Myth #37 - "We Don't Have A Budget"

Many startup nonprofits have immediate financial issues - mainly, fund-raising. The first question I always ask is, "What is your budget?" An answer I get often is, "We don't have a budget."

That is a myth. Every nonprofit (every organization!) has a budget. Some just haven't written it down. Those are the ones in real trouble.

You can create a historical budget from your organization's bank statements. If you are paying your nonprofit's expenses from your personal account, you have even more issues than not having a budget.

Your nonprofit is its own entity - it is not an extension of you. It has its own bank account and it pays its own bills. If you as founder need to cover expenses, you need to donate the money to the nonprofit, deposit the donation in the nonprofit's bank account and then the nonprofit pays for its expenses from that account. Don't just pay expenses from your account!

A monthly budget should list and total your organization's monthly expenses on one side and its income on the other. A balanced budget means you bring in as much as you spend.

An annual budget is twelve months of the monthly budgets, added together. An annual budget will also contain the items that are only paid annually - property taxes (perhaps), annual insurance premiums, and so on. So, the annual budget is probably more than just twelve times the monthly budget.

For the income side, you budget where the money is raised - donations, fund-raisers, grants, service fees, unrelated income. You can project one year's income from the previous year's history.

Your organization's first few budgets probably won't balance. This is reasonable, as long as the differences are not too great. The way the budget usually gets balanced is "founder's donations."

Your organization's very first budget may just be expenses - which is a good starting point for the board discussion on how funds will be raised. Without a written document of expenses, the board has no idea how much money is required to operate the nonprofit.

Working from a budget is a critical step towards good money management for a nonprofit. All nonprofits have emergencies, and the budget should have a contingency fund to cover those. However, most of the organization's expenses are predictable - and those should be documented in the budget. If you and your board expect to be applying for grants, then having good financial records, including showing that your organization can stick to a budget, will be critical.