10 Tips for Creating an Effective Budget

Does the thought of another budgeting cycle feel overwhelming?   At Anderson ZurMuehlen, we understand the budgeting process can be challenging, especially when funding streams are unpredictable given the ever-changing economy.   We understand that as a nonprofit, sustainability and liquidity is key, and we also know a well-formulated budget can help accomplish those objectives.  Sounds easy, right?  We know it’s not.  That’s why we are providing some helpful tips to ensure your budget process is successful:

  1. Don’t recreate the wheel.  Start with analyzing actual results for the past two or three years, and use those results as a starting point.
  2. Start with the “knowns” and add the “what ifs”. Ask questions such as:
    • What other funding might be received that is not currently budgeted?
    • Are donor solicitation tactics being changed?
    • Are there additional fundraising efforts being planned?
    • Are there any funding sources that will not be continuing?
  3. Start the budgeting process as early as possible.  If bylaws state the budget has to be formally reviewed, approved, and adopted by a specific date, consider putting together a timeline with relevant milestones using the approval deadline as a first step and working back from there.  A lead time of at least two months for budget preparation is common.
  4. Approach the budget as a team.  Proactive communication between the Board and the finance, development, and program staff is necessary to develop realistic goals and is key to formulating objectives and monitoring results.
  5. Identify goals, opportunities, trends, and challenges, and formulate additional “what if” scenarios based on that analysis.
  6. Be conservative and realistic when projecting revenue streams and expected expenses.   A nonprofit doesn’t have to strive for a balanced budget where revenues match expenses; it’s better to be accurate and realistic when projecting numbers.
  7. Keep detailed notes as to how budgeted numbers are derived.  This will help formulate future budgets and also will be a useful resource to explain any unexpected variances.
  8. Consider cash flow projections as part of the budgeting process; this will help plan for adequate cash flow if revenue streams fluctuate throughout the year or if unexpected expenses occur.  
  9. Utilize the budget as a living document; don’t just prepare it and forget about it! A budget is meant to be a guide for important organizational decisions, so it’s important to compare actual results to budgeted amounts on a regular basis and adjust future decisions and actions accordingly.
  10. Learn from the past, and use those lessons for the future.  Continually finding ways to improve the overall budgeting process is vital for future success.

Formulating a budget takes time and careful planning, and we understand the challenges inherent in the process.  If you are interested in speaking with one of our nonprofit experts to learn more about the budgeting process, please contact us.

This article was written by Jan Schweitzer, CPA, CFE, and Shareholder in our Missoula Office.

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