Over the past two months, I’ve had a lot of conversations with leaders of small nonprofit organizations about growth.
They come to me with big dreams of receiving grant funding to expand their programs and make a bigger impact. I am always so inspired by their excitement and dedication and want to help them right away. But at the same time, I know there is more they need to do before they can apply for grants.
Here’s why: During these calls, I ask a couple of general questions to understand the size, scope, and grant readiness of the organization. In other words, I try to determine if it will be a good use of the nonprofit’s time and my business’s time to apply for grants. What becomes clear from their answers is often that they’re not quite ready to apply for grants, and a lot of that has to do with their budget (or lack thereof).
So today, I want to talk about nonprofit budgets and help all the small nonprofits out there in similar situations.
- What exactly is a budget? (The answer might surprise you!)
- Why nonprofit budgets matter. . . a lot
- How to get started with your budget
- Your next learning step
What exactly is a budget?
One of the major points of confusion when it comes to nonprofit budgets is what they are exactly. Most people know that they have something to do with the financials of the organization, but that’s often where the understanding ends.
Your nonprofit organizational budget is an estimation of your revenue and expenses for the year. You should have both an annual projected budget and an actual budget (what you’ve spent and earned so far this current fiscal year).
Of course, if you’re asked for budgets from years past as a part of a grant application, the numbers will be actual, but when you’re budgeting for the current year, you’ll be expected to include estimates of your revenue and expenses.
Why nonprofit budgets matter. . . a lot
Now that we’re all on the same page and know that budgets require you to estimate your expected revenue and expenses, let’s talk about why nonprofit budgets matter.
The way I see it, budgets serve two primary functions for a nonprofit.
First of all, they allow nonprofit leaders and staff to know where they stand. If, for example, they’ve estimated a certain amount of revenue from fundraising, but 7 months into the fiscal year, they are not even close to their estimate, then the staff knows that they need to adjust their strategy if they want to be in good financial shape at the end of the year.
The other main function of nonprofit budgets is that they are a big part of grant applications. I’ve heard from many grantmakers that the budget is the first section of a proposal that they look at. Only if everything is in order there will they read the rest of the application.
Funders want to see evidence that the organization is financially secure because their decision to provide funding is an investment of sorts.
Although grantmakers do not expect a financial return on their investment, they do expect a return in the form of programmatic success.
They also want to see evidence in your budget that they are not the sole source of funding you have. This is why it is important to be realistic about your revenue estimates in your budget. List all grants that you are applying for that year, the amount, and that they are expected but not yet actual sources of revenue.
How to get started with your budget
Maybe you’re a little intimidated by the idea that you have to make estimates to create your budget. My best advice is that instead of thinking about these estimates as guesswork, do your best to turn it into an accurate science.
The first step in estimating your revenue and expenses for the current year is to look at records of your actual revenue and expenses in years past. How much does it cost to run your programs? Do you pay rent on a facility? Do you get the same grant year after year for the same amount of money? Does your organization have a couple of major donors that make contributions every year?
Once you’ve located your financial information from past years, think about how this year might be different. Are you applying for more grants for bigger amounts? Are you developing a relationship with new major donors? Have you designed a new program that will increase your expenses?
Your next learning step
If you’re ready to take the next step and learn exactly how to create a budget that funders love (and serves your organization well), then I encourage you to check out my comprehensive online grant writing course, which has an entire module on budgets and logic models.
If you’re planning on applying for more grants this year, you’ll need to have a rock solid budget, and our course will help you do just that.
