Nonprofit GPS

Your Personal Navigation System Through Not-for-Profit Accounting Issues

Creating an Error-Free Budget

Alright, I’ll admit the title of this article is rather deceiving. Unless you’re just a naturally lucky accountant or a psychic, chances are you will have errors in your budget causing you to go over or under the projected budgeted amounts from the beginning of the year. I wish I had better news for you; however, the truth of the matter is no one’s perfect.

So, how can you come close to creating an error-free budget?

  1. It should be realistic and present a reasonable estimate of total revenue and expenses for the coming year. Be aware that expenses should be consistent with revenue. If you notice that it is not, then I highly recommend reevaluating the budget. (It costs money to generate revenue!)
  2. It should be flexible and monitored regularly. Otherwise, why go through the effort? Also, it is okay to amend a budget if major changes occur, such as shortfalls in fundraising efforts or adding/eliminating a program.
  3. Consistency is key. A budget should be consistent with the organization’s long-term objective. If not, then the organization may lose focus of its mission.
  4. It should be descriptive by showing individual general ledger accounts instead of summary totals. This is especially important if a governing board or management is reviewing the data to prevent or detect fraud within the organization. This will also alert management of any accidental misclassifications.
  5. For every draft of the budget, carefully document any changes made so there is no question where any number comes from.
  6. Budgeting requires a group effort, so don’t forget to chat with the organization’s various departments and key employees and consider having those responsible put together departmental budgets that roll up into the overall budget.

By Kristian Haralson