- Analyze Your Financial Situation
The first step in developing a sustainable budget for your nonprofit is to assess your current financial situation. Start by gathering all relevant financial documents and reports that may include income statements, balance sheets, and cash flow statements. Review these documents and analyze your financial performance over the last few years. Doing this will help you identify trends, strengths, and weaknesses in your organization's financial situation.
- Define the budget
Before creating a budget, you should define the budget types you need. For a, the type of budget is often an operating budget and a project budget. The operating budget is the annual budget that outlines the overall expenses and revenue of the organization. On the other hand, a project budget is created for a specific program or project and outlines the expenses and revenue required for that particular program or project.
- Choose the Best Budgeting Model for Your Nonprofit
After defining the types of budgets you need, the following step is to choose the best budgeting model for your nonprofit. Although there are various budgeting models, each has advantages and disadvantages. However, the most commonly used budgeting models for nonprofits include incremental, zero-based, and program-based budgeting. While incremental budgeting involves adjusting the previous year's budget by a certain percentage to account for inflation or any other cost increases, zero-based budgeting, on the other hand, starts from scratch, and every expense and revenue line item is evaluated to justify its inclusion in the budget. On the contrary, program-based budgeting focuses on individual programs and their outcomes. With this model, the budget is created based on the program's expected results.
- Create the Budget Document
Creating the budget comes after choosing the budgeting model. This document should include both the operating budget and the project budget. The budget document should also include a detailed description of each line item, including the expense and revenue items. It should also include assumptions made in creating the budget and the expected outcomes of the budget.
- Identify Your Funding Sources
Once you have analyzed your financial situation, the next step is to identify your funding sources. Doing so involves reviewing your revenue sources, including donations, grants, and sponsorships. Diversification reduces the risk of relying on one revenue source. Identifying your funding sources will help you develop strategies to maximize your revenue and manage your cash flow.
- Present Your Budget to the Board
The budget presentation should have a detailed explanation of each line item, the assumptions made in creating the budget, and the expected outcomes. In your presentation, include a risk analysis and contingency plan if the expected outcomes are not achieved. Your presentation should be clear and concise, and it should be presented in a format that the board can easily understand.
- Monitor Your Budget
Creating a budget is not the end of the process. You should monitor your budget regularly to ensure that everything is working as expected and you are on track to achieve your expected outcomes. Monitoring involves reviewing your financial statements regularly, comparing your actual revenue and expenses to the budgeted amounts, and adjusting your budget as necessary. Monitoring will help you identify any issues and develop strategies to address them.
