Does the thought of 2016 coming close to an end spook you out? With the closing of a fiscal year comes the start of a fresh year on the horizon. This also means your organization should be developing the budget for the forthcoming year. The budget process doesn’t have to be a scary task.
For this month’s issue of Best Practices, we’ll look at some ways to develop an effective budget for your organization. By having an effective budget, your organization can realistically move throughout the year with goals in place and budgets to adhere to. Here are a couple of things to consider when developing a budget that will be operative:
- The first step in building an effective budget is to have a strategic planning session with your management team. Some tasks to accomplish during this planning time include:
- Discussing the programs and projects for the new budget period.
- Setting goals for the next year and agree on them as a staff. Prioritize those goals so that during the budget process if cuts need to be made they will already be in order of importance.
- Review the current year budget with your realistic numbers.
- Assess any major changes to expected revenue streams or expenses that your organization will incur.
Quantifiable and Flexible
- Your budget should be prepared using the same method in which the books are maintained in, whether that be the cash or accrual method of accounting. By preparing the budget in the same format as your accounting method you are able to measure the actual data against your forecasts.
- Allow some flexibility in the budget to make alterations throughout the year, if necessary. There may be unexpected revenue shortfalls or unexpected expenses that are beyond the budget. You’ll want to assess those and make amendments to the budget throughout the year. The idea behind amending to become more aligned with your budget is to measure the success of your organization against all the known factors such as revenue and expenses. Think of it as a living, breathing document that moves throughout the year.
Once you have a solid budget for next year it’s time to take it to the Board of Directors. Your board should be the final approval before implementing the budget for the new year. After the budget is board approved you can enter it into your accounting software.
Nonprofit Accounting and Finance Consultant