Budgeting in a Not-For-Profit (NFP) Organization

Many people feel that “budgeting is budgeting” regardless of the organization that you are in. That is not always the case. Effective and more precise budgeting is far more essential in an organization with slim margins and/or organizations that need to carefully manage cash. There is no industry where this is truer than a NFP.

Budgeting in a NFP is not only “mission critical” it is essential for viability or sustainability. A NFP must carefully prepare for the forthcoming fiscal year by both managing resources and ensuring that it properly and effectively fund the organization strategy.

At the same time, a NFP has limited resources for budgeting solutions. So the organization with the greatest need has the fewest resources to apply to the problem. Resources may include money for a system, IT support for that system or personnel who need to be trained on how to use a system. So, NFPs need to balance cost of ownership, cost of support and user training for a new product. Ensuring that staff are engaged and on board with organizational strategy is actually another key consideration of NFPs. Because many employees are drawn to NFPs because of the mission (not necessarily the salaries or benefits) – it is extremely important that NFPs take every opportunity to engage these individuals in the strategic planning process. So end-user acceptance for a new product is also critical.

Because of these considerations or “barriers” to change, many organizations continue to budget using Excel worksheets – seemingly a “free” solution. However the hidden costs of this approach include frustration with the lack of flexibility from the department managers and manual collection of information and re-keying of data for the financial team, not to mention the potential of errors and a lack of a true database to get strategic insights from reporting and analysis. The benefits of a purpose-built solution for NFPs far outweigh the cost.

To illustrate these benefits, consider these 5 criteria that are critical for the NFP budgeting success:

  1. User experience – is particularly important in a NFP because department managers are less likely to be comfortable with Excel (as well as the budget preparation process). These people would prefer to have a system that can walk them through the process with a guided-user experience – like a GPS designed just for budgeting.
  2. Flexibility – Department managers want the flexibility to budget their departments the way they think about them. This means that each user needs to have independent functionality to budget different accounts different ways depending upon need.
  3. Intelligence – (built in knowledge of budgeting, forecasting, workflow, revenue, expense, personnel, equipment) – for NFPs perhaps more so than any other industry, budgeting is critical to success. The budget needs to be aligned to the strategy and the strategy needs to drive the budgeting process. This cannot happen without built-in intelligence.
  4. Cost of ownership – Cost of ownership has multiple components. There is the cost of the software, the cost of the hardware to support it, the cost of the implementation of the product and the personnel cost of maintaining the application. NFP’s want to minimize or even eliminate some of these costs. They simply do not have the funds for large-scale applications that require Fortune 500-type resources.
  5. The Cloud – Cloud computing is a must for NFP’s. It offers the best user experience, the most flexibility to budget where and how each department head wants to budget, has built-in budget intelligence to simply deal with the complexities of NFP budgeting. And finally, because there is no hardware or software to buy and install and it is subscription-based, it offers the lowest overall cost of ownership and the shortest implementation times.

 

Effective budgeting in a NFP is required for sustainability. Packaged, cloud-based applications that allow for superior user experience and flexibility with low cost of ownership can make a huge difference for these organizations – and for their most valuable resource of all: their staff.

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