Nonprofit Accounting Basics

Budgeting and Financial Planning

Note: Articles published before January 1, 2017 may be out of date. We are in the process of updating this content.

Effective financial management is an ongoing process that features a cycle of good management habits. The financial management cycle is most effective when board and staff leaders ensure that good systems are in place to produce accurate and contextual reports that can be analyzed to inform their plans going forward. In this section we will explore budgeting and financial planning.

Organizational Budget
An organization's financial planning should include budgets for operating and for capital. Together these comprise an Organizational Budget.

It’s helpful to write down your annual budgeting process as an annualized timeline, with tasks, responsibility assignments and deadlines clearly stated.

A well-constructed operating budget will demonstrate in numbers the organization's commitment to fulfilling its mission. It will be based on reliable revenue projections. Expense projections will be well-researched, conservative, and thorough. Those engaged in building the budget will understand what components of it are fixed and which can be adjusted as the budget year progresses, if necessary. Adherence to budgets may be most successful when those responsible for adhering to them are also involved in setting the budgets.

Creating a capital budget, or capitalization plan, may often be overlooked or deemed unnecessary for small or midsize groups or construed as only necessary for a specific capital campaign. The truth is that any size organization has a capital structure, whether it is aware of it or not. Capital structure comprises the relationship among assets, liabilities, and net assets. Capital structure planning allows organizations to be intentional about the proportions and composition among these capital categories and to outline how it will build resources for long-term and non-operating needs.

Good financial management requires the organization to be intentional about planning for both its long-term financial goals and immediate financial health to ensure its ability to continue implementing mission programs.

See the links below for more detail on budgeting and related resources.

© 2023 Elizabeth Hamilton Foley