The annual budgeting process: a necessary evil involving crunching numbers until you go cross-eyed to arrive at an estimated idea of how much money you will raise versus spend throughout the year — and, of course, which you hope your board will approve. For most organizations, developing a budget is a tedious and painstaking process that leaders dread. The following strategies make the process easier, more efficient and more accurate.
Here are some tips and tools to help ease the pain of building your next budget. For more skill development, coaching and tools, check out StriveTogether’s upcoming courses.
1. Use a budget template.
Start with a general template that defines your main revenue sources and includes basic expense line items, like personnel costs (salaries, benefits, bonuses), office expenses (rent, utilities, copying, supplies) and travel (airfare, hotel, meals). You can build out the line items in greater detail as you develop your budget, but beginning with these will give you a good start. Download our nonprofit budget template here.
Your yearly budget might not break even, and that’s OK. Begin your planning process by asking, “What financial outcome do we want this year?” rather than “How can we make the budget balance. This post explores different budget outcomes.
2. Consider your fixed and necessary costs first.
Start with your known fixed costs like rent, utilities, salaries and insurance. Then build in your variable costs. Create a list of “nice to haves” you can add into your budget if you have projected funds left over after your necessary expenses are covered. Learn more about cost allocation in this video.
3. Minimize your budget line items.
Avoid adding too many line items or making them too specific. This can make your budget too complicated and lengthy. Minimizing line items allows you to be flexible in allocating funds throughout the year.
4. Budget by month.
Use a format that lets you budget your activity per month rather than on an annual basis so you can track your monthly progress. You’ll be able to make adjustments earlier, like reallocating funds or planning to raise more revenue. Focusing on shorter time periods helps break down your monthly activities and account for special events or one-time costs.
5. Divide annual costs out by month.
Calculate monthly costs for line items that are easy to estimate on an annual basis and are relatively consistent. Divide the annual amount by the number of months left in your fiscal year.
6. Create an annual total for your budget.
Budget on a year-to-date basis. Include an overall annual column to roll up each monthly estimate. Having the overall view along with the month-to-date view will allow you to measure progress against your goal as you move through the fiscal
7. Account for inflation.
Use last year’s results as a baseline. Add inflation to the previous year’s costs. When creating a multi-year budget, account for inflation on each line item and over each year. Inflation is typically 3%, though it peaked at 6.2% in 2022.
8. Consider fluctuations in revenue and expenses.
Consider seasonality and timing of revenue and expenses. Timing could be affected by events, annual appeal revenue drives or large gifts. Note months that may have more revenue coming in or more expenses going out. Use this calendar to plan to pay certain expenses when you have the cash, or reserve enough cash to cover those expenses later.
9. Use prepopulated budget templates.
Create templates to develop estimates for areas where revenue or expenses are consistent and repetitive, such as travel or revenue proposals. Assign an average value for flights ($600), hotel stays per night ($250), per diem rates for food ($50), transportation ($50) and more to make it easier to calculate trip costs. Access our travel budget template here.
10. Calculate dependent line items from known costs.
Use known values to budget for other related estimates, such as personnel costs. Create a detailed personnel tab by listing each employee’s base salary for the year and calculating bonuses, benefits and taxes as a percentage of the known salary. A standard rule of thumb is to include a 3-5% bonus and benefits/tax costs at a rate of 25-30% of each employee’s salary.
Creating an organizational budget takes time and lots of thought, but these strategies can contribute to a more successful process. Involve key leadership to contribute guidance and details from the start.
Are you looking for more resources to support your nonprofit organization? StriveTogether offers online training to help community leaders strengthen their work. Learn about our upcoming courses and workshops here.
This blog post was originally published in July 2017 and has been revised to provide updated information.