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Nonprofit Financial Management: Preparing Budget for Fiscal Year End

March 18, 2024

Nonprofit leaders…is your budget ready for fiscal year end? An effective annual budget sets the tone for success for the coming year. Here are some tips as you prepare for fiscal year end.

As a nonprofit leader, ensuring your budget is ready for the fiscal year end is crucial. A well-structured annual budget sets the stage for success in the coming months. Here are some essential tips to consider.

What is fiscal year end?

A fiscal year end is the period nonprofits use to calculate annual financial statements. For many organizations, this falls on June 30th.

Key Step: Schedule an annual board meeting to review finances and set the budget for the new year.

Importance of a budget

The annual budget serves as a financial roadmap. It translates policy decisions into action, guiding programmatic priorities, personnel decisions, and other critical aspects of the organizations operations. The Board must ensure the organization develops and maintains an annual budget.

Effective budgeting in your organization depends on a few factors, including:

Revenue Projections:

  • Understand the revenue you expect to receive during the year. Involved the management team (Program, Membership, Fundraising, etc.) in the process and incorporate the estimates to provide the most accurate estimates and build in team accountability to the budget.
  • Clearly differentiate between confirmed and potential revenue sources.
  • Be conservative in your projections; it is better to underestimate than to rely on uncertain funds.

Reporting Structure:

  • Review the organization’s chart of accounts (COA) to see if it provides the necessary level of detail to compare against your budget- The COA is the framework that categorizes your financial activity into different cost centers, departments, accounts and subaccounts. Learn more in our blog, How to Set Up a Chart of Accounts for Your Nonprofit. The organization’s budget should use the same categories used in the COA. If they are not aligned, consider which should be updated to make providing budget to actual results more efficient. Preparing financial reports for management and the board of directors will be significantly more efficient if you are able to generate a budget to actual report from our accounting system rather than having to update external spreadsheets.
  • Planning and budgeting for grants and contract applications and reporting. It is crucial that your organization can produce budgets for grant applications as well as monitoring activity against those budgets. Review your accounting system to ensure that you are utilizing these features to add another level of efficiency in the grant internal control and monitoring process as well as provide real time information on grant and contract activity.
  • Consider a financial buffer or reserve fund- If there are a lot of unpredictable elements in your budget, it is best to set aside funds (if possible) to manage cost increases or unexpected expenses. A buffer may not absorb all the unexpected expenses, but it should reduce negative impact on the budget.

Remember, a well-prepared budget sets the tone for success throughout the year. Take these steps to ensure your nonprofit’s financial health and sustainability!

Questions? Wondering if your budget is up to par? Contact us.

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