Tracking income and expenses is an essential part of managing nonprofit finances. Without a budget, it is possible to overspend or forget to buy certain items. This can lead to unnecessary trips to the grocery shop and a wasteful of resources.
It is vital for the long-term success of a nonprofit organization that it can operate with a transparent budget. Lack of transparency can lead to burnout and other issues, including lower levels of trust and empathy. In fact, the United Way reports that over 60 percent of Americans are “activist fatigued,” which lowers empathy levels and leads to a drop in support for causes. These issues can be especially damaging to younger supporters.
Account For Timing Inconsistencies
You must account for inconsistencies in timing when budgeting for money-conscious non-profits. Although many expenses are consistent year after year, budget inconsistencies can impact the budget. One example of a timing inconsistency is the timing of fundraising campaigns. While office rent is a constant, fundraising expenses can change depending on the campaign.
Diversification Of Revenue Streams
Diversification is an important aspect of nonprofit management. Nonprofits need to be flexible in their funding sources in order to survive financial crises. Having a reliance on one source of revenue can severely limit an organization’s potential growth. In addition, it can restrict its freedom to operate.
Budgeting Based Upon Past Results And Future Projections
A realistic assessment of past results, projected revenue and other financial information is essential for any money-conscious nonprofit. Nonprofits should evaluate their cash flow and determine the impact of their programs on overhead and direct expenses during the annual budget process. Then, they should decide on the best way to structure their budget. Some nonprofits need a capital budget, while others need a budget for ongoing operations.
Keeping Track Of Expenses In A Spreadsheet
A spreadsheet can help you keep track of expenses and help you manage your finances. The first step in keeping track of expenses is to create a category list. This list should contain the ways your business spends money. You might keep track of the cost of ingredients if your bakery is one example. You can also include depreciation.
Use A Trial Balance
A trial balance can be a useful tool to determine if your expenses are outstripping your income. It can also help you avoid cash flow problems. A trial balance is a way to measure income against expenses and assets against liability. It is an effective way to check your nonprofit’s budget. As with any other budget, the key is striking a balance between inspiring your organization to grow and meeting your donors’ expectations.