Actually you can.

Budget writing is one of the minefields for start-up nonprofits, where you probably don’t have seed money, savings or an endowment, and need to run the business on current revenues.  But writing a budget doesn’t have to be a scary or onerous proposition, although you should be prepared for a lot of research and several drafts.

Here’s a step by step overview of the process.

Step zero
A budget has two sides– revenue and expenses. I see a lot of budgets that have only a revenue side, believe it or not. The number one rule of business is that it costs money.

The Format
It’s a spreadsheet, of course, even though most of us now create budgets through software. Have a chart of accounts– these are the lines on the spreadsheet. QuickBooks and other small business software have boilerplate Charts of Accounts. This is simply a list of accounts in an accounting system into which you can enter records. Accounting software has standard account names, but you can call accounts anything you want. Stick to the template account numbers, as these are divided into generally accepted types of accounts, that is accounts in the “7000”s are likely to be payroll and personnel, 5000s are generally earned revenue, etc.

Have classes or programs– these are columns on your spreadsheet, and will be things like General and Administration, Fundraising, Program A, Program B. Breaking out program costs will help you stick to the budget, and will make it easier to create budgets for funders, where you may need to present only part of your full budget.  A full program breakout will be the last step of the process, where you assign general accounts like personnel on a percentage basis to various programs. We’re not talking about that today.

There Ain’t No Such Thing As A Free Lunch. Things cost money. Figure out all the accounts where there is likely to be a number, both for expenses and revenue. Determine if the revenue side has a corresponding offset on the expense side. For instance, if you’re selling t-shirts, be sure to put in the cost of the stock. And don’t project selling more t-shirts than you’re planning to print. Are you offering classes for a fee? How much will it cost per student for materials. Will you pay an instructor? Most accounts will not have this direct relationship, but look at that chart carefully and make sure you know what you need to spend– look at printing, mailing, advertising, rent, personnel, etc. We’ll talk about deficits a little later.

Be conservative
If you’ve got a track record– you’ve done a program at least once, for instance– budgeting is easy, because you’ll use that as your benchmark. If you’ve never sold out a certain class or event, don’t budget making that assumption; budget as though you’ll match your prior success. If you want to increase the amount, know how you’re going to get there– do you have a new donor? Are you investing in more advertising? Has your mailing list grown dramatically?

Google is your friend
Back to those t-shirts– don’t know what t-shirts cost? Look it up. Don’t assume that you’ll sell t-shirts for more than the going rate because you’re so cool. Remember that people are only going to buy one t-shirt, so don’t keep budgeting the same amount every year unless you create a new design. There are so many things that need researching– how many postcards are you mailing? Know the per-piece printing and postage cost. Are you offering mileage reimbursements? Look up the accepted rate on the IRS website. Know what your own website costs. Never pull a number out of your head– look at your history, or if it’s a new item, research it. It drives me crazy when I see budgets where everything is rounded to the nearest thousand– that’s lazy budget writing from someone who hasn’t done the research or the math.

Did I mention you should be conservative?
There’s a rule of thumb for response rates– only 1.5% of the people who actually read your email or your snail mail are going to respond. With snail mail, you can assume that the majority of people will read it. But with email you need to know your “open” rate (people who click on the email), your “click through” rate (people who click on the action link in the email), and your engagement rate (people who actually do what you want them to do, like give money). The size of your universe defines how much money you’ll make on any given campaign with remarkable accuracy. Don’t assume you’ll make a lot of money just because your product or event is really cool. If you have 4,000 emails, an open rate of 25% and a click through of 6%, this may lead to engagement of just 1 person. (Those are standard percentages, on the high end, by the way). Do the math.

Grants are play money. Young organizations should not rely on them. An organization with a strong grants program is still only receiving money from about 1 in 4 proposals submitted, and seldom in the full amount applied for.

Include only those items that you would have to spend money on if you couldn’t get them free. So your volunteer executive director is not receiving an “inkind” salary. Leave it off. Know that saying “we’ll get all our materials donated” is not the same as “all our materials have been donated.” If you’re not sure, put it in as a cash expense.

Administrative expenses
When writing the budget, things like salaries, rent, parking, insurance, advertising, supplies, design, phone, website, etc should be put into an administration column. You’ll break these out into program columns later, but it’s easier to put all these expenses into a single column just to keep things straight during drafting.  There will be no income other than general operating grants in this column, unless you have something like rental space or other non-program revenue sources (this is fairly rare in young groups).

Don’t forget your standard business expenses– filing fees, liability insurance, credit card charges, banking fees and interest, parking, dues and memberships, etc. Again, the chart of accounts template can guide you through these.

I think you shouldn’t write deficit budgets, period, although there are situations in which this may be appropriate. Remember that a deficit is a negative financial outcome in a given fiscal year– you don’t get to count the money you had left over as income for budgeting purposes, although it will show up on your balance sheet, so you can use it to cover a deficit. You also don’t have to count last year’s deficit in your budgeting, but again, remember that it will show up on your balance sheet. (And you should have an expenses line called “deficit reduction”.)

The Totals column must be in the black. All revenue and expenses together should result in a positive outcome. However, individual programs may be budgeted in the deficit if there is general operating money to cover it. If you are doing this, move that money from the General and Administration column into the program column so you don’t accidentally count it twice.

If you end up with a deficit, you’ll need to go back and look realistically at your plans. Did you underestimate revenue? Can you reduce expenses anywhere without affecting revenue on that program? Are you confident about a more speculative income source (for instance, a new grant or increased individual giving). Be realistic, be conservative.

It’s a good idea to have an account called contingency with 5 to15% of your total budget in it. This is just what it sounds like– emergency money in case you have an unexpected expense or poorly performing revenue stream. Try to budget for it.

Make it legal
Present your finished budget to the board and have them vote on it. The board is fiscally liable for the organization; they get to question and approve the budget. They don’t need to see all the research, and give them a nice clean version so it’s not overwhelming, but be prepared to defend it, and to know where the numbers come from.

A budget is a living document
Don’t write a budget and then put it away and forget about it. In a very real way, this is your living business plan. Review it every quarter, at a minimum– know where you’ve under- or overestimated on either the revenue or the expense side. Know how much money you have to spend. You can adjust it throughout the year to reflect new information– a disastrous fundraiser, or an unexpected grant. Anyone who can spend money must know that they are sticking to the budget.