As a volunteer treasurer for a NFP, you may wonder just why your organisation needs a budget. After all, your charity isn’t an actual business whose primary purpose is to increase the business owner’s bank account. The funds that your NFP receives should go towards meeting your community’s needs as defined by your group’s mission statement.
Even though the main purpose of a charity or club is to meet needs rather than make a profit, it must still operate in a sound manner so that it can continue to meet its goals and objectives. Both individuals and businesses use budgets to help them better control their expenses, manage their cash flows and create plans for how they will meet future obligations and goals. A realistic budget is also the key to helping your board members have better control over your NFP’s finances.
Budgets are Planning Tools That Help you Meet Your Duty of Care
Having a budget helps your board to wisely manage funding and other resources received by your charity or club. It also helps your board to be able to make strategic plans to ensure your organisation remains operationally sound and able to fulfill its mission statement for many years.
A budget is basically a plan that maps out what funds are expected to be received, when they will be received and how they will be used to further the group’s goals and mission. A budget doesn’t just provide greater control over the NFP’s finances, however.
Creating and approving a realistic budget can also be seen as fulfilling one’s legal duty of care to properly manage the funding for the public good. As we’ve discussed in a prior post, there are negative personal, professional and public ramifications when NFPs and their members fail to follow their duty of care.
Why Budgets are Part of Good Governance
Having a budget is also part of following good governance procedures, as it allows the board to plan how to reduce risks to their reputation and work as well as how they will comply with any tax and superannuation requirements. Along with your NFP’s minutes, the budget, balance sheet and other NFP documents are all records that help to explain why your NFP’s board members have made certain decisions. The Australian Tax Office (ATO) states in Section K of its NFP governance checklist that it’s good practice for NFPs to keep their minutes and other records explaining their actions for at least five years.
We hope you found this information helpful. In our next blog post, we are going to discuss how you can best create a budget, so stay tuned.