In order for your nonprofit financial management practices to truly drive results and be effective, your budget needs to be re-evaluated annually (at the very least) to make necessary changes. Without the proper budget in place, your organization will lack clarity in what programs you can spend money on, where to allocate your funds, and how to plan for the upcoming year. Just like any other business process, financial management for nonprofits involves the need for a budget tune up each year so that it remains effective and is changed as needed.
When you sit down to re-evaluate your nonprofit budget, keep the following four questions in mind as you are modifying the budget for the year:
1. Do the key non-financial stakeholders within your organization have access to the budget and other financial tools/reports?
The people in your nonprofit organization who will use your budget the most are those who are not in financial roles. Project managers, non-financial managers, department heads and senior management will all need access to your organization’s budgets and financial reports. These are the people who will be actively making decisions that will directly impact your organization’s resources. Providing them with budget reports that are easy to comprehend and helpful for measuring results will prove to be an invaluable resource to them. Ask around your staff to see if these key people are connecting with the budget. Observe how they interact with the budget reports and how they use the information for their area of the organization. Are they even looking at the budget reports? If so, are the reports useful? Could more be derived out of the reports? Taking an honest assessment of your organization and how key people interact with and use the budget is crucial to your organization’s success.
2. Are your non-financial managers taking ownership for their part of the budget?
It is no small feat to convince your non-financial managers to take ownership for their part of the nonprofit’s financial management. Start by involving them directly in the budget-making process. If they feel they are a part of the process from the start, they will be more likely to take an interest in sustain the budgeting efforts. Also ensure that their project management tasks are integrated with the budgeting system in some way so they can get used to comparing the program metrics with the financial metrics. No program can be evaluated by its program results alone nor can it be judged solely on its financial results. To gain a true picture of your programs’ effectiveness, your managers need to be aware of both the financial and program impacts.
3. Is your budget being put to use across all areas of your organization?
This question is pretty self-explanatory. In order for your budget to work, all areas of your organization need to be actively involved in the process. They must have the right tools and reports (see Question 1) to make their decisions and have taken ownership over the budget for their area of responsibility (see Question 2).
4. Are your budget reports giving you an accurate view of your organization’s financial standings, effectively benchmarking results, and forcing your organization to think about the future?
Your budget reports need to be effective and concise. Your managers do not have time to sit around and analyze budget reports all day. They need to be able to look at a report, gather its information, and put that information to use in their department or area of responsibility.
Nonprofit financial management through budgeting and budget re-evaluation is a process that never ends. Once you’ve developed your organizational budget, you have to constantly re-evaluate it and account for upcoming program changes, funding changes, and government regulations. Budgeting isn’t just about allocating funds; it’s about examining those funds and measuring the financial effectiveness of your organization as a whole. While nonprofit organizations can pick any time to re-evaluate their budgets, many organizations would benefit from waiting until after the board has approved next year’s budget. This is a good time to look back over your budgeting process and assess how to make it better for the year to come. For more assistance with budgeting and managing nonprofit finances, please contact us here at RBP Methods.