A Budget Is Not a Dream

If you don’t know where you’re going, you’re likely to end up there. I frequently see organizations budget far below or above actual performance. That may seem unimportant. It is not. Eighty-five percent of all nonprofits fail within five years. If they set a realistic budget and accomplished that, that would not happen.

Obviously, it is not the act of budgeting that determines success, but the realistic budget does force performance to meet that level. If the budget is not constantly compared to actual revenue and expense, it was not worth the paper and pen that wrote it. Clearly, dedication to meet the forecast determines organization survival, though.

Many organizations have exceeded their budgets, and that hurts, too. When you forecast under your revenue, you typically do not order enough product. That limits total income. While that may be OK short term, most organizations have peaks and valleys. If limited profits cannot sustain the organization in the valley, the organization could ultimately die.

I hesitate to describe budgeting because it seems so elementary. However, the point is not whether this is simple or not. It comes down to doing it. Often we put off or don’t even perform the simple things in our organization.

Anyone can prepare a budget. Only the pros can budget accurately. Budgeting requires vision, knowing the details, meticulously double checking the numbers and managing the operations through the budget period.

So, I suppose I just need to give you a few pointers how this is done. First, an Excel spreadsheet suffices just fine. Sure, Quickbooks is better if you can handle the software. I am not a fan of spending numerous hours polishing and formatting a budget. As long as it has all the detailed items of revenue and expense, it will be great. A pen and paper is sufficient, but it will cost you time in calculating.

I recommend that you solidify your monthly budget for the upcoming year in October for the next year. That is late enough in the year to be realistic. Being realistic is paramount to a budget. Sure, we want to be optimistic and reach. Do that, but be sure to commit to really do it. If not, don’t budget it. A budget is not a dream.

The budget should be rectified at a minimum every month to see how things are tracking. Personally, I prefer to have a daily track to follow. Others do it weekly, and that works for them. This is an essential management tool for your organization. I recommend keeping every year’s final budgets and actual accomplishments to help future budgeting efforts. That makes seasonal adjustments more accurate. It is particularly helpful if you explain all variances and even the note the accounts that were accurate. That makes future budgeting even more effective.

Grant funders require a budget, and we typically send requests to the same donors every year. So, they become familiar with our budgeting skills.

ITMH is prepared to give you organization support with budgets or any other area of your operation.

I endorse dreams, but I call them goals. Correct budgeting makes operating an organization work. Very likely, it will be tough to achieve your budgets and write achievable forecasts. So, put hard work into it. The outcome will be very satisfying.

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