Many Nonprofits struggle with establishing their budget for the next year. A budget is a financial plan that serves as a guide for month to month operations. Budgeting is extremely important for many reasons beyond the books and money management that many nonprofits do not realize.
The first main reason why budgeting for nonprofits is crucial is it allows you to focus on short and long-term strategic goals, which are usually connected to the availability and timing of funding. If your budget is not planned out strategically then your organization may not be able to reach its highest potential.
Budgeting also allows you to create financial controls that allow you to set spending limits and will attempt to keep costs in line with revenues. Creating financial controls and spending limits will allow your nonprofit organization to not overspend, and make sure you are making beneficial decisions for your organization.
A good budget can provide outside parties granting money or other resources to the organization a financial plan based upon accountability, transparency, and good faith. Outside parties that grant money to nonprofit organizations want to see where their money is going, and that it is going to a good cause. Having a budget established allows you to show where the money you are receiving is going in the organization.
Budgeting will also allow nonprofits to maintain focus on the organization’s mission and grow their organization. Having a well thought out budget will allow you to keep your financials up to date and stable, by knowing ahead of time what amount you want to/can spend on certain things. A budget also will allow organizations to grow by using their current resources to the maximum, and hopefully gain more grants along the way.
The final main reason as to the importance of budgeting for nonprofits is it allows the organizations board to use the budget in its oversight and review. Having an up to date, in-depth budget will increase your chance to getting your board to approve the budget that you are looking to receive for that year. In return allowing you to accomplish all the goals and objectives your organization has set for the year.
Budgeting is extremely important for nonprofit organizations to be successful and to accomplish all the goals they wish to achieve. If you would like to learn more about budgeting in Abila MIP Fund Accounting™ please refer to our new MIP Budgeting Module Training Video Series. Training videos currently in this series include Budget Preparation and Entry Overview (BUD 01) (coming soon), and Budget Transaction Entry (BUD 10). These training videos will take you step by step through the budgeting process in Abila MIP Fund Accounting™!