Budgeting is an important component of keeping an organization running smoothly. As you develop programmatic goals for your organization – launching new programs, reaching more people with your current services, making your services more efficient – budgeting will help you plan how to implement those goals. The steps you plot out for achieving your goals and plan will be guided by knowing how much you can invest and in what time frame.
There are a few methods of budgeting, based on what you’re using it for. At a minimum, you should have an annual budget, though you may have grants or initiatives projected multiple years into the future which will require longer-term planning. Regardless of the time frame, you should monitor actual expenses compared to the budget monthly or quarterly to make sure you’re on track. There will be seasons when you plan to have a deficit, such as when you’re launching or expanding a program, or investing in capital projects, but your programs should run a surplus most years so you can maintain cash reserves.
Your budgeting process should include 2 categories – an operating budget, and a capital budget. The operating budget is for your day to day activities – what does it cost to deliver your services and programs, and how much revenue will they produce? How much can you expect from grants, donations, and contracts? A capital budget is where you plan for larger investments, such as equipment, facilities, purchasing or constructing a building, building an endowment, launching or expanding programs; things you’ll likely need to save for over multiple years, or may take an extended period of time to enact. This should include planning for cash reserves, both for a rainy day fund and setting aside money for large purchases and projects.
Who’s involved with the budget process will be informed by the size and setting of your organization. A smaller organization may only involve the finance committee of the board and/or senior management. A larger organization may need input and feedback from program managers and department heads related to the work they oversee. Everyone should know what parts of the process they’re responsible for, and the time frame and deadlines for producing the budget. Those involved will need adequate time to plan and research costs, senior management will need to review departmental budgets and provide feedback, and the budget may need to be revised before presenting it to the board for approval. You may need to make adjustments to the budget during the year, so be aware of what components are set in stone and what can be changed if need be.
Throughout the year, review your actual expenses against your budget and monitor whether you need to make adjustments. If grants or donations dry up, or a pilot project doesn’t work out, you may need to rein in some expenses in the budget. Conversely, be prepared for solid financial performance and plan for how you’ll take advantage of a windfall or influx of revenue; can you expand more quickly or accelerate investments in your capital plan?
Don’t get so busy with program work that you don’t have time to build and maintain a budget. The investment of time will pay you back by having an infrastructure and framework for planning your program services and keep you prepared for what’s coming next.