4 Reasons Not-for-Profits Need an Effective Budget

Not-for-profit organizations are a vital part of our society and provide critical services that help people in need. These organizations need to be transparent and accountable to their donors, volunteers, and clients. One way to achieve this is through an effective budget.

A strong budget should be created with the input of senior leadership and the Board of Directors. Based on their feedback, the management team has the responsibility of putting the plan together. A well-constructed financial plan is a highly effective tool that tracks the heartbeat of the organization and its progress. It must be regarded as significant as it is for a private business.

Here are 4 reasons not-for-profits need to have an effective budget.

1. Improves efficiency.

Any way that time can be saved matters remarkably to board members. Creating a strong, transparent budget will keep meetings in line, greatly reducing the amount of time spent reviewing items and trying to make sense of financials. A well-thought-out budget will also clearly map out areas where money is being wasted or not being used effectively, allowing changes to be implemented to ensure funds are being utilized in ways that will make the most significant impact on the organization.

2. Keeps board members informed.

Board members are a key part of a not-for-profit and it’s important that they can easily understand the financial health of the organization. An effective budget will ensure they can stay up to date with changes allowing them to make better decisions when working on things like allocating resources and funds as the cash flow changes. They’ll also gain more control and insight over the organization’s revenues and spending, ensuring that they have a 360-degree view of the financials.

3. Donors want to know where their money is going.

Donors to not-for-profits want to see that their money is going to a worthy cause. Part of showing this is demonstrating that their money is being spent wisely and is being allocated to the right resources. Creating an effective budget will show donors that the organization has control and insight into the accounting and planning process.

4. Helps to stay focused on an organization’s mission and goals.

It’s much easier to understand what resources need to be allocated and set spending limits when a budget is detailed and focused on the specific activities and goals of the not-for-profit. By creating a strong budget, it will be clear where the money is going, how much cash is being spent on specific projects/programs, and how much revenue is coming in. This will allow all members and donors to be able to have a clear view of the long- and short-term financial goals and plans of the organization. If there are initiatives that are a critical part of the organization, these can be allocated within the budget as well.

Having an insightful budget can provide a multitude of benefits for an organization. Taking the extra time to sit down and create a budget that involves the input of senior leadership and board members, considers the mission of the organization, and remains as detailed as possible will help to ensure the long-term growth of a not-for-profit. It will also keep all members of the organization continually informed and provide board members and donors the visibility they need to work together to accomplish the organization’s goals.

At Part Time CFO we work alongside many of our clients in the not-for-profit sector. Our experienced team is here to provide guidance and advice when working towards your not-for-profit’s financial goals! Click here to learn more about our services.