Budgets are a major part of every organization’s plan and it should always be prepared well in advance to take control of your financial future. A well-planned budget provides your organization a roadmap to achieve your established goals and objectives. Whether you are handling a profit or non-profit organization, it is undeniable that you need a well-thought and well-prepared budget. Here are some tips on how to prepare your budget for this new year.
1. Establish your non-profit goals and objectives
In order to make a budget, you have to know what it is you’re planning to use it for. Setting up goals and objectives as a basis will give your budget a direction as to where you should prioritize your funds. With the right budget, you can efficiently make use of your resources to implement a good deal of objectives moving you closer to realizing your goals and will give you information if you still needed funding or an excess fund can be used to go forward to another objective. It makes you flexible in your financial decisions.
2. Define the timeline, resources needed to achieve your organization’s goals and objectives.
All things are bound by time and by means your budget too. Besides you want to show your contributors and volunteers some timely and reasonable results, right? Looking into your past year activities and contemplation of this year’s changes would give you an idea as to how to make a timely schedule of activities and the insight of resources needed to fund your expenditures imminent to reaching your goals and objectives.
3. Estimate the expected amounts of revenue that will be generated and the expenses (Set budget priorities and realities – for revenue and for expenses and costs).
Estimates give you a good picture of what your revenues and expenses will be in the incoming year. Each of your potential revenues should be examined to determine possible enhancements in the future. Usual revenues would be fees for goods/service, contributions (individual and corporate), bequest and foundation or corporate grants and endowments. Usual expenses of NPOs are direct costs which is specifically related to the project or program. Indirect costs that are not specifically related to the project or program but is necessary for its completion. Operating costs which includes the overhead expenses such as administrative staff, utilities, office space, equipment, and supplies. Capital expenditures and in-kind contributions that provides benefit to the organization but is recorded as expense when used or depreciated. Considering this thoroughly will give a more accurate picture of the organization’s revenue and cost needed to meet its goals in the upcoming year.
4. Compare the expected amounts of revenue to estimate expense.
Usually, revenues and expenses go hand-in-hand. Fundraising activities are held for certain costs. Having excess revenue over expenses would be useful in covering other expenses of the organization that doesn’t generate revenue.
5. Develop a monthly cash flow
A monthly cash flow is an estimate of all revenues and expenditures that are expected to occur every month which focuses on money movement which will ensure that cash will be there when needed.
6. Develop a budget for capital expenditures
Capital expenditures are acquisition and upgrading of assets that have a useful life that extends beyond a year which also includes depreciable in kind-contributions. For large amounts of fixed assets, capitalization allows to spread the amount of expenditure over several years and record the depreciation each year. As capital expenditures can be a large portion it will have a significant impact on the financial performance of the NPO thus the need to make a budget.
It’s all about planning to have a desirable end result. It may be time-consuming but it will definitely help your organization throughout the year. Your budget also has to be flexible so you can change it if the expectations aren’t met. This requires constant review of your variances and forecasting to determine if the budget is still appropriate or a new budget should be adopted.
If you need help with your financial budgeting or bookkeeping and tax preparation for your non-profit organization, contact us today at email@example.com or 832-437-0385.
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