BUDGETING FOR NONPROFIT ORGANIZATIONS © 2012 DALE NEEDLES.
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Transcript of BUDGETING FOR NONPROFIT ORGANIZATIONS © 2012 DALE NEEDLES.
BUDGETIN
G FOR
NONPROFIT
ORGANIZATI
ONS
© 2
012 DALE
NEE
DLES
PURPOSE OF THE PRESENTATION
•Review the Purpose, Benefit & Best Practices of Budgeting
• Types of Budgets, Budget Pyramid and Roles & Responsibilities
• The Budgeting Process
•Budget Policies
• Sample Budget Templates
• Exercise on Calculating Indirect Rate
WHAT IS A BUDGET?
•A Budget is the Financial Plan of what a nonprofit organization expects to accomplish over a period of time
• It is also a Financial Tool and is one of the keys to an organization’s financial stability
WHAT IS BUDGETING?
More specifically, Budgeting is a Financial Plan:
• For receiving and spending specific amounts of money
• In specific categories
• To get specific things done
• Within a set period of time
• With a monitoring mechanism_______________
BENEFITS TO ORGANIZATIONAL BUDGETS
In addition to being a tool to help an organization become financially stable, the budget
• Helps organizations focus on short and long term goals
• Provides a financial road map for the staff to follow
• Helps management and board provide oversight
• Provides stakeholders a measure of accountability and transparency
QUALITIES OF AN EFFECTIVE BUDGET
• Thoughtful and Deliberate
• Realistic
• Consistent
• Flexible
• Inclusive
• Measurable
• Ongoing Process
BEST PRACTICES
• Make Planning part of Organizational Culture
• Align Strategic and Annual Operating Plans
• Drive Collaboration between Functions
• Adapt to Changing Conditions
BEST PRACTICES (CONTINUED)
• Identify Organizational Drivers
• Focus on Content that is Material to the Organization
• Be Timely and Accurate
• Build into Planning Process an Assessment Mechanism
TYPES OF BUDGETS
• Annual Operating Budgets
• Cost Center/Department Budgets
• Project/Activities Budgets
• Capital Budgets
• Scenario Budgets
BUDGET PYRAMID
Organization Budget
Cost Center or Department Budget
Project/Activity & Capital Budgets
ROLES & RESPONSIBILITIES
Board
CEO
CFO
Team Leaders
Managers
All Staff
BUDGET PROCESS
• Develop Budget Policies
• Establish Budget Calendar
• Identify Organizational Priorities
• Determine key Budget Assumptions/Parameters
BUDGET PROCESS (CONTINUED)
• Identify Specific Annual Goals
• Develop Project/Activity & Capital Budgets
• Development Department Budgets
• Develop Cash Flow Projections
BUDGET PROCESS (CONTINUED)
• Consolidate Department Budgets
• Develop Budget Scenarios (optional)
• Review & Revise
• Finalize Budget and Prepare Budget Package for Board
BUDGET PROCESS (CONTINUED)
• Board Review and Approval
• Review Final Budget with Staff
• Monitor and Reporting on Progress meeting Budget Goals
• Budget Revision as necessary
BUDGET POLICIES
• For Identifying Annual Priorities and for Setting Organizational Annual Goals
• For Projecting Revenue & Expenses
• For Allocating Shared and Indirect Costs
BUDGET POLICIES (CONTINUED)
• For Authorizing Resources
• For Modifying the Budget
• For Accessing Reserve Funds
ESTABLISHING THE BUDGET CALENDAR
• Lists Major Tasks
• Identifies Who is Responsible
• Establishes Overall Timeframe & Specific Deadlines
SAMPLE BUDGET CALENDARDeadline Major Tasks Who is
Responsible
Date Meet to Review Org Priorities Executive Team/BD
Date Communicate Priorities to Staff ET
Date Set Budget Parameters ET
Date Prepare Budget Templates CFO
Date Distribute Budget Templates CFO
Date Team Leaders meet with Mg Team Leaders
Date Draft Budgets are Prepared Team Leaders/Mgs
Date Department Budgets Consolidated CFO
Date Annual Budget is Finalized ET
