Budget Planning for Non-Profit Organizations and Associations

Budget planning can be tricky for any organization, but, in the case of nonprofits , there are many considerations you must take into account. Because your goal as a non-profit organization is sustainability, you must plan a budget that focuses on the primary objectives of the association and provides financial and programmatic adaptability. This is where your budget committee comes in. 

What to Consider When Selecting your Budget Committee

The first thing to consider when budget planning for your non-profit organization or association is who will be the most optimal members of your budget committee. When choosing volunteers to serve on your budget committee, consider these things:

• Are they familiar with your association’s prior years’ activities along with any changes that are being contemplated as part of your strategic plan? Your budget committee members should be familiar with your association’s past, present, and planned future so that they can accurately plan the budget and help you achieve your objectives.
• Do they have a genuine desire to serve the association as a whole, or are they focused on lobbying for one particular project? Volunteers who are selected to serve on your budget committee should be focused on budgeting for your association as a whole.
• How knowledgeable are they about nonprofit accounting services and/or budgeting in general, whether it’s on a personal or business level? You should strive to pack your budget committee with volunteers who are knowledgeable and experienced in budgeting. 
• Do they know or understand the (3) Basic Financial Statements (Statement of Activities, Financial Position, and Statement of Cashflows)

Things Your Budget Committee Should Consider When Budget Planning

Once you have your budget committee in place, it is their crucial task to develop the budget for the next year (or perhaps multiple years). There are many considerations they need to address while planning the budget and preparing it for presentation to the board for approval. They need to:

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  Determine the timeframe for the budget. Will it be a one-year budget or a multi-year budget? The timeframe for the budget will usually take into consideration the calendar year, the fiscal year, and the board approval process. For example, the federal government’s fiscal year ends on September 30, while many non-profits have a fiscal year ending June 30. If your association plans on submitting grant applications prior to the mid-January deadline, a fiscal year ending June 30 is ideal to allow time to complete an audit. 
• Develop the timeline of goals and objectives for the timeframe of the budget being planned, along with projected estimates of how much each goal or objective will require to achieve. They can use the previous year’s budget as a jumping off point, but it’s still very important to factor in any new projects or activities that are being planned and estimate each expense needed to achieve those goals. 
• Estimate the dates and amounts of revenue to be generated, being realistic about these expectations rather than optimistic. Your budget committee should be aware of your major contributors and how much they typically contribute, while also considering whether those contributors have had a good year or a bad year, as either scenario could affect their contributions going forward (they might be able to contribute more, or they may have to decrease their contributions). They need to consider the economy in general as well. If your association has a history of public contributions and/or fundraising efforts, a decline in the economy could negatively impact this revenue.

Additional Duties and Responsibilities of Your Budget Committee

Your budget committee will need to consider various other aspects of the budget that tie into your strategic plan, such as:

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  What kinds of grants are you expecting to receive, and what are the terms of these grants? Does the grant require an audit? Can these funds be used for anything, or are they restricted to only certain purposes? Does the grant allow for overhead expenses? Is it feasible that the requirements of the grant could overwhelm your association, as grants from large government agencies sometimes do, or could this additional funding make your contributors believe that you no longer need their contributions?
• Anticipating all costs that may come into play during the budget timeframe, including direct costs (costs related to a specific project or program), capital expenditures (items that will continue to benefit your association after the budget timeframe, i.e. cars, real estate), indirect or overhead costs (costs that are not directly associated with a particular project but are necessary to complete it, i.e. Internet access, phones), and contributions of goods or services, as these are recorded on Form 990 as revenue when received and as an expense when used. 
• Completing the budget well in advance so there is ample time to present it to the board of directors and make any changes necessary for board approval. 

The Ongoing Need for Budgetary Review

Once your budget is complete and has won board approval, your budget committee’s work isn’t done yet. They also need to:

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  Determine if an audit committee is needed or if some of your association’s grant funding requires an external audit.
• Re-review the budget regularly and compare the actual numbers achieved VS the budgeted numbers to determine the variance. It would be nice if the planned budget always came together perfectly on track, but this is rarely the case. By determining the variance sooner rather than later, it becomes possible to proactively adjust the budget during the budgeted timeframe.
• Ensure that your association is in compliance with all federal, state, and other reporting requirements.

We hope this helps you with your non-profit budget planning so that your association can accomplish all of your goals!