Budget Management vs Financial Planning for Nonprofits

Cersai Stark

Cersai Stark

Budget management is a fundamental business practice that ensures effective spending regulation in proportion to a set budget. Financial planning on the other hand is the process of creating long-term financial goals and the method to attain them. It entails undertaking a review of your current financial status, establishing financial objectives, and the corresponding action to meet those objectives.

 

Budget management
Budget management

 

  • A successful long- and short-term financial strategy requires a good understanding of both financial planning and budgeting.
  • Financial planning provides a more comprehensive view and assists with future planning while budgeting prioritises day-to-day financial management.

 

Difference between budget management and financial planning

This section will consider the distinction between budget management and financial planning in an organisation. 

a. Goals and objectives

The goal of financial planning is to determine the best route from point A (your current situation) to point B (your desired future state) while creating a budget entails managing daily finances. In creating a financial plan, there is a need to develop a long-term strategy to get an organisation where it wants to go. 

Also, nonprofits can effectively allocate funds to the specified objectives in the financial plan. This is after having a good knowledge of the amount to set aside following covered costs.

b. Long-term vs. short-term

Secondly, a financial plan monitors an organisation’s growth quarterly or semi-annually while budget management tracks income and expenses on a weekly or monthly basis. In general, a nonprofit will advance on its financial plan more quickly if it adheres closely to its budget. 

This shows that budget management and financial planning are essential to having a sound financial life. Financial planning provides a more comprehensive view and aids in future planning while budgeting aids in day-to-day financial management. Hence, understanding the distinction will enable an organisation to develop both short- and long-term financial strategies that work.

c. Current vs future standing

Thirdly, a solid financial plan covers income and outgoings, taxes, insurance, retirement, estate planning, and educational requirements. Essentially, it considers the big picture. The financial planner understands that as long as every step is taken in the same direction, slow and steady wins the race.

Budgeting on the other hand tracks expenditures, and income, and provides information on how to reduce outflows of funds. Conversely, financial planning uses the information that is now available to forecast future cash flows, asset values, and withdrawal schedules. All of this information is used to create a comprehensive portfolio based on an organisation’s current financial situation.

d. Forecast and planning

Lastly, financial planning helps a nonprofit take appropriate action when new opportunities present themselves. It can forecast the efforts the organisation should take for risk management, sustainability, and fundraising strategy

Also, because these actions are predicated on present circumstances, they tend to be feasible. Although creating a budget is essential for financial success, it nevertheless does not take spending habits into account. Contrarily, financial planning adopts a methodical strategy, employing finances to project a goal.

Conclusion

In summary, sound finances require budget management and financial planning. While a budget aids in day-to-day financial management, financial planning offers a more comprehensive viewpoint and aids in long-term planning. Hence, you can develop a successful long- and short-term financial strategy by understanding the distinctions between financial planning and budgeting.

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