New Year Budgeting For Nonprofits

Advanced budgeting + budget template: www.aplos.com/...
Today we're gonna take a look at preparing your budget for the new year. We’ll look at common budget types, reports your organization needs, how to build a budget, and more. My aim is that by the end of this video you will know exactly how to plan and prepare your budget.
A budget is a plan, or forecast, for your income and expense activity in the future. Typically you budget for the next fiscal year around the time the current one is wrapping up. You will set the plan for each of your income and expense accounts so that when the new year comes you can see exactly how you're doing according to the plan.
Usually, when you have a budget you are able to make changes or revisions as you review it throughout the year, so it is generally not written in stone. But that depends on the budget type.
Annual Budget
An annual budget type typically refers to a 12-month period covering the fiscal year of the organization. Think: set it and forget it. This budget doesn’t change during the year, but you may have to explain to your board why actual income or expenses differ from what was projected.
Zero-Based Budget
In zero-based budgeting, you start at zero and have to justify every dollar your organization spends to include it in the budget. Rather than a plan you try to stick to, all expenses would have to be approved before you spend any money. This type of budgeting is generally more helpful when it comes to specific categories rather than an entire budget. For instance, external marketing is an area where zero-based budgeting would make a lot of sense.
Rolling Forecast
A rolling forecast is typically a monthly budget that is updated at recurring intervals. Each month, you compare your actuals to what you budgeted and then update the forecasted numbers with more accurate estimates based on what has happened previously. This is generally the most helpful budget for most organizations because it stays up to date throughout the year.
Now I’ll show you what budget reports look like in Aplos. Once you have data entered in the software for your budget and actual expenses and income, there are a number of helpful reports you can generate.
The first is your budget to actual report. It’s essentially your income statement with budget data plugged in to it. You can run it for whatever date range you wish to see. Let’s run it for this year to date. This report compares your actuals with your budget so you can see the differences between them and your budget percentages so far this year, as well as how they line up with what you budgeted for the year. It shows you how accurate your forecast has been to date so you can adjust it moving forward if needed.
If you don’t have budget data entered, you can still run your income statement. You can also run a balance sheet for the end of the previous year and a balance sheet for this year to date to show where you started and where you are now to compare your income and expenses over a period of time.
Advanced Budgeting in Aplos allows you to run budgeting reports based on your funds and tags for more detailed information. Why pull all these reports? Because the more data you have from your own organization’s financial history, the better you can plan - or budget - for the future.
What else do you need to consider when building a budget for your organization? Here are some of my suggestions.
- Nonprofits want to demonstrate accountability and stewardship to your supporters, so as you plan, keep in mind that the purpose of the plan is to be transparent with your finances.
- When you run reports, think of them as answers to questions that people may have about your organization. Whether it’s your board, the bank, or someone providing a grant, they will have questions about your finances. Reports provide those answers. So when you create your chart of accounts, budget, etc., think about who will be asking questions about your organization, what questions they will want to ask, and how you can answer those questions for them on your reports.
- Are there allowed variances from your budget? Maybe you notice instances where you have gone over budget in certain categories but you’ve allowed them to happen. If those expenses are occurring repeatedly, it could be time to adjust your budget to be more accurate.
- Involve who’s involved. If you’re creating a budget for a particular department, and there is someone who is more involved in that department and knows the day-to-day operations, involve them in the budgeting process for their department.
- Keep external influencers in mind. These may include grant guidelines, board goals and/or designations, cash flow needs, or other obligations that may need to be factored in to your plan.
If you have any budgeting questions that were not covered in the video, leave me a comment.