This document provides a roadmap for developing a better budget for nonprofits. It discusses key aspects of the budgeting process including determining the appropriate budget type (surplus, deficit, or break-even), accounting method (cash vs accrual), budget development practices, roles in the budget process, assessing and revising the budget, and using a budget calendar. Developing an effective budget requires considering factors like financial goals, program needs, funding projections, and monitoring actuals versus the budget throughout the year.

1. BUILDING A BETTER BUDGET:
The Nonprofit Budget Roadmap

2. A nonprofit’s budget should serve as a
guide to where your organization is going
and how you’ll get there over the course
of the next fiscal year. The National
Council for Nonprofits describes the
annual budget as, “...one of the fundamental
building blocks of sound financial management.”
Organizational and financial sustainability can only be
achieved with a well-prepared and continually monitored budget.
Conversely, a poorly developed budget can diminish mission-
focused opportunities and threaten long-term success. The budget
process can feel like a never-ending maze, but with commitment
and the right tools, developing a “better budget” will serve to
properly guide resources and equip your organization in the most
effective and efficient ways possible for the coming year.
From start to finish,
and every stop in between,
here is your roadmap to
building a better budget:
YOUR BUDGET
IS YOUR ROADMAP
BUILDING A BETTER BUDGET: THE NONPROFIT BUDGET ROADMAP

3. BUILDING A BETTER BUDGET: THE NONPROFIT BUDGET ROADMAP
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BUDGET DEVELOPMENT
The reality is there are many components and decisions that go into constructing a clear,
effective, and efficient budget. Stripping the budget infrastructure down to its foundation takes
us back to the fundamentals of budgeting and uncovers key questions that are important to
ensuring your organization withstands the challenges of the year ahead.
Should the budget balance?
Conventional wisdom says a budget should balance, but the truth is there are varying situations and scenarios
that justify the need for a different kind of budget. It may make more sense for your nonprofit to adopt a:
1) Surplus budget. This type of budget drives an organization to increase reserve funds, generating more
income than expenses. These surplus funds can then be used to pay down debt, ease cash flows, or
improve net assets. A surplus budget should be realistic and attainable, with a policy and plan in place for
how the reserves will be managed.
2) Deficit budget. When an organization has a large amount of reserve funds and seeks to strategically
spend or invest those funds to benefit the organization in the long run, a deficit budget may be
appropriate. Organizations may use these funds to expand services, invest in new programs, or for
one-time purchases that ultimately lead them to have more expenses than income for the year. A deficit
budget should be well planned and communicated as a planned deficit, so as not to be misrepresented
as an unintentional, unplanned deficit for the year.
3) Break-even budget. This type of budget may not allow the organization to accumulate reserve funds
or invest further in its future, but it can provide an adequate foundation to deliver the mission. A break-
even budget will traditionally outline higher expenses than anticipated revenue, requiring the
organization to find ways to boost income and cut costs. The organization must carefully plan out
projections and implement programs aimed at these goals without sacrificing mission delivery.
What the bottom line looks like should ultimately be determined by the desired financial outcome of the
organization. Identifying, understanding, and focusing on that desired financial outcome will drive toward
a well-prepared, intentional, and attainable budget.
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4. BUILDING A BETTER BUDGET: THE NONPROFIT BUDGET ROADMAP
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Cash versus accrual?
Budgets can be based on a cash or accrual accounting method. Specific requirements and needs help
determine the appropriate budgeting method for your organization. The method used should be determined,
communicated, and understood by all internal budget and financial stakeholders. Break it down to the basics first:
1) Cash method is focused on the simple inflow and outflow of cash, regardless of when revenue was
actually earned or an expense was actually incurred. The organization earns revenue at the point a
deposit is made, and incurs an expense at the point a check is cut, focusing most heavily and solely on
cash flows.
2) Accrual budget is focused on recognizing revenues and expenses at the time in which they were
actually incurred. So expenses incurred in June, but paid for in July, will still be recorded as an expense
incurred in the month of June. Accrual method also focuses on matching revenue and related expenses
within a certain period.
The main difference between the two methods is the ability to budget accurately based on the needs and
infrastructure of your organization. Factors in determining the best method for our organization include:
• External Requirements – State regulations and/or grantors may require the use of full accrual
accounting to provide full transparency and visibility into when costs are incurred and revenue is
generated throughout a specific time period.
• Cash Flow Position – If cash flow is either an integral part of or a concern at your organization, if your
organization is smaller or seasonal, or if you don’t have strict regulatory requirements, the cash
method may be easiest.
• Internal Skill Set – The accrual method of accounting requires a high level of sophistication. If your
organization and its finance team are relatively small, it may be difficult to adopt full accrual
accounting.
While these factors are key to consider, more often than not nonprofits will require the need to adopt an
accrual accounting and budgeting method, based on the amount of payables and receivables, amount and
variety of funding, and size of the organization and budget. Smaller to mid-sized organizations may also
consider a compliant, hybrid approach:
3) Modified accrual combines both cash and accrual methods by allowing revenue to be recognized at the
time it becomes available, and expenses to be recognized at the time they’re incurred. Small transactions
and revenue are essentially recognized on a cash-basis method, and expenses on an accrual-basis
method.

