No Budget, No Mission: A Guide to Basic Nonprofit Budgeting

How budgeting can improve fundraising and help your nonprofit realize its potential.

What has always drawn me to a nonprofit organization is the mission. The mission of an organization speaks in ways that numbers do not. The mission instills hope, meaningful change, and impact. It elicits images of a stronger community and evokes the possibility of not just an improved present, but a better future. Optimism can be beautifully woven into a nonprofit organizations’ mission, but words and feelings are not the driving force of a nonprofit.

In contrast, think about the word budget. When I think of “budget,” I think of the detailed work that is involved in creating a budget, forecasting a budget, preparing grant budgets, program budgets, revenues, expenses, etc. These words may lack optimism, but they have everything to do with performance. The numbers behind a budget promote the mission of an organization as the focal point.

The most emotive, illustrative mission cannot replace a solid financial foundation. To help understand this, here is an example:

Org A’s mission: Create care packages for homeless and distribute.

Budget Goal: Obtain donations from community in one month.

In practice:

• Staff spent time on communicating its mission to its donor audience, a place of worship, via speaking engagements and marketing materials.
• Staff collected $500.
• They spent $100.

Missed Opportunities:

The organization did not spend time developing a budget other than determining that they needed to raise funds. It turned out that the $500 collected created only 40 care packages ($10/care package), and the remaining $100 went towards expenses for marketing. In one city alone, there were over 250 people who could have benefitted had the organization spent time on researching the amount of people they wanted to help, the cost of items for the packages, and the cost of marketing. This would have helped the organization to determine a target donation amount and quantify how many people they could actually help towards their mission.

All this could have been easily done if they had used a basic template to determine cost, expenses, and revenue and/or donations. Another area of focus can also be highlighting the time spent on the mission and determining how many volunteer hours (if any) contributed towards the effort. The latest value of a volunteer hour is $25.43.

If Org A had used a budget before launching the campaign, the mission could have been much more successfully accomplished and communicated in a way that would highlight the need.

Let’s take a look at another example to see how budgeting helped a nonprofit realize its potential.

Org B’s mission: Advance common objectives impacting immigrant and marginalized communities. Part of the mission includes developing two pilot programs that facilitate leadership, civic engagement, and education about local government services and resources.

Budget Goal: Determine cost of running two pilot programs and identify cost per applicant.

In practice, Org B:

• Identified a budget and obtained grants to fund the basics for the program – materials and cost of food were the main cost of the program.
• Determined through budget preparation the ideal number of applicants, identified by board members, that could be accepted and funded
• Estimated and secured enough funding months before the start of the pilot programs through fundraising and obtaining grants
• Started pilot programs in both localities without funding delays and maximized program participation

Promotion of the Mission:

After program completion, Org B can communicate its accomplishments in the following way to highlight its success.

Our County Academy Program (OCA):

• Connected 40 individuals representing 35 nationalities/communities to local officials, programs, and resources
• Civically engaged 40 graduates for seven months. Those who are civically engaged are statistically more likely to make time and effort commitment to strengthening their communities.
• Committed 40 graduates to building the next OCA group of leadership
• Funded 100% through Org B and other sponsors, therefore, did not impact county funding
• Obtained sponsorship by Ford Foundation, Pleasantville Credit Union, and Bank of America

While the mission may inspire hope, the budget drives performance and highlights the mission through outcomes. Numbers are necessary in order to communicate outcomes of the mission.

The key point with any budget preparation is making sure that every dollar required for achieving project success is documented. I have provided a budget template for you to use and an example for how Org B uses the template successfully.

Once a budget has been created, it doesn’t end there. The operating budget of an organization outlines goals and activities for the year and connects numbers to them. The budget also accounts for multiple sources of income and forecasts anticipated expenditures. Usually, staff and/or board members have the responsibility for determining which items are covered in the budget and for drafting the overall document.  Monthly and quarterly reviews of the budget help bring clarity to the assumptions on which your budget was built.

Monthly and Quarterly Reviews

These reviews serve as internal controls that help determine the fiscal decisions and governance. Monthly reviews should review actual budget with forecasted budget. It may be necessary separate organizational budget and program budget, depending upon the size of your organization.

• Reviewing organizational balance sheets. Balance sheets report what an organization owns (assets) and what is owed (liabilities). Equity, capital, retained earnings, or fund balance are considered net assets. They represent the total of all the annual surpluses or deficits that an organization has accumulated over its entire history.
• Reviewing year-end forecasting helps provide checks on revenue goals. It also allows the organization to review what worked and may not have worked.
• Quarterly reviews should include comparisons of actual vs budget for the quarter, grant budget review of funds used versus unused funds, and a final review on the whole budget to determine if there are any unbudgeted expenses.

Regular reviews of the budget may require the organization to make adjustments for upcoming year(s), which will in turn allow for better-informed business decisions. Regular reviews can also signal when an organization may be veering from its mission. Proper planning and preparation for revenue, funding stream, and expenses are central to the foundation of your organization. If your organization receives income from multiple sources, each source should be listed. The same applies for expenses. The budget is the foundation upon which the mission can be built—hence, no budget, no mission.

You might also like:

• Treasurers of All-Volunteer Organizations: Eight Key Responsibilities
• An Easy-to-Use Accounting Procedures Manual Template
• A Guide for Private Foundations: Tax Exemption and 990-PF Filing Requirements
• Why is it Hard to Give My Money Away? A Donor’s Perspective
• Nonprofit Grant Proposal Budget Calculations: A Road Map

 

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