A Five-Step Guide to Budgeting for Nonprofits
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A Five-Step Guide to
Budgeting for Nonprofits
All material herein © 2014 Fiscal Management Associates, LLC. All rights reserved.What does strategic financial management look like?
• Organizations engage in effective financial planning to prioritize the use
of resources
• Leaders closely monitor results to understand how the organization is
doing in relation to plans and to adjust accordingly
• Financial operations ensure that resources are being used for their
intended purposes and that decisions are based on reliable information
• Governance sees that all of these elements are carried out properly and
in furtherance of the organization’s mission
31. Assemble a Budget Team
2. Create a Budget Calendar
3. Prepare for Budget Process
4. Develop the Budget
5. Monitor the Budget
31. ASSEMBLE A BUDGET TEAM
5• Team Decision Making (TDM) fosters collaboration across the
organization, encouraging staff to work together to:
– Define goals
– Allocate resources
– Monitor progress
• TDM provides program and other non-finance staff with the skills and
tools to contribute to the budget development process and monitor the
budget for their area of responsibility.
6Team composition and titles will vary based on organization size and structure, but this
is a typical configuration.
Chief
Executive
Officer (CEO)
Program and Human
Department
Managers Chief Resources
Director
Financial
Officer (CFO)
with Finance Staff
Board
Development Treasurer,
Director Finance
Committee
7• The Chief Financial Officer leads the budget development process:
– Creates a budget calendar
– Designates a budget team (with CEO)
– Creates a budget template
– Assembles necessary materials (historical financials, etc.)
– Leads a budget kickoff meeting
– Presents the budget to the board’s finance committee (with CEO)
• Depending on organization size, the CEO or board treasurer may also
lead aspects of the budget development process
82. CREATE A BUDGET CALENDAR
9• The CFO drafts the calendar which includes meeting dates and
deadlines.
• The calendar typically starts six months before the upcoming fiscal year.
•S
Separate
t calendars
l d should
h ld be
b established
t bli h d ffor b
budget
dg t monitoring
it i g and
d
internal reporting and other aspects of fiscal management.
10Budget Development Calendar
Fiscal Year End: June 30
January February March April May June
Prepare mid‐year budget revision for current fiscal year based on actual results
for Q1 and Q2
Obtain Finance/Audit committee approval of mid‐year budget revision for
current fiscal year
Begin next fiscal year budget process; identify Budget Director and Budget
Timetable; gather information necessary to develop expense and revenue
budget for the next fiscal year
Assemble draft budget for next fiscal year, incorporating fiscal and program
personnel
Circulate draft budget and budget narrative to Finance/Audit Committee;
incorporate comments and recommendation
Send budget package to Board of Directors; Board meets to approve budget for
next fiscal year
Incorporate next fiscal year's board‐approved budget into organization's
accounting system
Update cash flow templates for coming 12‐month period
Download: Fiscal Management
g Activities Calendar
113. PREPARE FOR BUDGET
PROCESS
• Set financial goals
• Gather data and build budget template
• C d t team
Conduct t kickoff
ki k ff meeting
ti g
12• In conjunction with the board of directors, the CEO and CFO set overall
financial goals, considering:
– Anticipated increases or decreases in program activities
– Operating results strategy
• Break-even?
• Surplus?
• Planned deficit?
– Development of reserves
– Strategic plan and long
long-term
term goals
Download: Liquid Unrestricted Net Assets (LUNA) calculator
13Gather Data Build a Budget Template
• CFO and finance staff assemble • CFO and finance staff build a
historical results by program and blank template for each program
department: and department:
– Current fiscal year budget – Contains all line items under the
– Remaining budget for the relevant manager’s control
currentt fiscal
fi l year ((“controllable
controllable costs
costs”))
– Current year-to-date actuals – Includes columns for the
– Current year projections actuals to date plus remaining
months of the current fiscal
– Prior
P i year b budget
d t andd actuals
t l year (full year forecast) and 12
months of upcoming fiscal year
– Provides space for
d
documentationi off b
budget
d
assumptions
14• The
Th CFO rolls
ll out the
h budget
b d development
d l process in
i a kickoff
ki k ff meeting.
i
• All staff involved in the budget development process attend.
• Introduction to the budget
• Communication of financial goals
• Distribution of blank budget
Agenda template, historical data, and
general ledger account definitions
• Instructions on next steps
• Staff questions
154. DEVELOP THE BUDGET
• Forecast current year results
• Budget expenses and revenues
• F
Forecast
t cash
h flow
fl
• Assemble the organization-wide budget
• Secure board approval
16• Managers of programs/departments use the budget template to forecast
remaining expenses by month for the current fiscal year.
– Helps the finance staff update the organization-wide forecast
• Where will the organization be at the end of the current year? (break-even,
(break-even
surplus, or deficit)
• How does this relate to and impact financial goals for the upcoming year?
– Indicates how reflective of reality the current year
year’ss budget was
– Prepares staff to project expenses and activities for the upcoming fiscal year
17• Initial expense budgets should reflect best estimates of what it truly costs
to run programs/operations.
