Every year, at about this time, I start having night terrors. A lot of this is due to watching Game of Thrones and seeing all my favorite characters killed to death in gruesome ways. But it is also because VFA’s fiscal year ends in June, and we must go through the annual budgeting process, which is about as much fun as juggling baby porcupines.
Actually, no, baby porcupines are cute. Budgeting is about as much fun as juggling open jars of spicy chipotle mayonnaise. It’s messy and painful.
So I thought I would write down the steps to developing an awesome budget for a small to medium organization. This is not a guide for those who are starting a nonprofit, but rather for new EDs or board members of organizations that have been in operation for at least a year and will need to develop next year’s budget, or anyone who needs a refresher. Follow these steps below, and you will have a kick-ass budget that you can proudly show to your friends and family.
Step 1: Rally your team. This may be your finance committee. If you don’t have a finance committee, assemble a Budgeting Task Force. Make sure you call it “Task Force,” since Task Force sounds cool, like a team of superheroes who are called into action when the organization sends a distress signal (and at the end of every fiscal year, we are all sending distress signals). Include your board Treasurer, your Accountant/bookkeeper/finance person, one or two key staff, and an astrologer.
Step 2: Have your finance person provide data on up-to-date spending actuals for each program, as well as administrative and fundraising expenses. It is important to know how much you’ve been spending in each category this year, so that you can ignore all of it while you develop next year’s budget.
Step 3: Talk to your key staff to figure out the programming expenses for the next fiscal year. Ideally you will have a strategic plan on which to base next year’s staffing and programming (I’ll write later on how to develop a kick-ass strategic plan). If you don’t, it is important to get an idea from your staff what it is they need to make their programs successful next year. They are in the trenches, so they know best about programming stuff.
Step 4: Unfortunately, many requests can only be fulfilled in a mythical magical world with sufficient unrestricted funds, so you must bargain with your staff and be creative to reach middle ground. For example, a staff may say, “I need a unicorn in order to effectively do my work,” then you say, “we can’t afford a unicorn,” and your staff will say, “without a unicorn, I can’t do so and so and I am burning out,” so then you say, “how about a work-study unicorn instead?”
Step 5: Personnel expenses are the biggest and most critical category in your budget, since it takes staff to make things happen. It is important that your staff are paid a fair and decent wage that are increasing with cost of living. Go borrow the United Way’s Wage and Benefit Survey from one of your nonprofit friends (or order it online if you’re one of those big nonprofits who can afford it). Look up all the positions you plan to keep or develop, and it’ll tell you what on average those positions are paid in organizations your size.
Step 6: Put your computer on hibernate, close your door, and gently weep for five or ten minutes, thinking about all your wonderful staff and how horribly underpaid they are, according to the Wages and Benefit Survey, and about all the stuff you could do if you only had more resources. Then dry your eyes, open your door, and if any staff happens to ask what’s wrong, just give them a hug and tell them you’re proud of them and that the work they do is so important and that they’re making the world better, then go on a walk to clear your head.
Step 7: Now that you have all your projected expenses down, you must look at the potential revenues. Review all the funders who supported you this fiscal year, and categorize each of them by “unlikely to renew since it was a one-year grant,” “possibly renewable, but is so restricted that it may actually cost the organization more to administer than the grant is worth,” “50/50,” and “no clue, since they’re in the middle of a strategic planning process and we’re not sure what their priorities will be next fiscal year.”
Step 8: It is now time to put your astrologer to use. Have them create a chart of where the planets are this year in relation to your organization, as that is the best way to predict where the rest of your funds will be coming from. Mercury (representing foundations), Venus (representing individual donors), and Saturn (representing government funding) are in rare alignment right now, which may mean that it is time to focus more fundraising energy on those areas. The tiny and distant Pluto, representing general operating funds, is no longer a planet, but it still greatly impacts nonprofits, so make sure your astrologer includes its trajectory in the charts.
Step 9: It is unlikely that you will have enough projected revenues to meet projected expenses, so start cutting things and finding creative ways to obtain resources. For example, can you ask for donations of food for programs from local restaurants? Can the children in your programs spend one or two hours a day making products such as shoes or backpacks that could then be sold? And do staff REALLY need dental and vision insurance?
Step 10: Once your Task Force agrees on the draft budget, voila, you’re pretty much done! Forward it to the rest of the board to review and approve. They’ll likely be shocked at how much they’ll have to help raise through individual donations and the annual dinner and will likely ask you to cut down expenses even further. Resist the urge to break down weeping. Just smile, give an inspiring speech about working together, and reassure your board that you won’t be submitting any grants on any day when Mercury is in retrograde.