3 Good Reasons Why Nonprofits Need Better Budgets

I am a nonprofit board member, and I will tell you: For the most part, I pull my hair out at board meetings when we get to the budget. Usually, there is a series of QuickBooks reports, presented as PDFs, in a teeny-tiny font. 

The line items don’t always make sense, and it is often very hard to tell if a particular initiative is actually financially healthy for a nonprofit. 

Many nonprofit budgets I’ve looked at didn’t include the whole picture, or tried to get too detailed or oversimplified things. Budgets like that are not very useful as an ongoing tool.

Yet the U.S. government requires nonprofit boards of directors to approve an annual budget, and the board must then review that budget at regular board meetings. 

The law’s there for a reason: Budgets are an important tool for nonprofits to make sure that they are being fiscally responsible in order to keep their preferable tax designation. 

But if your nonprofit budget is anything like the ones I just described, you know that this whole process can be cumbersome, and not particularly useful or valuable. Your budgets should help your nonprofit plan for the future, stay fiscally healthy, and allocate the right money to the right projects. 

Having a well thought out strategic forecast and budget can help a nonprofit be more efficient with their funds, give board members better visibility so they can help guide and assist, and at the end of the day, they should help the nonprofit accomplish its goals. 

If you nonprofit’s budgeting process leaves something to be desired, and you aren’t getting the information or management tools that can help you and your board, then it’s time to change it up and explore a better way to budget. 

Here are three good reasons to think about changing your nonprofit budget process:

1. You can get more out of your board members if meetings are efficient

Board members are usually very busy, very accomplished people. They have joined your board to help you be more successful, and because they believe in the mission of your nonprofit. But they do not have the time to pour over your bad budget and whip it into shape.

What if your board members could look at your budget online, anytime, and see how it compared to the actual results, the previous month, and the same month last year? 

Imagine if a board member could easily understand which programs and initiatives were successful and sustainable, and which were not. 

Imagine a world where board members were happy and excited to look at the budget, see what was actually happening, and give better feedback, help, and support.

How to draft a better budget and review it regularly

This can happen. There are better tools to use, and a better methodology to help you draft better budgets. 

Here at Palo Alto Software, we strongly believe that looking at your budget every month—and comparing it to the right numbers—will change the way you manage your nonprofit for the better. 

Those “right numbers” are your:

• Actual results
• Previous month results
• Same month last year results

2. Donors want to see where their money is going

When a customer buys a product, they just want the product in their hands—they’re usually not too concerned about where the money from the sale is going.

Donors to nonprofit organizations are different: for them, it’s all about where the money is going. Donors want to give their money away to “a worthy cause,” and you need to show them that that’s what you are.

Part of showing that you’re worthy of a donation is showing that you’ll spend the money wisely. Many savvy donors are using sites like Charity Navigator, a site that ranks charities based on how well organizations are using their money. They rely on that kind of information to decide where and how much to donate. You should include financial information on your website too, and even in your brochures. 

And when you have a good budget and an even better budget review process, that’s easy to do—all of your financials are already listed, current, and organized into standard tables and charts, complete with information on why you’re spending what you’re spending, and what exactly it’s accomplishing.

3. Using strategic forecasts and budgets to make sure your fundraising events are profitable

Many nonprofits put on large events in order to bring in a substantial portion of their annual fundraising. It is clearly a successful strategy for some—and maybe most—nonprofits. But surprisingly, often when I ask questions about the margins for an event, and the total cost and the actual net income, I don’t get good answers. Sometimes I only get blank stares. Or I get the very common “we always do this event and our donors expect it.” 

Don’t get me wrong—it is completely fine to assign a value to your nonprofit event that is not actual income. You may get very real tangible marketing, awareness, and donor relation value from an event. 

If you do, you should acknowledge it and try and actually assign a monetary value to it. 

But bigger picture, especially if you are spending tens of thousands of dollars on an event, you should be creating a forecast and budget in order to make better financial decisions about the event.  

Put together an expense budget that takes all your costs into account:

• Venue fees
• Fees for entertainment
• Catering, decorating, and beverage fees
• Costs of your employee hours; how many hours does your staff dedicated to this event?
• Credit card fees
• Advertising and marketing fees to market the event
• Print and operational expenses (printing tickets, invitations, posters, ads, and so on)
• Any cost for items for the event (auction items, gift bags, and similar)

Then you need to forecast the income for the event as accurately as possible. This may be easier if you have been doing this event regularly for many years because you will already know the range of income you have traditionally brought in.  

Off the cuff, this budget and forecast exercise may not seem to be that important. But mark my words, when you do it, it will give you “aha” moments and help you make better decisions about how to approach the event, what to spend money on, and how to focus on bringing in more net income than ever before. 

You can create a “what if” scenario in LivePlan that can help you accomplish your strategic forecast and expense budget, and help you get more financial clarity than you have ever had for your events.