By Jacqueline Tiso, CEO & Founder of JMT Consulting, a national consulting firm serving the needs of non-profit organizations in the United States.
I had the pleasure of having lunch recently with a number of Nonprofit CFOs and finance staff where the topic of budgeting came up. Specifically, the discussion centered on the tools everyone was using and what their process actually was. No surprise to me that most of the group admitted to using a spreadsheet program for budgeting and that their process was typically a long and painful one. Unfortunately, I hear this all too frequently with Nonprofits, but I wasn’t really interested in the tools.
While the tool and process of budgeting are important, what I believe is even more important is WHAT budgeting can mean to an organization beyond just the creation of the budget. I meet with hundreds of organizations during the course of a year and seldom does the discussion turn forward-looking, towards planning and forecasting as part of the budget process at an organization.
If you search the web for “budgeting for nonprofits” you will find hundreds of excellent resources such as National Council of Nonprofits site. These cover the tools you can use, building a budget, the budget process, etc. What is harder to find is how to use the budget as a financial management indicator of future trends and the direction your organization may be going versus the one it should be going in.
The budget shouldn’t be just a “snapshot” of where your organization is at a moment in time (last month, last quarter) where we are all happy we came in on budget for that particular moment in time. Rather your budget should be a financial plan, looking forward at the next two to three years and an indicator of the strategic direction of your organization. It should be a guide for your organization’s future path at a consolidated-organization level, but even more importantly, at a program level validating your organization’s mission delivery.
So if you’re using spreadsheets for your financial reporting, plan to do some more manual work and start including a two to three-year trend analysis as part of your monthly financial review. I recommend a minimum of the last 12 months (so prior year) forward to the current year, compared to a budget trend line forward two years. Yes, that means a 2-3 year budget, hence the crystal ball analogy. If you’re just done with the manual budgeting process then consider using tools to help you get ahead of this process. The time you save using tools that are designed for this purpose can be better used in furthering your mission.