The Annual Budget
As the calendar year draws to a close, non-profit executives are focused on end of the year giving.
While grants, gifts and fundraising events are extremely important; thoughts should also turn to
next year’s budget.
If you’re like most Executive Directors, you’re already thinking about next year and what you want
to accomplish. But strategy without numbers is just noise. How much will next years
accomplishments cost? Where will you get the revenue to pay for all of those accomplishments?
Those two questions are at the heart of the non-profit budgeting process. The notion is: if it’s not in
your budget, you can’t spend it.
Budgeting Considerations
Generally, the annual budget is prepared by the Executive Director in conjunction with the
Treasurer of the Board of Directors. Larger non-profit organizations will have a finance department
and a CFO in charge of the budgeting process. In either case, there are some basic questions that
need to be asked. Where should you begin the budgeting process? How much credence should
you give to last year’s numbers? From whom should you gain input?
Most budgeting sessions are a rather top down affair. While top down processes for anything are
not very popular anymore, they can be very efficient. At the heart of this traditional approach to
budgeting is the assumption that things will remain relatively the same from year to year and that
the executives and board members understand all of the complexities of the various departments.
While this is quite possibly true, and the top down budget strategy has worked for many years, our
current economic climate requires us to question everything. Depending on the size, complexity
and culture of your organization, this may or may not be a good approach. If you create a budget
based simply upon historical numbers and what the top few executives in your organization think,
you may be building last year’s mistakes into next year’s budget.
The alternative is a method sometimes called, Zero Based Budgeting. The premise behind ZBB is
that no costs or activities should be automatically included in the coming budget period simply
because such costs and activities occurred in the past. It is always a good idea to examine and
justify all of your planned revenue expenses, but the complexity and sheer size of some
organizations can make this very difficult. That is why ZBB is really a bottom up strategy.
Part of the challenge of non-profit budgeting is the fact that revenue generation is completely
separated from most of the activities of the organization. Most non-profit constituents do not pay for
services, or if they do (as with a museum) they only pay for part of it. A substantial amount of nonprofit income comes from fundraising. Therefore, revenue generation is completely separated from
operations. This can create a challenge for Zero Based Budgeting.
But it can also create an opportunity. Every person in a non-profit organization is part of the
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fundraising team, at the very least because of the fact that how they deliver services and operate
the program has a large influence on donors. One nice thing about ZBB is that it gives each
member of your non profit team a chance to think about the expenses they generate and connect
that to the contribution they make towards the funds actually raised.
Other things to remember about budgeting:
 Start early and work in short bursts. You’ll have a much better product. Doing a budget
under a tight deadline is recipe for a bad budget.
 Get plenty of input from the people who will have to live with the budget. Meeting with
several different levels of the organization will help create a well balanced budget.
 Take notes on everything and hold on to them. You will never remember how you came
up with that number for “web-marketing” unless you keep good notes. Efficient note taking
will also help support reasoning for the changes in the budget from year to year.
 Make use of your financial software. Re-keying is one of the major causes of mistakes. If
you can enter the budget into your financial software while you are making it, you will avoid
mistakes and make it easier on yourself. There are plenty of user friendly software
programs that will not only ease the budgeting process, but will also help organize all of the
finances throughout the year.
 Receive board approval prior to the board meeting. Don’t spring the budget on your
board at the meeting for the first time. Give them the budget well ahead of the meeting and
make follow up calls to make sure everyone is okay with the numbers. No surprises.
Budget discussions can get ugly.
 Make use of your budget once it is ratified by the board. Monthly reviews by the ED and
Treasurer, and quarterly reviews by the full board are a must. Referring to the budget
throughout the year will help stay on target and meet the annual goals.
Another user friendly budgeting tool that can be very useful in projecting next years budget is by
doing a Budget Deviation Analysis. Don’t let the name scare you, as it can actually be quite simple.
Deviation analysis takes into effect the numbers that were budgeted for current operating year and
the actual expenses and revenues that occurred. This is a great way of tracking how accurately
you budgeted last year as well as pinpointing problematic areas in spending and other areas of the
budget. Budget deviation analysis contains columns as simple as:
Actual for Month
Budgeted for month
Difference
(Budgeted-Actual)
Deviation%
(Difference x 100)
This can be a quick easy tool to use in tracking the past impact of each years budget.
In conclusion, a detailed, well planned budget will make next year’s operations easier. Also, it will
please your donors, your board members, and give your employees a sense of ownership. If you
are thinking about changing your method, Cathedral can help you decide which method will work
best you. Keep in mind that many grant readers will look at your budget before they read anything
else in the grant proposal. Everything that is included in the budget should be considered and
justified. Start planning now for a jump start on next year.
Articles for Further Reading
1. Basic Guide to Non-Profit Financial Management This website provides you with the
basic information to keep your non-profit financially healthy.
http://www.managementhelp.org/finance/np_fnce/np_fnce.htm#anchor2890212.
2. Grant Writing tools for Non-Profit Organizations While looking at next years budget,
look ahead for new grants will help start the year off on the right foot.
http://www.npguides.org/links.htm
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3. Non-Profit Financial Software Looking at this site will give detailed benefits on using a
software that fits with the needs of Non-Profits.
http://www.findaccountingsoftware.com/guides/industries/nonprofitsoftware/
December Fundraising Tip
It’s a simple question. You hear it at every networking event and social function you attend: “What
do you do?” The moment after that question is filled with opportunity. But few people are prepared
to answer it well, and thus many opportunities are missed. Everyone in the organization - you,
your staff and your board members - must be prepared to answer that question in a way that best
reflects your organization. We suggest making a simple 3x5 card with the answer to that question
and handing it out to every member of your firm. This “elevator speech” should quickly cover what
is important: Mission - What you do better than anyone else. Accomplishments - How many,
since when and where. Lastly, How you can help. Here is an example: I’m with the Sports For
Youth Foundation. We serve inner-city children by offering them free after school sports programs.
Since 1999, we have helped over 4,000 underprivileged youth in the Milwaukee area get involved
in positive, safe extracurricular activities. Our organization is growing and we are currently looking
to acquire a gym and also looking for sponsors.
Depending on the context, this may not come out all at once, but it contains the basic information
that everyone in your organization should be saying when they answer the question, “What do you
do?” Give this card out in time for the holiday parties and we can guarantee that your board and
staff will thank you!
Peter Giersch is COO of Cathedral Consulting Group, LLC and a Managing Director in the
Midwest office.
For more information, please visit Cathedral Consulting Group LLC online at
www.cathedralconsulting.com or contact us at info@cathedralconsulting.com.
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