Tips for an Effective Budget Planning Season

Business meeting in an office - two business people man and woman discussing their plans and reports

It’s budget planning season, again. For some that brings joy and excitement as you count the possibilities for the upcoming year. For others, not so much. Budget planning doesn’t have to bring with it a cloud of doom and gloom. We’ve compiled some of our favorite tips to help you embark on a budget planning and approval season that will leave you with a sensible, mission-driven budget that will set you up for success in the coming year.

Communicate and Engage with Stakeholders Early and Often

Is there anything more maddening than the last-minute panic and resulting flurry of activity when a program or department manager misses the submission deadline?  Put the word out to partners in development/fundraising, programs, operations, and executive leadership regarding deadlines, and understand who will be submitting inputs to the budget. You’ll hear back from a few of the more diligent managers with just a single email, but going the extra mile with friendly reminder emails (“Friendly reminder – Budget inputs are due next Wednesday!) will help you minimize the post-deadline scramble.

At many organizations, new faces are part of the norm. And, although your new development director or IT manager may be a seasoned nonprofit or municipal professional, every organization has differences. Don’t hesitate to reach out to new leaders through a quick meeting or office drive-by and let them know how the process works, the timing, and what you need from them. They will be grateful, and you’ll have put some extra steps on your Fitbit.

Assess Previous Performance

How did your organization do last year? Were certain expenses over or under your established tolerances? What was the reason for the variance, and do you predict it will resolve by the end of your fiscal year, if not yet complete?

A conversation with leaders within your organization and a meeting retrospective will not only help you flesh out areas of opportunity and learn from past experiences as a group, you’ll probably also uncover areas of unplanned expense, or maybe even revenue.  Consistent variances or coding to the “Expenses – Other” bucket sometimes signal the need for new line items or program creation. Don’t forget to weigh in!

Determine Your Objectives

What does your organization plan to achieve next year and the years beyond? If you’re leading the finance department at a rapidly growing organization, and service needs are rapidly changing, your budgeting process will need to include considerations for growth.

Benchmarking your budget to similar organizations in your area or within your area of focus can be especially helpful. If you’re budgeting for a nonprofit, many of you already sit on the boards of other nonprofits in your area. Comparing your budget performance can be illuminating for not only your internal stakeholders, but also your board.

Of note, almost one-third of environmental conservation organizations benchmarked in a recent AICPA study planned for surplus. After 2008, many organizations that had previously ended each year at or near zero found themselves short as funding sources such as grants, major donors, and individual donations dried up in the years that followed.

Although most organizations are now enjoying something similar to pre-2008 revenue streams, ask yourself and your board: Could your organization continue to serve its mission with a sustained decrease in funding should the economy take another downturn?  Budgeting for a surplus and operating as a nonprofit aren’t mutually-exclusive practices.

Develop and Approve the Plan

The board meeting is approaching and you’ve got your objectives, inputs, and lessons learned in hand. Time to dust off last year’s budget (or maybe – GASP! – start from scratch) and input revenue and expense assumptions. After you’ve developed your initial draft, circulate it amongst a few trusted and detail-oriented colleagues to check your assumptions and work. Even the most experienced CFO can make mistakes.

After internal iterations, meet with your internal stakeholders to review the planned budget and assumptions. When you have consensus, make any final revisions and provide your budget to the board for a final round of review, refinement, and – ultimately – approval.

Expect Refinements

Even the best planned budgets will have changes, but planning is indispensable for your organization. More than likely, a mid-year or quarterly review is already part of your ongoing plan. If you don’t have review dates scheduled, set them now and let stakeholders know budget review and revisions will occur monthly, quarterly, or at whatever interval makes the most sense for your organization. Help new management and board members know, in advance, that the finalized budget is subject to change based on organizational performance and when you will be calling on them to submit any revisions to their inputs.

Don’t let the budget planning process overwhelm you. Creating a plan, and sticking to it can help alleviate unnecessary stress throughout the year and ensure your nonprofit’s maximum effectiveness. Here at RBP Methods we want to help you. Contact us to see how we might be able to assist you in succeeding with your financial endeavors, for the coming year.