Are Budgets Restrictive?
This blog post is adapted from a recent Facebook Live about Budgeting....
A lot of people have angst with the term "budget." Many think budgets are very restrictive and confining and that’s what I wanted to explore today, “Are Budgets Restrictive?”
It’s important to understand that a budget is basically an estimate. It’s an estimate of how much money you will make and how much money you will spend. To a degree budgets may seem restrictive, but in a positive way it can be very liberating. I recently blogged about the following benefits to having a solid budget:
1) Budgets help direct your management decisions
2) Budgets help track the financial data for your Board Reports
3) Budgets help support effective Grant proposals
There are other benefits to budgeting, but again sometimes our mindset is to have resistance against budgeting. It may seem overwhelming or too hard. If you think about it, we Budget in our personal lives everyday. We estimate how much time it will take us to get from point A to point B or we budget, or estimate, how many ingredients to make a meal or how long it will take for something to cook. We use numbers frequently and the budget is essential for nonprofits. All nonprofits should have a very solid, very thoughtful budget for all your activities.
I’m going to share two other benefits to having a solid budget.
1) Budgets Encourage Strategic Planning
I found that a lot of smaller nonprofits tend to be in reactive mode when it comes to making decisions or they make impulse purchases. However, if they have a budget outlined very clearly, it's easier to work within that range. It may seem restrictive, but it can also liberate you from making poor choices that may lead to a snowball of other issues down the line. No one wants to have that meeting with the Board about why expenses were too high or why you didn't hit your revenue goals. Having a budget that you look at on a regular basis and compare it to what you actually spend helps you in the long term. It helps you strategically plan. How much in supplies are you going to spend and how will that impact the people participating in your organization. Overall, it encourages your Strategic Planning and gets you out of reactive mode.
Side Note: A lot of times people feel like, “If our budget is set in stone, then we can't go beyond or there's no wiggle room.” It's very common to do a mid-year revision at the end of second quarter or the beginning of the 3rd quarter. It is very common to revise your budget so fear not. It doesn't have to be so set in stone, but you do have to start somewhere.
The second benefit of having a solid budget is
2) Budgets Guide you to your Year-End Target
We don't want to have a deficit at the end of the year, so by having a budget, managing it and reviewing it regularly, you can meet your year-end financial goals. Again, you don't want to get to the end of the year and there's a snowball of issues and you find yourself at a loss.
This month, I will continue to explore Budgeting and I'll walk you through step-by-step process for those who are overwhelmed at the thought of it or if you think a budget is too restrictive Remember, a Budget is essential and it can be liberating!