Developing an annual budget for your organisation is a critical part of your organisation’s risk management. Creating a good budget for a small non-profit organization is critical for ensuring financial health and achieving mission-driven goals.
Click here for some reasons why it is so important.
Here are 10 practical tips to help
These points apply regardless of the size of your organisation.
- Understand Your Mission and Goals
Align your budget with your organisation’s mission and strategic goals.
Identify key programs and initiatives that need funding and prioritise them.
- Make sure that people are committed and understand the importance of budgeting.
People’s commitment to the process and the numbers is critical to the success of your budgeting process. Once a budget is created and approved, it is then used for control and performance management. If people are not committed to the budget process and outcome, they will not be committed to the expectation that they will be judged on the performance of the organisation or the department that they manage. - Involve Stakeholders
Engage board members, staff, and volunteers in the budgeting process.
Gather input from different departments or teams to create a comprehensive plan.
- Start with the activity
Discuss and decide on the activity you wish or expect to conduct in the following year.
This provides information and guidance about what you need to include in the budget.
- Make sure that the budget is completed and approved before the year begins
Having your budget completed and approved at the beginning of the year sets you up for success. You are on time, you know what you are doing and what is expected, you are ready to go!
- Plan the budgeting process – create a Timetable – it is a project.
Budgeting takes time. It is not just about calculating some numbers. It is also about getting people’s buy-in or approval of the final numbers. This approval process may take months. A timetable needs to be created to keep you on track. To create the timetable, work backwards from the date you want the budget completed and in place. Take into account the various meeting dates. You will be surprised how early you need to start the process! Communicate the process with all those involved.
The process of developing a budget is a project. Use project management processes to develop your budget.
- Decide what you will budget
There are many types of budgets. There are short-term and long term budgets. Profit and Loss, Cashflow and large assets to name a few.
This article is primarily focusing on an annual profit and loss (income and expense) budget. We also suggest that you discuss and budget for larger items that you might need to purchase to ensure that your organisation has enough available resources for those purchases.
All those involved in the budget process need to agree on what will be included in the budgeting process.
- Create and use a budget template/model
Budget models are often created as spreadsheets using Excel (or similar) programs.
Creating the budget model takes some time, but can be used the following year and it enables trialling different amounts.
- Follow a standard process
A finance team creates the 1st pass draft Budget; this budget is shared with a wider group for discussion. Changes and interactions are made until a budget is presented to a team or the Annual General Meeting (AGM) for final approval
Once the budget has been agreed, enter the information into your accounting system so that budget information can be included in financial reports, comparing actual income and expenses with budgeted income and expenses.
- Use Historical Data
Review past budgets, actual financial statements, and spending patterns. Identify trends and areas where adjustments might be necessary.
Use the past as a guide and a starting point if you have no better information. Don’t just copy last’s actual. Add more intelligence and knowledge about what you expect to happen in the future and how it will be different to the current year.
- Be Realistic with Income Projections
Base revenue estimates on reliable data and conservative assumptions.
Avoid overestimating income; it’s better to underestimate income and exceed expectations. Be realistic. It is terrible to begin the new year with actual income less than budgeted income. Cost-cutting and budget revisions may be required right from the start of the new year. This is very time-consuming and stressful.
- Don’t try to be perfect
You never know for certain what will happen. Do your homework and then make your best estimate and move on. Don’t get stuck with ‘analysis paralysis’. There is a time limit. Just do your best with the available time and resources available. Each year, learn and improve on the previous year. Don’t expect or try to be perfect. It is a learning and growing process.
We hope these tips are helpful.
If you have any questions or want assistance with preparing your budgets please contact us at [email protected], complete this support request form: https://www.benkorp.com/ask-for-support/ or call us on 1300 138 627