The Most Important Things to Consider When Creating Your Association’s Annual Budget

Best Practices : Article

The budget: The lifeblood of any organization.

Nonprofit and for-profit organizations wrestle continually with maintaining and improving their overall operations. Regardless of tax status, organizations must constantly strive for sustainability while keeping the mission in mind.

Budgets should be a major part of every organization’s plan. The budget is the realistic financial blueprint for the manifestation of an organization’s mission and goals. A well-planned budget will focus on the primary goals and objectives of the organization and provide financial and programmatic adaptability— key ingredients to maximize sustainability – for both the short and long terms.

Prepare the budget well in advance, keeping strategic goals in mind.

A budget is a planning tool and that should be prepared well in advance and in accordance with a clearly defined budget schedule – i.e., a start and an end date. Plenty of time should be allowed for preparation, internal and external review, revision and presentation to the Board of Directors for approval. It is imperative one fully understands the organization’s mission and goals for the budgeted fiscal year and the future; in addition, one must understand where the organization is in its lifecycle.  To gain such understanding, before the numbers are even considered, a strategic planning session with the Board of Directors must be held to outline the year’s goals. Although this session is necessary for the budget author/creator to gather data, it is equally important for the Board to corroborate the organization’s mission and goals. Furthermore, it is an excellent opportunity for the budget’s author (Virtual) to educate the Board about the differences between budgeting for nonprofits versus for-profits. This paradigm shift away from the “bottom line” is not easy particularly because many board members are volunteers who work in the for-profit world; however it is obligatory because focusing on “profit” may be out of line or may even impede the organization’s drive toward its defined mission and goals.

Collaboration is essential when creating a budget.

Once the strategic goals have been determined, the author must then engage the various departments and vendors involved with the organization to budget for both revenue and expenses for the upcoming fiscal year. Such collaboration is essential and should improve, not hinder the budget. Conversely, too much input from too many sources can bog down the budget creation. Thus, managing collaboration, inputs and the overall budget schedule are critical in developing and completing an accurate and realistic budget. Likewise, when the first draft of the budget is ready for submission to the Board (or budget committee), the author must be ready and willing to manage expectations and timelines, answer questions and revise.  After all of the time and hard work invested in preparing the budget, it may be difficult to recognize good suggestions for improvement, but you must be willing to go back to the drawing board.

Use your budget as a point of reference, not a static document.

Once the budget is prepared and approved, it shouldn’t be tucked away and forgotten. For the budget to be useful and effective, it should be compared with the actuals on a regular basis (i.e. monthly or quarterly) to allow board members, executive officers and analysts to measure whether the organization’s goals, outlined by the budget, are being met. It is rare that the assumptions made during the budgeting process become reality, and variances provide valuable information to improve decision-making for the remainder of the budget period. In addition, a comparison of actual revenue and expenses versus budget is a valuable report that offers insight into where the organization is succeeding or failing, and where resources should be reallocated.  These variances can help the budgeting committee benchmark its progress and determine any actions to take for the remainder of the budget year and also allows for learning how to better plan for the future.

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