5. BUILDING A BETTER BUDGET: THE NONPROFIT BUDGET ROADMAP
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BUDGET PROCESS PRACTICES
Clearly identifying and documenting a complete process is crucial to keeping everyone
involved and committed to the budget planning and preparation process.
Here are 10 key successful budget process practices:
1) Review financial performance
Review current year income and expenses compared to budget, forecast for the remainder of the year,
and analyze to determine financial health and position.
2) Prep for planning
Identify and assemble budget team/committee. Discuss and agree upon budgeting approach, budgeting
cycle, policies, and responsibilities of budget team members.
3) Establish a timeline
Set deadlines and determine committee review schedule. Include ample time for further review and
revisions to budget drafts before final approval.
4) Set goals
Determine organizational goals, program goals, and desired financial outcomes. Outline core activities the
organization will take on over the next year, as well as assumptions on how they’ll be financed.
5) Determine costs
Determine costs required to reach goals, estimate expenses associated with activities (including fixed
costs, variable costs, incremental costs, etc.), and estimate resources needed to meet expected goals.
6) Project income and forecast cash flows
Identify expected and anticipated income from funding sources, noting what funds may be restricted for
particular purposes. Summarize and understand when funds may be received throughout the year,
especially for fundraising-driven anticipated income. Determine initial needs for more income than might
be originally projected.
7) Draft budget
Construct initial budget and assumption details, based on research and information gathered.
8) Review and revise draft budget
Distribute draft budget to budget team, and collect recommendations, additional insight, and
assumptions. Adjust to align expenses and revenue, based on the goals and outlined needs of the
organization. Ensure everyone is in agreement with budget details and outline. Allow for enough time for
multiple budget revisions, if needed.
9) Approve budget
Prepare a budget proposal for the board and internal stakeholders. Include key program and
organizational goals, as well as information to support the numbers.
10) Implement budget
Distribute and communicate final budget internally, begin monitoring and tracking actual expenses and
income to the budget month-over-month, and prepare to update and revise the budget as needed
throughout the year.
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6. BUILDING A BETTER BUDGET: THE NONPROFIT BUDGET ROADMAP
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THE CRITICAL WHO’S WHO OF THE BUDGET PROCESS
There are many key roles and groups that contribute to developing a well-engineered and
sustainable budget.
A successful and tactical budget team should consist of:
Remember – an effective nonprofit cannot rely solely
on just one individual or focus area to prepare and
propose needs, expenses, and resources for the
entire organization. Input from accounting and
non-accounting team members is critical throughout
the budget process.
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CFO/Director of Finance
The finance team drives the budget process,
establishing guidelines and preparing the
budget in consultation with the budget team.
The finance role is instrumental in reviewing prior year
finances and performance, estimating expenses, setting
goals, estimating anticipated revenue, and planning for
needed resources. The Director of Finance (or CFO) and
the organization’s Executive Director work in tandem
during the budget process to align the needs of all
departments, help determine priorities, and manage
the entire budget process from prep to approval.
Program Director/
Program Manager
Program Directors help to provide clear and
realistic expectations for the resources and
dollars needed to support mission-critical programs.
While the accounting team can make an educated
guess, based on historical trends and year-over-year
numbers, the program team can help to set better
expectations for the year ahead when it comes to
prioritizing program needs; identifying challenges
and changes, based on external factors; and properly
allocating resources.
Executive Director
The nonprofit’s Executive Director works
on the budget in tandem with the finance
leader, while also developing and driving the
strategic plan for the organization – ensuring budget
goals match and meet the needs for the year to come.
The most successful nonprofit budget properly aligns
to and complements an annual plan. The Executive
Director plays a pivotal role in guiding the organization
toward financial sustainability, based on the determined
strategy and tone for the year ahead.
Development Director
The fundraising/development department is
key to providing an accurate representation
of future cash flows, based on planned and
projected fundraising efforts. These donor dollars will
play a pivotal role in funding program expenses and
forecasting for additional resources.
Board of Directors
and Board Treasurer
The board doesn’t just provide approval of the
final budget, it plays an even more important
role in setting the strategy and tone for the year ahead.
Direction and focus should be communicated from the top
down to help steer the organization in the right direction.
This may include developing new programs, improving
fiscal responsibility, expanding services, and more, to
which proper budgeting and allocation is vital. The board
and treasurer should also consistently review, update,
revise, and monitor the budget throughout the year.