Date Budget Package is Presented to BD CFO/ET
BUDGET ASSUMPTIONS
Budget Assumptions will include:
• Organizational Priorities
• Overall Growth Projection Goal
• Staffing Projections
• Guidelines on adding new projects and/or activities
ANNUAL GOALS
After Organizational Priorities are Identified:
• Set clear annual goals that are aligned with org priorities
• Develop Action Plan to achieve these goals
• Determine the resources/budget needed to carry out the Action Plans
BUDGET METHODOLOGIES
• Zero-Based Budgeting
• Incremental/Percentage Increases
• Allocation of Shared Costs
• Cost Recovery for indirect expenses
ORGANIZATIONAL REVENUE BUDGET
• List sources of revenue
• Review Past History
• Determine likelihood of funders and sources renewing
• Make list of potential new funders and rate likelihood of securing funding from them
• Develop Budget scenarios – best case and worst case (budget somewhere in the middle)
ORGANIZATIONAL REVENUE BUDGET
INCOME FY 2012 FY 2011 % Increase
Govt Grants 550,000
500,000 10%
Fnd Grants 330,000
300,000 10%
Businesses 40,000
35,000 14%
Individual 150,000
140,000 7%
Events 20,000
20,000 0%
Fees 50,000
45,000 11%
Earnings 10,000
10,000 0%
Total 1,150,000
1,050,000 10%
ALIGN REVENUE SOURCES TO FUNCTIONAL EXPENSES
Program
Fundraising
General Management
Pooled Expenses
BUDGET LINE ITEM EXPENSES
• Personnel
• Contract Services
• Office Rent
• Supplies
• Communications
• Travel/Meeting
• Marketing
ALLOCATION OF SHARED COSTS & OVERHEAD• What are pooled and/or shared Costs?
How do you allocated Shared Costs?
= Total Personnel Exp for a Specific Function
Total Personnel – Pooled Personnel Exp
• What are indirect expenses and/or overhead?
How do you allocated indirect expenses?
= Total Functional Expense
Total Org Expenses – Mg & General
SUMMARY OF ORGANIZATIONAL EXPENSE BUDGET
EXPENSES ProgramMg/Gen FR Shared TOTAL
Proj 1 Proj 2
Client Services
250,00
0
250,00
0
500,000
Personnel
100,00
0
100,00
0
75,00
0
75,000
350,000
Consultants
10,000
10,000
10,000
30,000
Offices Expenses
150,000
150,000
Communications
60,000
60,000
Travel
20,000
20,000 5,000
15,000
60,000
Total
380,00
0
380,00
0
80,00
0
100,000
210,000
1,150,000
% of Pooled Exp 29% 29% 21% 21%
SHARED COST/POOLED EXPENSES ALLOCATION
Total Personnel Exp for a Specific Function /
Total Personnel – Pooled Personnel Exp
Program Personnel = 200,000/ (350,000-00 = 57%
Mg & General = 75,000/ (350,000-0) = 21.5%
FR = 75,000 / (350,000 – 0) = 21.5%
CONSOLIDATED BUDGET (FORMAT A –CONT.)
Programs Mg/Gen FR TOTALEXPENSES
Client Services 500,000
500,000
Personnel 200,000
75,000
75,000
350,000
Consultants
20,000
10,000 30,000
Offices Expenses
87,000
31,500
31,500
150,000
Communications
34,800
12,600
12,600 60,000
Travel
40,000
5,000
15,000 60,000
Total 881,800
124,100
144,100
1,150,000
OVERHEAD ALLOCATION
Total Functional Expenses /
Total Org Expenses – Mg & General
Program Expenses = 881,800 /
(1,150,000 – 124,100) = 86%
86% x 124,100 (MG & General) = 106,726
106,726 / 881,800 (Programs) = 12%
CONSOLIDATED SUMMARY BUDGET (FORMAT A)
INCOME Programs Mg/Gen FR TOTAL
Govt Grants 500,000
25,000
25,000 550,000
Fnd Grants 300,000
15,000
15,000 330,000
Businesses
31,800
4,100
4,100 40,000
Individual
50,000
50,000
50,000 150,000
Events
10,000
10,000 20,000
Fees
20,000
30,000 50,000
Earnings
10,000 10,000
Total 881,800
124,100
144,100 1,150,000
EXPENSES
Total 881,800
124,100
144,100 1,150,000
ORGANIZATIONAL SUMMARY BUDGET (FORMAT B)INCOME TOTAL Percent
Govt Grants 550,000 48%
Fnd Grants 330,000 29%
Businesses
40,000 3%
Individual 150,000 13%
other
80,000 7%
Total
1,150,000 100%
EXPENSES
Program Services 881,800 77%
Fundraising 144,100 13%
Management & General 124,100 11%
