Crisp, cool air and the smell of apple cider must mean one thing: Autumn has arrived and the time has come for nonprofits to start planning for their 2023 budgets. Although creating a budget is an essential part of running a successful nonprofit organization, it can turn into a negative experience if the budget planners fall into bad habits.
If poor financial decisions can turn a profitable business into a money sieve, think about what bad budget habits can do to the fiscal health of a nonprofit organization. You and your team might put considerable time and effort into developing what seems like a viable budget, but the fact remains that one or more of the following bad budget habits can derail your lofty financial goals.
Assuming the Reception of Donations
One of the most common bad budget habits that nonprofits fall into is assuming a certain value for annual donations. Can you count on the same donors to deliver in 2023, as well as attract more interest in your nonprofit to receive new donations? Some nonprofit organizations exceed a reasonable value for donations, which means they budget for unrealistically high values for expenses.
For 2023, avoid this budget habit by calculating projected donations based on the value of 2022 donations.
Lack of Emergency Funds
When budgeting for personal finances, you probably have heard about the importance of starting a rainy day fund. A rainy day fund helps cover the costs associated with unexpected expenses, such as the medical bills that ramp up after a car accident. For your nonprofit, you start an emergency fund that helps your organization navigate the turbulent waters caused by an economic crisis. You do not have to go back far in time to understand the importance of starting a rainy day fund for your nonprofit organization.
All you have to do is reflect on the financial damage caused by the COVID-10 pandemic.
Lack of collaboration is a bad budget habit for nonprofits, especially for large organizations. Leaders make budget decisions without receiving the input required from other leaders. Lack of consultation can lead to inaccurate budget projections that can shut down the operation of your nonprofit organization. Taking a more holistic approach to creating a budget for your nonprofit ensures you receive input from every department.
Not Understanding Data and Trends
At least one member of your nonprofit must be able to interpret data and trends. This means your nonprofit organization might have to hire a temporary consultant who specializes in developing budgets for nonprofit organizations. Understanding budgeting techniques such as forecasting improves the accuracy of an annual budget. Your nonprofit budget should account for economic trends and historical data.
The Bottom Line
You have many more ideas to consider that help break bad budget habits. For example, instead of settling on creating an annual budget, switch to creating a more flexible rolling budget that allows you to make proper financial adjustments. Creating a rolling budget helps your nonprofit organization to respond promptly to the next economic crisis.