support their ability to make sound financial decisions that drive long-term organizational health and mission-delivery, we enhance what leadership are already doing with practical advice to support decision-making informed by real-time financial data. And, often, at the heart of our work together is the budget.

Simply stated, your budget is a road map for the year.

Why create a budget?

Well, we — from the very small to the very big organizations — all have limited resources with which to carry out our mission. And as such, we need an organizational plan — or budget — that reflects, in monetary terms, how we will spend these limited resources to fulfill the organization’s mission for a stated period of time (most often for the upcoming or current fiscal year). Simply stated, a budget is a road map, a guide, or financial plan for the year. In addition, it should reflect and quantify your annual strategy. Lastly, the budget is a communication tool that you can use with not only board, staff, but also outside stakeholders (more on that later in this series).

So, what are some practical tips and next steps to get started?

Next up: Part 1 — Nonprofit Budgeting Basics

Making Your Budget the Backbone of Your Nonprofit