As a brand-new organization with no financial history, you will have to use the available data you have to explain to a number of unique audiences where your organization wants to be in the future. If you were able to simply open your books and show a funder or the IRS what you have been doing, it would be easy. However, since you do not have a verifiable record of accomplishment, you will need to be creative.
Furthermore, once you are up and running, budget projections to one degree or another will continue to be part of your ever-evolving strategic planning. Strategic and business plans, discussed in Chapter 13, will always have a major financial component.
The First Audience: The IRS
To complete your application for tax exemption (Form 1023), you will need to provide a three-year budget. However, you may not yet have three years of existence, much less three years of a budget, so take the budget for however many months you have been operating and multiply the numbers to show a three-year projection.
Where your money comes from is every bit as important as how you get it, so be sure to account for the sources of your projected income.
Operate as though your organization is already an established nonprofit. Have accurate records and financial accounting well before you apply for your nonprofit determination. You must establish a record of accomplishment in any way you can to show your clear intention is to comply with the nonprofit standards set by the IRS.
The Second Audience: Your Internal Organization
While the IRS requires a three-year budget as part of its application, your board may want to see a five-year projection, which will become part of the organization's strategic plan and, in turn, your business plan. Thinking about and planning from a budgetary standpoint five years into the future will make sense when you begin to evaluate funding opportunities and understand the application cycles many funders use.
Likewise, planning for major expenditures should not happen quickly. Major expenses must wait until the organization's revenue is at a level necessary to support those expenditures. Both the expenses and income projections must be included in your five-year plan.