Preparing a budget is only the first step in managing your organization’s finances. Throughout the year, you should be doing ongoing monitoring and projections, making adjustments as necessary to the current year’s fundraising and expenses, and working new information, challenges, and opportunities into the next year’s budget. I’ll cover here a few steps you should be taking in addition to your budget, to make sure you end up in the financial position you want.

Achieve a Net Financial Result: You’ll have crafted your budget based on revenue that you expect to take in during the year. Some years, the revenue you expect, won’t materialize; contributions from individuals may fall, grants from prior years may not be renewed, contracts may be lapse or be cancelled. You should be proactively monitoring this, to better predict when revenue will fall, and adjust spending accordingly. Just because money is in the budget doesn’t mean you should spend it, no matter what. Alternatively, if you’re able to predict that certain revenue won’t come in, you can start looking for other ways to bring money in. The further ahead you’re able to see a shorfall coming, the more time you’ll have to develop a plan to deal with it. View your budget as a plan to reach a net financial result – a desired surplus, or investing a certain amount of your organization’s reserves in a planned deficit.

Financial Projections: At least quarterly, you should review your actual financial activity to the budget and, if appropriate, revise projections for upcoming months or quarters. You may get new information about existing or new revenue streams, changes to your programs, or new opportunities, which you should work into the projections. Your annual budget is set up before the fiscal year starts, and you shouldn’t wait until the next budgeting cycle to review new circumstances you find yourself in. This will help you plan for the future and may prompt you to make changes in programming work, adjust spending, or pursue new opportunities.

Manage Cash Flow: The way revenue and expenses are recorded based on accounting standards don’t always line up with when money comes in or out of your bank account. You may recognize the revenue from a grant that’s committed, but the money won’t arrive for a couple months. Some expenses, such as insurance, will be prepaid upfront, and expensed throughout the year, and others are paid after the expense is recorded. You need to stay on top of how much money you have in the bank and have a strategy for how you’ll handle shortfalls. A best practice is to keep cash reserves equal to 3 to 6 months of expenses, which will give you a cushion during lean months or quarters.

Plan for Reserves: Related to the last point, don’t just hope you’ll have money left over at the end of the month or quarter; make a plan for how you’ll build your cash reserves. This will come from surpluses in unrestricted funding, and intentionally setting some money aside. In addition to budgeting income and expenses in a way that will generate a surplus, developing and maintaining a reserve needs to be a priority of management. When there’s a big pot of money in the bank, it’s easy to come up with ideas of how to spend it, but you need to have a “rainy day fund” to get you through potential lean times down the road.

All of this monitoring will take time, but is important for the health and stability of your organization. If finances aren’t one of your strengths, or if your accounting staff is very busy, it will be easy to let these steps take a back seat, and focus more on program work, or other administrative work. That program work is important, and is the reason your organization exists, but it’s hard to be successful without a solid financial foundation. If you don’t know how much money you have left, or if a grant falls through without having a contingency plan in place, you’ll have a bigger disruption to your work than you’d have by proactively managing it.

Parts of this post draw on this article from Nonprofit Quarterly, which also gives other aspects of financial leadership you should consider.