Amid federal funding cuts and new tax laws, nonprofits are facing increased financial uncertainty. While these factors are outside of your control, you can take steps to set your nonprofit up for success and stability amidst the changes.
It’s now more important than ever to practice proper financial management and prioritize spending where it really matters: your mission. This guide will help you focus your nonprofit’s budget on maximizing your intended impact.
1. Start with mission-driven goals.
Basing your budget on your goals pushes your mission forward and ties line items to real results. Start by asking your team the following questions:
- What are our main strategic priorities this year?
- What programs and initiatives maximize our impact?
- What resources do we need to reach our goals?
Then, use the SMART goal framework to get more specific about the key outcomes you’d like to achieve and how you’ll approach them. SMART stands for specific, measurable, achievable, relevant, and time-bound. Here’s what a SMART goal might look like for an organization that fights racial injustice:
- Specific: We’d like to start a new educational program that teaches children in the community about microaggressions and how to spot, avoid, and speak out against them.
- Measurable: We will aim to launch this program in 10 different schools across the metro area. Additionally, we’ll measure success based on feedback surveys from children, parents, and educators.
- Achievable: Based on our available resources and past educational programs, we believe this goal is realistic.
- Relevant: This initiative supports our overarching mission of dismantling racial injustice and building a more inclusive community.
- Time-bound: We’d like to develop the materials for this program by the end of Q1, fully launch the program by the end of Q3, and evaluate our results by the end of Q4.
Developing actionable goals with clear metrics that reflect your mission helps you more easily translate your priorities into budget line items. Repeat this process for each of your goals until you better understand what initiatives your budget should fund.
2. Involve program staff in the budgeting process.
Various stakeholders are involved in nonprofit financial management, including your board, leadership, finance committee, and accounting staff. By adding program staff to the mix, you can better understand exactly what you need to drive impact.
First, ensure your key priorities are aligned. Present your SMART goals to program staff, and identify gaps in your strategy. For example, you may learn that in addition to your nonprofit’s typical advocacy, staff members are also planning a women’s march for the upcoming year.
Then, ask for more detailed program projections that will help you infuse your budget with impact. Get clarity on the following:
- Program staffing needs
- Any supplies, travel, or materials involved
- Any expected program growth or changes
- Opportunities for cost savings or partnerships, like new corporate sponsors or in-kind contributions
For best results, incorporate program staff throughout the entire budgeting process. That way, they can constantly give their input as your budget evolves and team priorities change.
3. Build in flexibility.
In addition to federal changes causing uncertainty, impact-driven work is inherently dynamic. You should be able to adapt your budget accordingly. To keep your budget flexible, YPTC’s nonprofit budgeting guide recommends implementing the following strategies:
- Include a contingency fund. Let’s say your educational program performs better than expected, and five additional schools in the area are interested in receiving the programming. By setting aside a small percentage of your budget to cover unexpected expenses, you can continue expanding your impact.
- Prioritize expenses. Sort costs based on how crucial they are to your mission and intended impact. In the event that you have to cut costs unexpectedly, you’ll know where to focus your funding.
- Leverage scenario planning. Create different versions of your budget based on your nonprofit’s best-case, worst-case, and most likely financial scenarios. Whether a crisis strikes or your programs outperform your expectations, you’ll be able to pivot efficiently.
Keeping your organization financially stable ensures you can help as many beneficiaries as possible, regardless of extenuating circumstances. Plan ahead to put your nonprofit in the best position possible to navigate any challenges.
4. Allocate overhead transparently.
Although donors may want all of their fundraising dollars to go toward programming, overhead spending is necessary to support impact. These behind-the-scenes costs build the capacity needed to execute programming and help beneficiaries.
Not only should you ensure you allocate enough to overhead by working directly with program staff to determine your needs, but you should also educate stakeholders about the necessity of overhead expenses so they feel confident giving to your cause. For instance, here’s how you may explain three of the top overhead costs:
- Payroll: Your nonprofit depends on staff members to develop and execute programming, perform administrative duties, run fundraising campaigns, communicate with donors, and so much more. Without all of these functions, achieving your mission wouldn’t be possible.
- Office Rent: Having a dedicated space allows staff members to gather, share programming ideas, and plan more effectively.
- Website: Your organization’s website is an online information and action hub. Here, beneficiaries can find the resources they need, volunteers can sign up for events, donors can contribute funds, and interested constituents can learn more about your mission and impact.
Although it may seem obvious to your team just how necessary overhead is, giving donors, sponsors, and other funders this perspective allows them to better understand the connection between overhead and impact and feel more open to supporting overhead costs.
Once you’ve developed and implemented your budget, measure impact along the way. Ideally, your programs will be as low-cost and high-impact as possible, so meet with your team regularly to monitor budget performance and associated impact. Track key performance indicators (KPIs) and adjust your budget if necessary.