– Adjustments will be made later in the process if the level of budgeted
expenses cannot be supported.
• Managers of programs/departments use the budget template to project
personnel and direct other-than-personnel (OTPS) expenses.
– Indirect
I di t expenses such
h as occupancy will
ill be
b allocated
ll t d across programs
g and
d
functions by the finance staff later in the process (considered “shared
costs”).
18Download: Program-Based Budget Builder
20• The development director projects revenue anticipated from individual
donors, foundations, corporations, special events, and other non-
government sources.
• Finance staff, with support from other staff as needed, project revenues
from government entities based on existing and anticipated contracts.
• Program staff, with support from finance staff as needed, project fee-for-
service revenue streams based on past performance and future plans.
plans
• Revenues should be classified based on relative risk:
– Committed
– Pending
– To Be Raised
21• If there is high uncertainty around revenue projections, draft a scenario
budget reflecting the likelihood of receiving each source.
• Next, draft expense scenarios ranking potential reductions.
• Implement
I l tbbenchmarks
h k to
t trigger
t igg action.
ti
– Example: If $A funding from B funder doesn’t come through by C date, $X of
specified expense reductions will be made.
22Download: Revenue Analysis Worksheet
23• As part of developing the budget,
budget the CFO and finance staff (with input
from program managers) should develop a cash flow forecast showing
the expected timing of cash receipts and disbursements over the course
of the fiscal year.
• This forecast constitutes part of the budget submission for board
approval, and should be updated and monitored over the course of the
year to identify any potential cash shortfalls that may need to be
addressed.
24Download: Cash Flow Projection Template
25• Finance staff pulls together the organization-wide budget based on the
completed budget expense templates and revenue projections
– Indirect costs are allocated to programs using a consistent methodology,
such as one of the following:
• Headcount (FTEs)
• Percent of salary dollars
• Square footage or other facilities utilization measures
– Revenues are matched to expenses by program
• The CFO presents the draft budget to senior management.
– If adjustments are needed to align budget with financial goals, templates
are redistributed to program/department managers with instructions on
level of necessary adjustments.
26CFO submits draft budget to the finance committee six to
eight weeks before the new fiscal year, or as per calendar
Senior management and finance staff make revisions
Once approved by Finance Committee, submit to full board
Full board approves before the new fiscal year begins
Once the budget is approved, the CFO conducts an information session to orient
managers to the overall organizational picture and to their budget for the year.
275. MONITOR THE BUDGET
• Financial reporting
• Mid-year revision
28Reporting Monitoring
• Finance staff enters the approved • The CFO and senior management
budget into the accounting software. analyze variances between budgeted
• Managers begin to approve and actual revenues and expenses.
expenditures against budgets for their – At minimum, quarterly meetings
area of responsibility. with budget managers should
• Finance
Fi staff
t ff produces
d monthly
thl be conducted in order to
reports for: engage appropriate managers
– Program, development and in analyzing variances and
department managers create an action plan to address
them
– Senior management
– Board
29Who should receive financial reports?
Monthly Quarterly
Program Managers Executive Director Board of Directors
• Budget-to-Actual • Budget-to-Actual Revenue • Management Narrative
Revenue & Expenses & Expenses for
• Budget-to-Actual Revenue
for the program(s) • (a) each program & Expenses for
they oversee • (b) organization-wide
g i ti id • (a) each program
• Balance Sheet • (b) organization-wide
ea e d Forecast
• Year-end o ecast a a ce Sheet
• Balance S eet
• Cash Flow Projection • Year-end Forecast
• Cash Flow Projection
• Dashboard
30• In many cases, it is advisable to develop a formal budget revision around
the mid-point of the year. You should consider a budget revision if:
– Actual revenues or expenses exceed pre-established thresholds for budget
revision
– Unanticipated events occur which alter financial expectations in a significant
way
– Programmatic or financial goals change in ways that affect financial plans
• Note that the revised budget becomes the new standard by which the
organization sets its revenue and spending plans. As with original
budgets budget revisions should be formally approved by the board.
budgets, board
31The following resources available on StrongNonprofits.org can assist you
with particular elements of the budget process described in this
presentation:
– Liquid Unrestricted Net Assets (LUNA) Calculator
– Fiscal Management Activities Calendar
– Program-Based Budgeting Template
– Revenue Analysis Worksheet
– Cash Projection Template
32FMA is a management consulting firm established in 1999 to serve not-for-profit
organizations around the country.
– We provide customized financial management, accounting, software, organizational
development, human resources, and other consulting services.
– We work directly with organizations
g or through
g funder-supported management
g and
technical assistance programs.
FMA works to build a nonprofit sector where every organization practices
the sound and effective management necessary to carry out its mission.
For additional information please contact:
Hilda Polanco, CPA John Summers
Managing Director Manager
hpolanco@fmaonline.net jsummers@fmaonline.net
212-931-9240 212-931-9133
440 Park Ave South, 3rd Floor 440 Park Ave South, 3rd Floor
New York, NY 10016 New York, NY 10016
www.fmaonline.net
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