7. BUILDING A BETTER BUDGET: THE NONPROFIT BUDGET ROADMAP
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ASSESSING, REVISING, AND MONITORING THE BUDGET
A successful budget isn’t one that’s created, approved, and tucked away. It must be continually
monitored and revised throughout the year. While a final budget is indeed approved, certain
factors and unplanned changes can result in the budget becoming less than realistic in
meeting organizational goals.
You must consider your budget somewhat fluid, revising as needed to account for:
• Changes in actual funding received versus projected funding (such as receiving more or less from
planned grant funding or fundraising activities)
• A shift or pivot in the strategy or direction of the organization
• Unforeseen events (disaster, legal, economic)
• Organizational structure change (such as consolidations)
• Unexpected regulatory changes
Monitoring a better budget with technology
Technology can help organizations better and more easily track, revise, and monitor budget activities
throughout the year. Purpose-built software enables you to:
• Create multiple budget worksheets, based on specific programs or grants, and added together to roll
up and display as the total budget
• Track revisions from version to version
• Report on multiple budget versions – original budget versus revised budget
• Manage and report on the entire budget and all programmatic budgets within one application, instead
of multiple spreadsheets
• Create budget variances to help determine if further revisions are needed, based on budget
versus actual
• Grant executive view access to provide further visibility into financial performance compared to budget
throughout the year
Learn more about true fund accounting™ and what powerful budgeting capabilities coupled with purpose-built
technology can do for your organization at abila.com/mip.
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8. BUILDING A BETTER BUDGET: THE NONPROFIT BUDGET ROADMAP
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ARE WE THERE YET?
THE BUDGET CALENDAR
JULY/AUGUST
2016
JULY/AUGUST
Planning and Prep
Review financial performance
(prior year and forecasted year-end)
Assemble budget team and assign responsibilities
✓
✓
SEPTEMBER
Timeline and Goals; Estimate and Draft
Set deadlines and review schedule
Determine organizational and program goals
Determine expenses, project income, forecast cash flow
Draft initial budget
✓
✓
✓
✓
SEPTEMBER
2016
OCTOBER
2016
DEC/JAN
2016/2017
NOV/DEC
2016
OCTOBER
Review and Revise
Distribute draft budget; collect recommendations;
and revise, based on feedback and assumptions
Rinse and repeat if needed
✓
✓
NOVEMBER/DECEMBER
Propose and Approve
Prepare budget proposal
Seek final approval from board
✓
✓
DECEMBER/JANUARY
Implement and Monitor
Internally communicate budget and goals for
the new year
Begin managing, tracking, and monitoring actual
to budget
✓
✓
Properly planning one’s budget is crucial to ensuring mission achievement. Once created, it should serve as the guide
to managing your nonprofit’s programs and financial responsibilities throughout the year. As a rule, a schedule should
be established four months prior to the end of the fiscal year to ensure key stakeholders – including the board of
directors – are committed, in agreement, and ready to tackle the budget process.
Time to start planning!
Here’s what your calendar year-end budget preparation schedule should look like:

9. BUILDING A BETTER BUDGET: THE NONPROFIT BUDGET ROADMAP
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