Budgeting Basics

Operating a budget is an essential part of the management process. Budgeting is meant to “assure that resources are obtained and used efficiently and effectively in the accomplishment of the organization’s objectives” (Anthony et al., 1972). That applies not only to persistent operating costs but also to particular events, projects, and activities required by funders.

For better or worse, your budgetary considerations for a project might involve the contributions of external stakeholders and their affiliated interests and goals. You’ll need to ensure that your organization’s mission is attuned with the funding you accept from external parties. You will also need to monitor and document your fund usage per the terms of your funding source. You might want to create a budget matrix or calendar for managing multiple contributions and sources.

Grantchat.org put together a tight four-topic series of items to consider when managing and adapting your grant or funding, including the following:

1. Regulatory compliance - federal and national guidelines for how funds can be spent depending on the source
2. Best practices - accounting, procurement and budgetary controls; records retention, travel policies; time-keeping, property management, and personnel systems
3. Roles and responsibilities - project manager, board, accounting/financial staff or contractors, and their respective contributions
4. Implementation to close-out - strategic planning with the final report and possible wind-down of the project in mind

Questions to consider

While you’re defining your approach to budgeting, you might consider the following questions early to set yourself up for success.

1. What is the difference between a general and operating budget? How will your operational plans impact the community you would like to serve?

Answer: A general budget might include project or event costs. Operating costs may be less visible in a general budget but are still critical to the success of a project. An operating budget could include the costs of full- or part-time staff and administration. The Dat Project discusses its baseline operations budget in a post in this series on Financial Sustainability.

2. How do you appropriately design a human resourcing practice on a budget (such as managing staff with grant funding and/or managing volunteers)?

Answer: HR Open Source hosts a series of templates and guides for folks who want to structure organizations with small staffs and funding pools, including this Recruiting Budget Template for Small to Mid-Sized Organizations.

3. How often and at what points in the fiscal year should you seek funding?

Answer: This answer will be different for each project. Check out the posts tagged in funding in this handbook for more perspective from our community. Contribute to our list here to help demystify fundraising for our community. You should generally try to diversify the funding sources you seek (e.g., government or foundation grants, donations, sponsorships, bequests, major gifts). Doing so ensures that basic operational costs are covered during lull periods between close-out of one grant and the initiation of another.

4. How will your project receive funding? What are the organizational issues with operating as a nonprofit, for-profit, or loosely structured open source entity?

Answer: Many open source projects start off in people's spare time. Smaller grants, contracts, and donations may be made to an individual. However, as these projects mature and begin seeking larger funding opportunities such as grants or investment, it is critical to consider the best way to legally incorporate. In the United States, fiscal sponsorship organizations can help a project without a nonprofit designation receive grants. Organizations such as NumFOCUS, Code for Science & Society, Community Initiatives, and New Venture Fund operate fiscal sponsorship programs in our space. Incorporation as a for-profit entity may open the door for investment or venture capital.

5. How do you develop a diverse (read: safe and sustainable) funding portfolio?

Answer: You will want to ensure diverse funding sources because a single grant or option is unlikely to cover all operational and project costs for your program, and because grants are time-bound. To make your project sustainable, you’ll need to obtain syncopated or consistent funding throughout the year. Read about some pros, cons, and implementation details in Nonprofit Quarterly.

6. What are the best practices for developing and managing a budget?

Answer: If you’re a non-profit entity, there are templates online to guide budget development. There are also some interesting and creative approaches to open budgeting from the City of Philly and in Finding Funding for Your Project in GitHub’s open source guides.

Robert N. Anthony, John Dearden, and Richard F. Vancil, Management Control Systems: Text, Cases and Readings, rev. ed. (Homewood, Ill.: Richard D. Irwin, 1972), p. 4.