Tag Archive for: budgeting

Your Budget Isn’t Enough: The Forecasting Advantage for Nonprofits

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Let’s be real: Budgets are static. Forecasts are strategic.

Most nonprofit leaders excel at building a budget—usually because it’s required by the board or bylaws. But what happens when reality deviates from the plan? In this episode of A Modern Nonprofit Podcast, Tosha Anderson sits down with CPA and nonprofit finance expert David Steffens to explore why forecasting is the critical tool for organizations seeking financial clarity and long-term sustainability.

Why Budgeting Alone Doesn’t Cut It for Nonprofits

Budgets are essential. They reflect your intentions, priorities, and strategic vision. But there’s a problem: the moment your budget is approved, it’s already outdated.

A budget shows where you wanted to go. A forecast shows where you actually are—and where you’re headed. As David Steffens explains, “A forecast is your GPS. It keeps you out of trouble.”

That means forecasting helps you:

  • React to cash flow changes
  • Adjust for revenue shortfalls or windfalls
  • Respond to unexpected program shifts or delays

Forecasting as a Nonprofit’s Financial Early Warning System

Many of the financial challenges that derail nonprofits—unexpected capital expenditures, seasonal fundraising gaps, timing mismatches—aren’t included in the original budget.

Forecasting gives nonprofit leaders a strategic advantage by allowing them to:

  • Model different financial scenarios
  • Spot risks before they become emergencies
  • Make informed decisions in real time

It doesn’t have to be complex. Start with your existing budget. Then, update projections monthly or quarterly. Replace budgeted numbers with actuals and monitor both net income and cash flow impact. The goal? Shift from reactive firefighting to proactive planning.

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Budgeting Mistakes Nonprofits Make (And How to Fix Them)

David and Tosha also break down common budgeting missteps they see again and again in nonprofit organizations:

1. Skipping Cross-Team Input

Budgets built in silos—especially without input from the development team—often miss the mark. Revenue targets must be aligned with fundraising capacity.

2. Plugging Numbers to “Make It Work”

Trying to force a break-even budget by padding numbers leads to unrealistic expectations. It’s better to face deficits honestly and plan accordingly.

3. Ignoring Seasonality

Revenue and expenses rarely follow a straight line. Forecasting helps you account for timing differences that could otherwise trigger cash flow crunches.

4. Overlooking One-Time Cash Events

Loan repayments, capital purchases, or delayed grants can all strain cash unexpectedly if not forecasted.

The fix: Build your budget with your team—not for them. Collaborate, test assumptions, and revisit the plan often.

How Forecasting Leads to Smarter Nonprofit Decisions

When you forecast regularly, you can confidently answer questions like:

  • Can we afford to hire that new program manager next quarter?
  • How big is our real fundraising gap?
  • Will we need to tap reserves—and when?
  • If revenue dips, what programs or expenses are at risk?

These aren’t just financial questions. They’re strategic decisions—and forecasting empowers you to make them with confidence.

Budgeting Is the Starting Point. Forecasting Is the Strategy.

If your nonprofit is still budgeting once a year and crossing its fingers, it’s time to level up.

Forecasting isn’t just good financial hygiene—it’s a strategic necessity. It transforms your leadership conversations, increases board confidence, and helps ensure your mission remains funded and focused.

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Comparing Your Nonprofit Budget to Actual

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One of the best ways to get a quick read on your organization’s financial health is to compare your nonprofit budget to actual performance.

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Budget Tracking for Nonprofits

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Budget tracking is the process of monitoring your nonprofit’s income and expenses to ensure they stay within your planned budget.

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A Beginner’s Guide to Nonprofit Budgeting

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Nonprofits are not run to make money. But they do make serious progress.

More than 1.5 million nonprofits are registered with the IRS. They contribute more than one trillion dollars to the economy. One-quarter of American adults volunteer with a nonprofit, helping their community on a number of issues.

You will make a difference as soon as you start a nonprofit. But you can make a real difference if you understand nonprofit budgeting.

