Have you created a budget for your organization?  If you haven't, the thought of creating one can make your head spin.  I hope that these 9 steps will help you create your first budget or as you get ready to start again.

Some people may ask, why do I need a budget?  I watch my accounts and know when I have money and when I don't.   

Your budget is a planning tool reflecting your organization's programs, mission, and strategic plan.  Whether your fundraising goal is $1,000 to $1 million, this tool needs to be a part of your tool box. Where your money is going and what it takes to run your organization is critical to the success of and future growth of your organization.

No matter when your fiscal year ends, you should start the budgeting process 3 - 4 months before the end of your fiscal year.  So, if your fiscal year ends at the end of the calendar year, begin this process now.  This will give you enough time to complete the process and receive board approval before the new fiscal year begins.

Make sure that you invite the right people to your first meeting.  Some people to include are the Executive Director, Treasurer, Board President, Chair of the Development Committee, and Development Officer.  There may be others that should be included that are not listed here.

Below are 9 key steps to creating a budget and getting it approved by your board. 

1. Determine Your Timeline

Start with the End Date in Mind.  Sit down with your board meeting schedule and determine when you need to get full board approval.  This ideally would be the last full board meeting before the end of your fiscal year. Next, review the meeting dates for your Finance and Investment and Executive Committee.  Ensure that you get their approval before the full board meeting date determined above.

Do you need to add a meeting to the schedule to get the budget approved on time?  Are there other committees within your organization that needs to review the budget?  Get these dates and meetings on the calendar now to hold everyone accountable to complete the process on time.

2. Agree on the Goals of the Organization

Review your program, financial, and any annual goals from your strategic planning sessions. Make sure that everyone working on the budget, will review the budget and approve the budget has a copy of the goals and understands where the organization wants to go during the next fiscal year.

3. Understand the Current Financial Status

Review the current income and expenses for the year. Make sure that everyone understands any forecasts for the rest of the current fiscal year.  Do those forecasts make sense? Compare projected forecast numbers with the budget. Is your organization going to meet budget numbers for Fundraising?  Are your expenses in line with historical data?  Analyze and understand any variances that exist. 

4. How to Approach the Budget Process

Assign roles and responsibilities based on the people in the room and their function within the organization. Determine who has the authority to make decisions within each group. There are always some unknowns in nonprofit budgeting, but how many do you want to include in the budget.  What information do you want each area to provide about how they came up with their numbers.

5. Develop a Draft of the Expense Budget

Drafting the expenses is one of the easiest parts of the budget process. Do not copy over the figures from the existing year. Take the time to understand the existing numbers and if those expenses should be carried over to the next year.  Determine the expenses for the program, organizational, and strategic goals listed in Number 2 above. 

6. Develop a Draft of the Income Budget

Determining the income/revenue for your budget will need greater insight. If the majority of your income comes from grants: what did you receive last year, what amounts will be carried over to the new year, and what are the chances of renewal?  

If the majority of your income comes from fundraising: what is the historical amount of given that is considered renewal, do you have new leads on additional fundraising sources, did you host an event last year, will you be able to replicate those numbers again?

Go through this process for all sources of income.

7. Review Draft Budget

Verify that your draft budget meets the program, organizational and strategic goals as listed in Number 2 above.  Review, document and discuss all assumptions. Make adjustments, based on goals and capacity to match the income and expenses.  Review the final draft to ensure that it meets all goals and objectives.

8. Approve the Budget

Present to any committees as needed, and present to the full board for final approval.  Make sure that all documentation that discusses assumptions and reasons is included for the board to review.  These are critical for board approval.  Make sure that the board knows what their commitment to reaching these goals are prior to approval.  

9. Implement the Budget

Congratulations.  You have an approved budget.  Unfortunately, your work doesn't end here. These numbers should now be incorporated into your financial management software.  Ensure that the numbers and the categories line up. On a monthly basis, you need to monitor and respond to changes as needed.

I hope that you find these steps helpful and can make the process more manageable. What are your best tips for the budgeting process?  I would love to hear your thoughts and suggestions.

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