Essential Budgeting Tips for Nonprofits

The beginning of the new year is a good time for many nonprofits to review their budgets and plan for the year ahead. Although it may not be as critical a time as the beginning of a new fiscal year, many nonprofit organizations will use this opportunity to review their plans and goals for the upcoming months.

For those looking to strengthen their financial positions while working toward their long-term goals and mission in 2025, there are a few practical budgeting tips and tricks worth keeping in mind.

Look Beyond Profit and Loss

All too often, nonprofits will focus too much on their profit and loss results from the previous year when budgeting for the new year. And while it’s true that profit and loss information can be useful in making financial decisions moving forward, it’s far from the only factor that should be taken into consideration.

Instead of looking just at profit and loss, decision-makers at nonprofit organizations should avoid looking too closely at break-even bottom lines and instead take other indicators into consideration. In doing so, organizations can set themselves up for greater success while minimizing certain financial limitations that could prevent them from achieving their objectives and mission.

Rethink Fundraising Strategies

Another tip worth keeping in mind when it comes to budgeting for a new year is to ensure that fundraising teams and donors are on the same page regarding where money should be going. For example, nonprofits may find that they need to provide more education to their donors to show them how funds are being allocated for long-term improvements rather than short-term needs. Taking this approach can help organizations to improve their own liquidity while ensuring that the funds they’re raising are actually going to the causes and initiatives that are most important to them.

Calculate Liquid Unrestricted Net Assets (LUNA)

One common metric that nonprofits tend to overlook when it comes to their budgeting and finances is liquid unrestricted net assets (LUNA). Specifically, this metric measures audited or internal financial statements, calculating new assets without donor restrictions minus net property before adding debt that’s been used to finance an organization’s fixed assets.

While this may seem like a complicated metric to track, the reality is that knowing an organization’s LUNA can help teams better understand their financial situations while planning for future growth. This metric can also be essential for organizations trying to determine whether they need to increase fundraising efforts or better align future changes with the nonprofit’s overall mission.

Make Adjustments as Needed Year-Round

Another common mistake nonprofits make from a budgeting standpoint is failing to make adjustments to their budgets throughout the year. While the idea of a budget is to have something to stick with for the entire fiscal year, the reality is that changes may need to be made in order to keep things running smoothly. Ideally, monthly reviews should be conducted to ensure that income and expenses are aligned properly with planned budgets. Meanwhile, financial committees should be involved in the process of reviewing and making changes to budgets whenever possible.

Take Advantage of Tools and Technology

Last but not least, nonprofit organizations are encouraged to research and implement tools and technology that can help them streamline their budgeting and finances. This includes not just basic budgeting software, but automated tools and other innovations that could reduce the risk of financial errors and even assist with projections and forecasting.

At the same time, when new tools and technologies are implemented, nonprofit organizations must set aside enough time and resources to provide team members with the proper training and onboarding. This will ensure that everybody who uses the new software knows how to use it properly and that the entire organization can benefit from it as much as possible.

Know When to Seek Additional Guidance

The nuances of nonprofit budgeting can be rather complex, even for those who are well-versed in fundraising and other aspects related to nonprofit finances. Implementing these tips and strategies can be a great way for nonprofits to optimize their financial health in the coming year — but in some cases, additional help may be needed.

By consulting with a financial advisor who specializes in working with nonprofit organizations, it’s possible to get the personalized recommendations and guidance needed to make the most of the new year. If you have any questions or would like additional information, please contact us.