However much money you have, you need to know how to allocate it into worthwhile projects. There are a few things you should understand in order to do that. Here is your quick guide.

Distinguish Nonprofit Budgeting From for-Profit Budgeting

You may have experience in budgeting and accounting for for-profit organizations. That will help you when budgeting for a non-profit. But you should know that there are substantial distinctions.

For-profit businesses are accountable to their investors. They have a lot more autonomy accordingly. As long as they are within the bounds of the law, they can take any measures they need to make money.

A nonprofit organization is accountable to anyone who donates to it. They must report how they use their funds, then they must hold to their word.

For-profit organizations distribute their profits to their investors. Nonprofit organizations must reinvest their profits into themselves. They can pay for full-time employees, but all profits must be built for the greater good in some way.

Nonprofits are exempt from paying taxes on their funds. This makes tax forms far easier. But they are liable to payroll taxes, just as for-profit groups are.

Break Down Your Budget Components

Your budget as a whole should allocate resources for all operations. You will make clear how these resources are allocated in several ways.

The nonprofit budget is actually two separate documents. The operating budget shows what the projected revenue of the year will be. It also logs the expenses of the entire organization.

All nonprofit funding streams should be defined. When possible, the budget should list the names of donors. This helps with donor management and transparency.

You should also distinguish your different expenses. You incur both program and overhead costs. List out every cost there is, even small ones.

While the operating budget looks at one year’s financial picture, the capital budget looks long-term. It projects what the future expenses and revenue will be, given the track record of ongoing and multi-year projects. This helps executives strategize.

Every budget component should correspond to a specific activity. If there is an unnecessary cost, it should be cut out. If there are leftover expenses, those should be used in some way.

Conceive the Budget Itself

The process of making the budget should begin early on. The board of directors should discuss, debate, and approve the budget before the start of the fiscal year.

Start by negotiating a timeline with the board. Make sure you have time to write it out, but you should leave enough time for them to discuss it.

Agree on what the budget template should look like. Have the board give you the budgeting resources that you need. This includes money set aside for professionals to look over your work.

Review all relevant financial documents, including last year’s operating budget. If there is any variance between actual revenues and projected ones, understand why that is the case.

Take time to do your research. Talk to the nonprofit’s accountants and external financial advisors.

Develop several drafts of your operating and capital budget documents. Ask other budgeting experts to oversee your work. Take their suggestions and make edits accordingly.

When you have a good final draft, deliver it to the board of directors. If you can sit in on their meetings, do so. Answer their questions and ask new ones about what the future of the company will look like.

Run Budget Reviews

Budget reviews are essential components of a nonprofit’s financial life. Because nonprofits must put all revenues back into the organization, budget reviews are check-ins to ensure that this is being done.

You should conduct a personal review every week. You should check to make sure all financial goals are being met, especially with funding. If your nonprofit is using too much money, it will run into trouble.

You should then conduct a teamwide review every month. All of you should look over the finances for the month.

You should examine the balance between budgeted and real-world expenses. Your team should take note of all discrepancies so future budget components fall in line.

You should also conduct quarterly reviews. This is when you review the entirety of the budget. You can track previous discrepancies and see if they line up with actual revenue streams.

An annual review loops other relevant parties into your nonprofit’s financial picture. You should tell the CEO how the budget stayed on course over the last year.

The two of you can talk about program outcomes. If something did not work, you can cut it or adjust its funding. Use their oversight to adjust the budget for next year.

Know About Nonprofits

Nonprofit budgeting is important to your nonprofit’s financial footprint. Whatever experience you have with for-profit budgeting, put that aside. You need to report how all of your funds are used to support your cause.

When making a budget, be as specific as possible. Distinguish between real and projected expenses and revenues.

Take time drafting out your budget. Set clear terms and expectations with the board of directors. Then run several budget reviews, including an annual one with the CEO.

Get the support you need to make a difference. The Charity CFO offers premium budgeting resources for nonprofits. Contact us today.