Nov 27, 2023

Don’t Leave Money on the Table — Maximizing Your Budget for Your Fiscal Year-End

maximize your budget

Managing your annual budget—and multiple budgets within it—is one of the most crucial components of running a nonprofit organization. Understanding where your funds go and how they come in allows you to make better decisions that benefit your bottom line and streamline your financial close-out once the fiscal year-end comes around. 

Learn more about what a nonprofit fiscal year is and how you can arrange your budget to best meet your organization’s financial needs below. 

What is a Nonprofit Fiscal Year? 

The nonprofit fiscal year is 12 consecutive months, and it can end on the last day of any month except for December. There is also the 52-53 week tax year—a fiscal year that can be 52 or 53 weeks and doesn’t have to close out on the last day of a month. In contrast, the calendar year used for tax filing is from the first of January to the 31st of December. If your organization wants to change its fiscal year, you will likely need to fill out an IRS Form 1128. 

Nonprofit organizations often follow a fiscal year that doesn’t align with the calendar year, which they adopt for various reasons. Keep in mind that having your fiscal year match the standard calendar tax year could make it easier to meet deadlines and manage your finances, depending on the specifics of your organization. 

Some nonprofits’ activities and donations increase exponentially during the winter holiday season. These entities may decide to follow the fiscal year to avoid closing out their financials and sending numerous giving statements alongside managing the many other obligations they have to handle during this time. 

Creating an Effective Budget 

Managing your fiscal year involves creating a budget that works for your organization. Typically, finance and development teams work together on finalizing a budget, which is a months-long process.  

Your budget will give you a comprehensive look at your organization’s expenses and the revenue you anticipate throughout a given financial period. Check your budget periodically to ensure your projected expenses and income closely match your actual finances. If they don’t align the way you expected, you’ll need to adjust your budget to get the most accurate and effective usage from it.

A nonprofit will usually have two different budgets: 

  • Capital budget:Your capital budget covers the expenses of long projects that may span multiple years, such as capital campaigns. When planning a capital campaign, include your capital budget within the amount of money you expect to raise. Doing so can help you ensure you receive enough funding to cover those costs. Expenses can include anything from marketing and events to computer hardware and travel costs. 
  • Operational budget: This is the typical budget that includes your costs and revenue. For nonprofits, income should be categorized by each funding source and predicted using a forecasting technique. This approach helps give you extra room if you don’t meet your anticipated revenue. You can forecast potential revenue by studying philanthropic trends and historic giving patterns and applying techniques like the discounted cash flow method. Your expense budget will include your overhead and program costs, with administrative and fundraising expenses contributing to your overhead. 

To make your budget truly effective for your nonprofit, ensure it includes measurable metrics and defined activities. Every activity and event should have its own budget that fits your overall plan.

Keep your goals realistic. Study past metrics for your organization’s expenses and revenue to avoid having unclear activity budgets or not safeguarding yourself against making less revenue than planned. 

financial position

Do You Have to Break Even?

Nonprofits have to fund their missions first. However, your budget doesn’t always need to be perfectly balanced to work. Understanding this can remove some of the stress of creating a budget and help you form a workable strategy specific to your organization’s needs. If your current financial position requires an approach outside of growing for the fiscal year, don’t be afraid to start planning for this instead of struggling to balance your budget. 

Some nonprofits may develop a surplus budget to raise a higher percentage of revenue than expenses compared to the prior year, often to pay off debt or build reserve funds. If successful, this approach will leave your nonprofit financially healthier at the end of the year and can provide money for current and future expenses. On the other hand, some organizations may adopt a budget where the margins shrink so they can put their reserves toward investments or spend their surplus funds on needed equipment or employee raises. 

Although budget deficits are detrimental when unplanned, strategizing for this is sometimes necessary to gain a better financial position in the future. Making a lucrative investment can pay off in the long run by increasing your revenue and providing additional benefits, such as better marketing campaigns or improved employee retention. 

Maximizing Your Budget 

Whichever type of budget your organization adopts, it’s essential to make the most of it so you can use your funds efficiently, stay on top of all expenses, and show your donors and sponsors that you can professionally manage their funds. To maximize your nonprofit’s annual budget, consider these tips: 

  1. Start with a goal and track it. Nonprofit budget goals are critical for planning and managing an organization’s financial resources effectively. 
  2. Employ data sharing: Use software like GiveSmart and MIP Fund Accounting that allow both departments to access and update financial and donor data efficiently. 
  3. Have a crisis management plan:A financial crisis management plan will help you proactively address existing financial issues and respond to any economic crises that may affect your organization. The ideal strategy should delegate responsibilities to specific employees, include actionable recovery steps, and establish communications for informing your donors and partners. 
  4. Plan for big expenses: Depending on your nonprofit, you might make most of your income during a specific time of year. This can create situations where you host an event or encounter another major expense but don’t yet have enough funds to cover it. Analyzing your cash flow ahead of time can help you plan for the deficit accordingly and reallocate resources as necessary.  
  5. Consider external factors: Businesses and organizations understand that any external factors can significantly affect their expenses and revenue, whether a natural disaster, pandemic, or another major economic event. Stay up to date on the current local, national, and international climates to more effectively adapt your budget to any sudden economic changes. 
  6. Cut out unnecessary spending:Not all expenses are created equal. Look at your lower-priority expenses and decide which ones you can afford to decrease or go without, at least for a given period — these will likely be some of your variable costs. Reducing or eliminating these will free up more income you can use for higher-priority tasks. There are also many ways to reduce costs without sacrificing the quality of your programs and services.  You can negotiate with vendors, eliminate unnecessary expenses, and automate tasks. Use financial reporting software to track your spending. This will help you identify areas where you can cut costs or find new sources of revenue. 
  7. Be flexible and adaptable. Things don’t always go according to plan, so it’s important to be flexible and adaptable with your budget. Be prepared to adjust your budget as needed throughout the year.
  8. Optimize your programs: If some of your programs aren’t performing well, consider phasing these out of your budget and working with your business partners to create new ones that better fit your target audience. For instance, virtual fundraising opportunities have grown in popularity in recent years, with more donors choosing online giving. Taking a digital approach could yield better results for low-performing programs. 
  9. Diversify your revenue streams: There are many ways to generate new revenue for your nonprofit organization. You can apply for grants, hold fundraising events, strategize a monthly giving campaign, employ matching gifts, solicit corporate giving, and more. 
keep your data organized with GiveSmart

Keep Your Data Organized with GiveSmart and MIP Fund Accounting 

Putting together an effective nonprofit annual budget means keeping track of your donors and other funding sources, plus managing essential data like campaign performance. With data collection and integration capabilities from GiveSmart and MIP Fund Accounting software, you’ll always know how your fundraisers are performing so you can easily share comprehensive reports with everyone on your team.  

These solutions from the Community Brands network combine your event execution, reporting, and customer relationship management tools for a holistic overview of your successes. Each tool is easy to use with intuitive processes and built-in automation that reduce manual or double data entry, eliminate errors, and save your staff time and your organization money. 

Additionally, our donor management software enables you to track donor retention rates, multi-payment pledges, and much more for more intuitive revenue forecasting.  

See how GiveSmart and MIP can help you develop the best budget possible for your nonprofit by requesting a demo of our software today. 


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