Four Critical Budgeting Steps Your Not-for-Profit May be Forgetting

For any organization, budgeting can be more than just an annual exercise of putting numbers in columns. The budget is the financial interpretation of your work plan. It’s the tool you use to ensure that your finances are on track to meet your goals and that you are making the most of your financial resources— two achievements that are mission critical for not-for-profits. Based on work with not-for-profits over the years, I’ve identified 10 steps that should be a part of every budget process. Unfortunately, though, many organizations omit the last four steps, despite their importance to your process and, ultimately, reaching your strategic goals. Is your organization skipping some key aspects of the budgeting process?

Getting Started

Most organizations follow the first six steps of the budgeting process, so chances are you’ve got these covered:

Put the budget in writing.

Establish a team to oversee and champion the budget.

Create a calendar and timeline for the process.

Set guidelines to help ensure the budget mirrors organizational goals and priorities.

Start drafting the budget.

Have the budget reviewed and approved.

Getting Stuck

This is the crucial point where many financial managers stop. Getting to this point can feel like a huge relief. I completely understand: to get this far, you burned some midnight oil, exhausted your political capital and put your patience to the test. Many organizations go through several iterations and drafts before the leadership team, finance committee and board signs off on the final budget.

Pause and celebrate your success, but don’t be tempted to put your budget on a shelf of completed projects. To get the greatest juice from the squeeze, add these next four steps:

Create and share the final budget. There may have been several versions of the budget as it made its way toward approval, so it’s time to issue an official final budget, enter it into the accounting system and circulate it to the staff. Whether you delete all previous drafts or store them for possible later reference, having a final budget ensures that the entire organization is working with the same assumptions and allows you to make reliable comparisons with actual numbers going forward. Sharing with staff is important for practical reasons, but transparency also helps give your team a greater sense of purpose and belonging, giving them more motivation to help the organization reach its goals.

Use the budget to monitor your results. This can be carried out at various levels within the organization, including the board and finance committee, CEO and CFO or budget managers. No matter who is involved, keeping track of where you stand, what variances have occurred and why, is too valuable an exercise to skip.

Develop forecasts and trending reports. Not all not-for-profits perform forecasting, but it’s worth considering because it can give you a valuable perspective on your current plans and the trends and developments that might shape your future. Your forecasts can be adjusted throughout the year as new information becomes available.

Maintain budgetary controls and oversight. The board of directors is ultimately responsible for the allocation of resources and oversight, which includes the budgeting process. In many organizations, staff and/or the finance committee may do a detailed review of the budget to actual results and involve the board when concerns arise. Regardless of which approach is best for your organization, active and responsive oversight of the budget, including preparing forecasts based on new information or events or compared to the actual numbers—is critical to sustaining your efforts and meeting short- and long-term goals.

Reaping the Benefits

There are many benefits for organizations that carry out these last four steps. A resilient budgeting process can help improve an organization’s ability to achieve its mission by putting it on sound financial footing. Plus, staff are more invested in the mission and recognize how and why resources are allocated and decisions made. It’s important to take the time and effort to invest in the budgeting process to foster a greater sense of direction. You can leverage your budget process as a planning tool that reflects an organization’s programs, mission and strategic plan.

Want to learn more about budgeting? Join my co-presenter, Carolyn Mollen, CFO at Independent Sector, and I for a CPE and CAE eligible webcast on optimizing the not-for-profit budgeting process, taking place June 15 from 1-3pm ET. The webcast is open to all; however, members of the AICPA Not-for-Profit Section can participate for free as one their four pre-determined annual free webinars.

Cheryl R. Olson, CPA, CGMA, Director of Not-for-Profit Consulting, Clark Nuber, PS. Prior to joining Clark Nuber, she was Director, Council Financial Consulting at the Girl Scouts of the United States of America. She volunteers on the AICPA Not-for-Profit Advisory Council and is an instructor for AICPA’s Not-for-Profit Certificate II, a video-based e-learning program for not-for-profit professionals and their business advisors.

Four Critical Budgeting Steps Your Not-for-Profit May be Forgetting

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