4 Nonprofit Best Practices for Budgeting and Forecasting

Budgeting for nonprofits works best when the budget sets a clear financial direction and a rolling forecast tracks progress against it. Together, these two tools assess performance and guide how funds are allocated throughout the year.

Many nonprofits still struggle to create and update their budgets and forecasts on time. Staff wear multiple hats, month-end close gets pushed back, and spreadsheets pile up. The good news is that a few focused habits, paired with the right outsourced accounting services, can make a meaningful difference. The four best practices below offer a starting point.

1. Understand the Difference Between Budgets and Forecasts

The differences between budgets and forecasts need to be fully appreciated in order to take advantage of what each has to offer.

A budget is a roadmap, not a prediction, that provides an overview of an organization’s expenses and revenue. The budget should focus on the goals of the organization, and it should be reviewed at a minimum on an annual basis and preferably on a monthly or quarterly basis.

financial performance of an organization. It tells you whether the organization is heading in the right direction and can be used to determine how to allocate budgets over a given period, based on past performance. Nonprofits often use forecasts to inform ongoing strategic changes throughout the year, all with the goal of reaching budget goals.

When leadership treats these as interchangeable, the result is often confusion about where the organization stands financially. Clear definitions lead to clearer decisions.

2. Create Your Budget First, Then Build a Forecast

It is generally best to create a budget first, before creating a financial forecast. The budget outlines where the organization wants to go. Forecasts can then be used to track whether or not the organization is meeting the quarterly or other financial goals that are laid out in the budget.

For nonprofits that are grant-funded, the budget also helps set expectations around how restricted and unrestricted funds will be deployed. Once the budget is approved, a forecast layered on top gives leadership an early signal when revenue or expenses are trending off course. That visibility allows for mid-year adjustments rather than year-end surprises.

3. Don’t Delay Your Month-End Close

Budgets and forecasts are sometimes viewed as time-consuming hassles that repeatedly get delayed. A consistent process should be in place for starting on budgets two to three months before the start of the next fiscal year in order to gather data and input from different departments.

Forecasts likewise need to be done on a frequent basis, monthly if possible. A timeframe needs to be established for the forecast, then past financial documents and other paperwork for that time period need to be gathered, including balance sheets, cash flow, and income statements. Analyzing the forecast will help organizations determine whether targets in the budget will be met on the proposed timeline.

The longer the month-end close takes, the more stale the data feeding your forecast becomes. Tightening that close cycle, even by a few days, gives your team fresher numbers to work with and more time to act on what they find.

4. Invest in Tools That Improve Accuracy and Visibility

Many nonprofits rely on Excel to create their budgets and forecasts, which typically takes a lot of time and manual effort. The hassles of spreadsheet-based budgets and forecasts often serve as an impediment to getting them done as frequently as needed.

As an alternative, many nonprofits are implementing modern, cloud-based ERP solutions like Sage Intacct that streamline budgeting and forecasting with automated processes, real-time reporting tools, and drill-down capabilities. Sage Intacct also provides powerful driver-based models, what-if scenarios, and rolling forecasts, making it easier to quickly make course corrections based on the latest data.

Choosing the right platform depends on the size of your organization, the complexity of your funding sources, and the reports your board and stakeholders expect to see. An experienced accounting partner can help you evaluate options and manage the transition without disrupting day-to-day operations.

Strengthen Your Nonprofit with Insero’s Outsourced Accounting Services

Insero partners with nonprofit organizations to deliver outsourced accounting services that go well beyond bookkeeping. Our dedicated team handles cash flow management, budget preparation, month-end close, financial reporting packages, customized dashboards, and KPI reporting so your staff can stay focused on your mission. We also participate in strategic planning sessions and management meetings to make sure the numbers are driving the right conversations.

Whether you need a fully outsourced accounting department or a co-sourced arrangement that works alongside your existing team, we build a package around your specific needs. Reach out to our team today to learn more about how we can help your organization plan with confidence.

Resources:

• www.sage.com/en-us/sage-business-cloud/intacct/