A lot of research, planning and estimation go into the process of creating an annual budget. It can take several weeks, sometimes months, to complete all the interrelated tasks that comprise the annual budgeting process. That’s why creating your nonprofit’s annual budget can seem like such a herculean task.  It’s especially formidable when you’ve had little experience in the past creating a yearly budget. The following steps will help you improve your budgeting processes so that it goes more smoothly.

Determine Who Will Assist in the Budgeting Process from the Outset

While the treasurer is responsible for ensuring that a budget is created each year, that doesn’t mean that you must do all the work yourself. Determine who will assist you in crafting the budget, and which individuals will be responsible for completing specific tasks during the process. Look for ways to involve the department staff that are responsible for spending and sticking to the budget in the process. After all, they are the ones who are likely to have direct knowledge of your NFP’s operational items and details.

Members of your finance committee can then go over the drafts created with the input of staff and assist in finalising the budget before it is presented to the entire board.

Start Early

If you’re waiting until the end of the year to get serious about creating your next budget, you are making a costly choice!

Does some, or all, your funding come from grants, endowments or other public funds? Many of these sources prefer that their applicants submit their budget proposal for the next year well before the end of the current fiscal year.

If you want to be able to meet their terms and include your budget with your funding proposal, you should aim to have your next budget approved by your board well before you submit it with any requests for funding. This means that you really need to get an early start and begin preparing your budget months in advance!

Use Detailed Worksheets to Help You Build

Think about the major spending and income components that make up your annual budget. Use worksheets to help you provide details about each individual component that makes up the budget.

This way, the staff and committee members that are assisting in the planning process have access to the level of detail that they need to help you create realistic projections. While you will likely summarise amounts and group them into broad categories when you present the full budget to the board, keep in mind that the structure of your full budget will need to match your chart of accounts.

You will also need to take care to ensure that the line items in your budget match up to line items and labels that you have used in your financial reports. Mismatches between the two are confusing and can lead to errors that damage your nonprofit’s finances, such as unintentional overspending.

Using a Timeline with Deadlines Will Help You Stay on Track

Use a timeline to keep track of the process of working on individual components of the budget. Assign deadlines for each part, along with individual work assignments to keep on task and on track. This makes it more likely that you will have enough time to complete it and get it approved well before the due date to submit any funding proposals, and certainly well before the end of the current fiscal year.

Establish and Disclose Budgeting Priorities and Policies

Realistic budgets are typically based on both historical data and reasonable projections. There is a start and end, however, when it comes to including past information and using specific assumptions when making your income and expense forecasts.

Discrepancies are an inevitable consequence of this process. Your budgeting process should specify the factors that determine what items your budget will include, and how you plan to handle any variances that occur. Determine your budget’s main priorities and policies and write them down. It helps to create greater clarity surrounding your processes from the outset! For example, if your NFP’s goal is to create a surplus that can be used to cover future shortfalls, or to increase your capacity to serve your community, you should create a formal policy that states this is your budget’s intent.

Other important elements to include in your budgeting policies would be a statement that specifies what accounting basis you will use to estimate revenues and expenses, and whether your budget will account for items such as depreciation, and how these amounts will be listed in the budget.