Budgeting Process in NPOs
Posted on 28 October, 2022 at 14:26
A
budget is a plan that show the financial resource needed to achieve set goals. Once the budget is prepared it assists staff
and board in managing the organization both programmatically and financially throughout
How
long the budgeting process should take and
who should be involved varies depending on the
management style and
complexity of the organization. Typically, the budgeting process should begin at
least four
months before the end of the fiscal year to ensure the budget is approved by
the Board before the start of the new year.
KEYS
TO A SUCCESSFUL BUDGETING PROCESS
·
Clearly identify programme objectives that are aligned with the
mission and strategic plan.
·
Determine the financial
resources needed and available to achieve program goals
·
Involve staff and board members in the process to improve
accuracy of information and commitment to the plan.
·
Document! Don’t rely on memory. Write down assumptions and
formulas. This will be very
important in managing the budget throughout the year.
·
Customize your process.
The steps each organization takes will be somewhat different
THE BUDGETING PROCESS
1. Planning the Process
• Identify who will
coordinate the budgeting process and which staff, board members and committees
need to be involved;
• Agree upon key
definitions, assumptions and document formats;
• Set timelines and key
deadlines;
• Determine and schedule
any training or key meetings.
2. Communicating about the Process
• Clearly communicate
responsibilities, expectations and deadlines to everyone involved;
• Explain and distribute
forms and assumptions
3. Programmatic Goal Setting
• Determine program goals
and objectives;
• Project staffing
requirements and salary and benefit assumptions based on program goals;
• Get board agreement on
goals and assumption
4.
Information Gathering
• Research and gather
information about income and expenses based on program goals and assumptions;
• Construct budget details
by program;
• Communicate regularly to
avoid duplication of effort and to share information and assumptions
5.
Compilation and Revision
• Have one person compile
all information, review it for consistency and redistribute to everyone involved;
• Leave plenty of time for
review and revisions.
6. Committee Review
• Have the finance
committee and other appropriate staff and board committees review a budget
draft and
key assumptions
Be sure to allow enough time between committee meetings and the final approval deadline to
address questions
and recommendations and make revisions.
7. Final Approval
• Distribute information
to the board prior to the board meeting, including budget draft, program goals and
other supporting
information;
• Have program and
development committees play a role in making an informative presentation to the
board based on the
opportunities, challenges and resources behind the budget numbers;
• Have the finance
committee or treasurer present the budget proposal to the board.
Step 8: Implementation and
Management
The real work begins once
the budget is approved:
• Communicate budget,
program goals and timelines for the next year to staff;
• Review actual income and
expense compared to the budget on a monthly basis;
• Update and revise the
budget as there are changes during the year. Depending on the significance of
changes, the board may
need to approve revisions