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A best practice in nonprofit management is creating processes and procedures that help build and maintain sustainability over time. This can be accomplished by ensuring that management and board members have access to timely information, especially financial reports that depict the financial health of an organization as it stands and in the future.

A simple practice to incorporate into your organization is creating a formalized budget process that includes the key factors listed below:

  1. Develop a Formalized Budget Process

    1. Assign roles and responsibilities

    2. Agree on decision-making authority

    3. Agree on assumptions

  2. Create a Budget Calendar (or timeline)

    1. Set target dates for budget approval by the board

    2. Approve budget before the start of the new fiscal year

  3. Prioritize Goals

    1. Establish organizational financial goals

    2. Prioritize goals

  4. Current Financial Status

    1. Collect & analyze previous and current year income and expenses

    2. Forecast current year actuals to year-end

    3. Research & analyze actuals variance to current year budget

  5. Prepare a Draft Expense Budget

    1. Analyze and determine costs/expenses to reach program goals

    2. Analyze and determine costs associated with reaching the organizational and strategic goals

  6. Prepare a Draft Income Budget

    1. Forecast income based on the current fiscal year revenue and fundraising

    2. Forecast new income based on projected goals from the new activities

  7. Prepare the Draft Budget

    1. Confirm the draft budget meets program and organization goals & objectives

    2. Discuss and agree on budget assumptions

    3. Make budget adjustments based on internal capacity and revenue/fundraising activities that match income and expenses

    4. Have one last final review

  8. Approve the Budget

    1. Present to appropriate committees, i.e. Finance & Audit Committee

    2. Present to the board for approval

  9. Implement/Execute the Budget

    1. Assign management responsibilities

    2. Integrate into your accounting system (eg. QuickBooks)

    3. Monitor and make adjustments as needed or required

As you continue to refine and develop your budget process remember to create a method that documents your budget assumptions and current year budget adjustments. The budget document should be used on a monthly basis throughout your entire fiscal year. You’ll need to create a “Variance to Budget” report, so the organization has insight into how close the budget was forecasted to both income and expense items.

Annual budgeting is a best practice that should be incorporated into your financial management processes and procedures, where staff and board members have important roles in helping you maintain financial sustainability.

If you’re left scratching your head on some of these steps, reach out to James@Missionedge.org to discuss how Mission Edge can help you plan and implement an effective organizational budget.

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