TOTAL
1,150,000 100%
SAMPLE CASH FLOW BUDGET
JanuaryFebruary March April May June
Income
100,00
0
85,000
100,00
0
85,000
95,000
100,00
0
Expenses
95,822
95,822
95,822
95,833
95,833
95,833
Difference 4,178
(10,822
) 4,178
(10,833
) (833)
4,167
Cash at Beginning of Month
250,00
0
254,178
243,35
6
247,53
4
236,70
1
235,86
7
Cash at End of Month
254,17
8
243,356
247,53
4
236,70
1
235,86
7
240,03
4
FINAL BUDGET PACKAGE
• Overview of Key Budget Policies and Procedures
• Budget Narrative highlighting organizational priorities, annual goals, budget assumptions and financial implications
• Organizational Summary Budget compared to past year(s) by function and by Line-Items
• Detailed Breakdown of Department Budgets
MONITORING THE BUDGET
• Monthly, Quarterly and Annual Actual to Budget Reports
• Cash Flow Reports
• Donor Reports
• Financial Dashboard
REVISING THE BUDGET
• Generally happens when there is a short fall between budgeted revenues and expenses
• Generally requires Board Approval if over 10%
• Budget revisions may require one of the following to cover the short fall:
1) Cutting Expenses
2) The use of organizational reserves
PROJECT BUDGET FOR FUNDERS
• Reflects the True Costs of the Project – including shared expenses and indirect expenses
• Includes a breakdown of what the donor’s funds will be cover in relationship to the entire project.
• Includes a detailed narrative explaining each line item
• Includes a budget to actual reporting mechanism
SAMPLE PROJECT BUDGET FOR FUNDER
Foundation Y Other Funders Total
Govt Grants
250,000 250,000
Fnd Grants
112,,000
53,000 165,000
Individual
50,000 50,000
General Funds
28,808 28,808
Total
112,000
381,808 493,808
EXPENSES
Client Services
50,000
200,000 250,000
Personnel
25,000
75,000 100,000
Consultants
5,000
5,000 10,000
Offices Expenses
10,000
33,500 43,500
Communications
5,000
12,400 17,400
Travel
5,000
15,000 20,000
Total Direct Expenses
100,000
340,900 440,900 Indirect/Overhead Rate (12%)
12,000 40,908 52,908
TOTAL
112,000
381,808 493,808
REPORT TO FUNDER Actual Budget Variance Actual Budget Variance Foundation Y TOTAL Project
Govt Grants
250,000 250,000 0.00%
Fnd Grants
112,000
112,000
165,000 165,000 0.00%
Individual
45,000
50,000 -10.00%
General Funds 31,680
28,808 10.00%
Total
112,000
112,000
491,680 493,808 -.043%
EXPENSES
Client Services
52,000
50,000
2,000
252,000 250,000 0.80%
Personnel
25,000
25,000
-
98,000 100,000 -2.00%
Consultants
5,000
5,000
-
10,000
10,000 0.00%
Offices Expenses
8,000
10,000
(2,000)
44,000
43,500 1.15%
Communications
5,000
5,000
-
17,000
17,400 -2.30%
Travel
5,000
5,000
-
18,000
20,000 -10.00%
Total Direct Expenses
100,000
100,000
-
439,000 440,900 -0.043%
Indirect/Overhead Rate (12%)
12,000
12,000
-
52.680
52,908 -0.043%
TOTAL
112,000
112,000
-
491,680 493,808 -0.043%
CONCLUSION
• The Budget charts the direction for allocating and maximizing the use of resources in order to achieve the organization’s strategic and annual goals
• The Budget process is an integral part of the annual planning process
• The Budget includes indicators and a monitoring mechanism for measuring and reporting on progress towards achieving the financial goals
MAPPING EXERCISES
Exercise 1• Calculate your organization’s Overhead Rate
Total Program Expenses /
Total Org Expenses – Mg & General
Program Expenses = 881,800 /
(1,150,000 – 124,100) = 86%
86% x 124,100 (MG & General) = 106,726
106,726 / 881,800 (Programs) = 12%
RESOURCES
• Budget Building Book for Nonprofits by Murray Dropkin and Bill LaTouche
• Financial Planning for Nonprofit Organizations by Judy Blazek
• “Indirect Costs: Practices and Perspectives” by Skip Henderson and Jan Masaoka
QUESTIONS & DISCUSSION
?
