Nonprofit Budget Monitoring Best Practices

Budgets guide your nonprofit’s operational plans, detailing organizational year-over-year performance. It’s crucial to monitor your budget and review it as the year continues, and the right fund accounting software can make the ongoing changes and adjustments to reflect operational progress far more manageable.

Source: Sixth Edition Nonprofit Trends Report, Salesforce

Budget assessments are critical and provide visibility into your organization’s financial performance. They help your organization determine where variances lie, the size of those variances, and the amount of unbudgeted expenses or revenues. With that information, your organization can adjust and realign its strategic plan.    

Depending on what your assessment brings to light, you’ll either make a budget revision, amendment, or develop an entirely new budget. We’ll explore each scenario below:

Nonprofit Budget Best Practices

Budget revisions

A budget revision is when your organization makes a small change to its budget.

Even if your budget is still performing as planned, you may determine that a small change or adjustment could help your organization exceed its financial performance through the remainder of the year.

For example, at the halfway point of your year, you may shift funds from one initiative to another if an initiative falls short of its revenue goals.

Budget amendments

If your results indicate your organization is falling short of operational goals or on track to miss the year-end forecast, it’s time for a budget amendment.

For example, if revenue looks to be falling too short or specific fundraising goals cannot be met, your organization will want to amend its budget.

Start the amendment process by reviewing organizational by laws. Your organization will likely need to undergo an approval process, including the Board of Directors.

Common budget amendments include:   

• Seeking additional sources of funding
• Postponing the start of a program to delay the expense to the next fiscal year
• Planning for new gifted assets or fundraising dollars to provide budget relief for specific areas of the organization

Re-budgeting

You should consider a re-budget if your organization needs to change its mission priorities, strategy, or individual programs significantly. Re-budgeting allows your organization to realign operational priorities while maintaining services, programs, and operations.

You should only consider this process when internal or external changes extensively affect overall operations. 

For example, a significant loss of revenue and funding, coupled with increased expenses and program changes, may be so considerable that a new budget outlining a new understanding of the organization’s projected year-end forecast is essential.

This process will also need to go through board approval, and if re-budgeting is required, it’s crucial to create multiple budgets to account for remaining year-end forecasts. Fund accounting software makes it easier to model those scenarios and present clear options to your board and external stakeholders.