Budgeting Approaches - Expenses and Profitability

The budget process was described earlier as part of the Budget section as the way an organization goes about building its budget. In this, the third of a four-part series on good budgeting approaches, we discuss budgeting for expenses, with an emphasis on profitability.

Below are some approaches to consider while budgeting for your organization’s expenses.

Activity-based budgeting
…helps an organization to understand its business model. How an organization budgets its expenses (allocates resources) to each program and support activity demonstrates its commitment to deliver on its mission promise and to invest in its capacity to do so.

Budget for and request the full costs of your programs
…and avoid the nonprofit starvation cycle. Budgeting in a way that permits the organization to understand the full and true costs of each of its activities positions it to better plan resource development strategies and to evaluate programs on both their profitability and their return on mission.

Estimate your budget inflows and outflows monthly
…as well as by activity, to project and prepare for cash flow fluctuations. Budgeting in a way that allows an organization to predict its cash position throughout the budget year demonstrates its attention to stewardship and accountability.

Budget for capital and multi-year investments
…in fixed assets as well as strategic and long-term financial goals. Budgeting to invest in infrastructure and to achieve strategic and financial stability goals indicates a nonprofit’s intention to build and maintain a strong and enduring organization able to deliver programs for the long term.

Continue reading for more detail on each of the approaches described above.

Return to the Budgeting & Financial Planning Introduction  page for other content and downloadable resources pertaining to budgeting.

© 2023 Elizabeth Hamilton Foley