Navigating Your Numbers: 5 Budgeting Tips for Nonprofits
It’s that time of year again—budget season! Whether you’re new to the task or a seasoned pro looking for a refresher, our guide aims to provide you with insights for effectively navigating the budgeting process. With some practical pointers from KHS Consulting, you’ll be ready to cruise through the budgeting process with confidence. After all, your budget isn't just a spending plan—it's a roadmap that guides your fundraising goals and even helps you secure crucial grants. While things might drift off course as the year unfolds, laying down a strong foundation now will help keep your mission on track.
1. Decipher Your Data
The information in your donor, volunteer, and membership databases, as well as your accounting figures, are crucial in plotting your course for the upcoming year. Your finance team should break down expenses and revenue by program or activity area, as these insights will pave the way for a solid budget. Be sure these numbers are up-to-date, reconciled, and accurate as a first step, as this is the information that provides the framework for all of your budget decisions.
2. Assess Your Current Coordinates
Once you've gathered your data, the next step is understanding where your organization stands. How much have you raised this year and from which sources? Did you secure all the proposed funds? What was your donor retention rate? How effective were your fundraising events? Answering these questions and taking the time to observe and analyze trends gives you a clear view of your current program. It also gives you a realistic starting point for planning next year’s budget.
3. Determine Your Destination
With a clearer picture of your current finances, it's time to chart your course for the future. What goals are you setting for your organization? What initiatives do you plan to undertake in the coming years? This is where your strategic plan takes the wheel. And if you don’t have one in place, that’s something we can help with. Some questions to consider when determining the journey ahead include: Do you have an operating reserve? Are you running a deficit and need to close the gap, by how much, by when? What program and staff needs for the coming year need to be reflected in your budget?
4. Account for Possible Pitfalls
Each organization faces its own obstacles from year to year, and it’s important to take a good, hard look at just what those are and how to navigate them. We suggest breaking these challenges into three categories:
Macro Mysteries: These are external variables beyond your control, like demographic shifts or legislative changes.
Micro Matters: These are internal, like managing donor relations, fundraising campaigns, and staff compensation.
Specific Scenarios: These involve areas where you can influence change, such as board engagement in fundraising or budget allocation for team growth.
By listing these factors in advance, you can stay prepared to adjust your route and re-strategize as circumstances evolve.
Your staff is the lifeblood of your organization, and labor costs are usually the largest line item in any budget. Offering a living wage isn’t just the right thing to do—it’s key to retaining your team and avoiding costly turnover. If you’re not there yet, it’s time to start steering in that direction. Begin by educating your board and donors about the true costs of staff turnover and how it can ripple across your mission.
The Society for Human Resource Management (SHRM) reports that the voluntary turnover rate for nonprofit organizations is 19 percent, while the industry average of the overall labor market is 12 percent. Turnover is costing the nonprofit sector more than most people realize. There are also significant indirect costs that rise with employee turnover that can equal up to one-third of an employee's base salary. This includes the costs associated with hiring, pay and benefits, training, and onboarding:
Hiring Process Costs: $4,425
Pay/Benefits Costs: 1.4 times annual salary
Training and Onboarding Costs: $1,286 on average per employee
Everyone within a team is affected by staffing gaps and turnover. The risk of decreased productivity grows as others become expected to take on more responsibilities or work longer hours to meet deadlines. As a result, essential projects may be halted until roles can be filled and a team can focus on new challenges. During budget planning, consider current salary information and what it would take to support your staff through living, thriving wages. Explore how additional board support, fundraising, and budgeting adjustments can help you achieve this.
By digging into your data, assessing your current standing, setting clear goals, identifying potential obstacles, and ensuring fair compensation for your staff, you’ll build a solid financial foundation for the year ahead. A well-crafted, realistic budget will equip your organization to meet challenges head-on and seize opportunities, all while driving a bigger impact in your community. And if you hit any bumps along the way, don’t worry—KHS Consulting has a wealth of resources and a variety of services to get your organization on the path to success.
Happy budgeting!
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