It takes time to develop an effective budget. But it’s time well spent because an effective budget is much more than a spreadsheet. It’s a financial blueprint that ultimately guides program activities and fundraising efforts in the upcoming year and reflects your organization’s short- and long-term plans.Your budget provides financial structure. It should also be flexible so you can amend it to address unexpected cash flows. The more effort you put into creating a budget, the more accurate -- and effective -- your budget will be.Organize the ProcessThere are several people who need to be involved in the budget process and others you may wish to include. The executive director, board treasurer, program directors, and staff members involved with the organization’s finances and budget are all key people. Having an outside accountant participate will add an unbiased, professional point of view.The budget process could take a long time to complete, so find out when the budget has to be approved and work backward to create a timeline. Establishing interim deadlines and scheduling key meetings at the beginning of the process will help keep things moving. Be sure to build in plenty of time for the board to review the budget and make revisions.Keeping everyone on the same page will help things run more smoothly and eliminate confusion. Spell out specific responsibilities and expectations. Establish standard definitions and write down the assumptions that will be used to calculate budget figures.Drafting the BudgetBefore you start plugging in numbers, make sure your budget line items are in sync with your accounting line items. This simple step will save time and reduce confusion. To complete the first draft of your budget:

• List the programs and fundraising activities planned for the coming year.
• Gather income and expense information for each program and validate the data.
• Include budget amounts and actual totals from the previous year.
• Be conservative when estimating revenue.
• Build in reserves for unexpected expenses.

In-kind donations (e.g., office space, staff hours, computers, supplies, etc.) generally do not affect your organization’s bottom line. However, you should include them in your budget (at fair market value) to get an accurate picture of your organization’s financial situation.The Board’s RoleThe board finance committee is typically responsible for reviewing and responding to the proposed draft budget. There may be several rounds of modifications before the final draft is ready for the full board to review.Have the treasurer or finance committee present the actual budget proposal. Allow plenty of time for the board to review the budget and ask questions prior to taking a vote. Providing copies of supporting documents with the budget proposal may help expedite the approval process.A Working BudgetHow you use your budget is just as important as how you create it. Instead of filing it away once it’s approved, compare budget amounts with actual expenses and revenue on a regular basis. Include board members and executives in the review process so they can monitor whether the budget is achieving the organization’s goals. If you make any revisions, document the changes. If you have time, keeping notes about overall budget performance will help you fine-tune next year’s budget.A Cash Flow BudgetCash flow can be a problem for many nonprofits, especially smaller ones without predictable revenue streams that rely mainly on donations and fundraising activities. It can also be difficult for organizations with missions related to natural disasters and other unpredictable factors. In addition to having an operational budget, having a cash flow budget -- a month-by-month forecast of receipts and disbursements -- can help organizations avoid cash shortfalls.It’s All GoodAn effective budget is a blueprint that makes sure everyone is on the same page and is focused on the same mission-driven goals.