Budget basics: Some key points to remember. (Accounting).

For some nonprofits, the annual budget-preparation time is a nightmare. It's a period of enormous stress and strain, as personnel at various levels of management strive to put together "numbers" that hopefully will be valuable over the upcoming year.

All too often the financial budget

becomes an end in itself. Just getting it finished is seen as an accomplishment. What can be lost along the way is the roadmap that can help an entity use its resources in the most efficient, and sometimes most imaginative, ways possible.

If approached in the right spirit and with the right plan of action, budgets can be enormously valuable tools that will give the nonprofit's management team a tremendous amount of information. It can provide not only the traditional benefit of matching an organization's "money" with its needs, it can permit the organization's leaders to see how the various departments (or groups, or functions, or areas) view their own contributions to the enterprise, as well as what they believe they will require to bring those contributions to fruition.

Books have been written on the subject of budgets, how they work and how to create them. Here are a few quick, basic rules to keep in mind when creating and using a budget:

1. Every organization needs a budget, no matter how small or how uncomplicated its operations may be;

2. Avoid needless detail;

3. Establish a process for comparing budgeted amounts to actual results;

4. Be flexible when applying the budget during the year; and,

5. Be prepared to look beyond the current year.

Every organization needs a budget. The budget is simply a financial plan, one of many types of plans that any nonprofit will have. An organization will set any number of goals that it hopes to reach in both the near and long term. The budget is the way in which the reality of limited resources can help management to prioritize those objectives.

Sometimes nonprofit enterprise -- smaller ones, in particular -- do not take the time to formalize plans. It happens perhaps because it seems there just is not enough time or because the mission or goal is so clear to the governing board and its management that they believe it simply is not necessary. But, it is very necessary.

Even if it is only a single page long, seeing in print the dollars and cents of what monies are expected, and how they will be spent, is an exercise any responsible board and its managers must go through. Without a formal budget, there is no blueprint for the organization to follow, and there is a very real potential for overspending -- or underspending -- both of which can have serious consequences.