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 CALENDAR
Deadline
Major Tasks
Who is Responsible
Date
Meet to Review Org Priorities
Date
Communicate Priorities to Staff ET
Date
Set Budget Parameters
ET
Date
Prepare Budget Templates
CFO
Date
Distribute Budget Templates
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
Executive Team/BD
CFO
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%
150,000
140,000
7%
Events
20,000
20,000
0%
Fees
50,000
45,000
11%
Earnings
10,000
10,000
0%
1,150,000
1,050,000
10%
Individual
Total
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
Program
Proj 1
Proj 2
Client Services
250,000 250,000
Personnel
100,000 100,000
Consultants
10,000
Mg/Gen
FR
Shared
TOTAL
500,000
75,000
10,000
75,000
350,000
10,000
30,000
Offices Expenses
150,000
150,000
Communications
60,000
60,000
Travel
20,000
20,000
5,000
15,000
Total
380,000 380,000
80,000
100,000
% of Pooled Exp
29%
29%
21%
21%
60,000
210,000
1,150,000
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
TOTAL
EXPENSES
Client Services
500,000
Personnel
200,000
500,000
75,000
75,000
350,000
10,000
30,000
Consultants
20,000
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
10,000
10,000
Earnings
Total
881,800
124,100
144,100
1,150,000
881,800
124,100
144,100
1,150,000
EXPENSES
Total
ORGANIZATIONAL SUMMARY BUDGET (FORMAT B)
INCOME
TOTAL
Percent
Govt Grants
550,000
48%
Fnd Grants
330,000
29%
Businesses
40,000
3%
150,000
13%
other
80,000
7%
Total
1,150,000
100%
Program Services
881,800
77%
Fundraising
144,100
13%
Management & General
124,100
11%
1,150,000
100%
Individual
EXPENSES
TOTAL
SAMPLE CASH FLOW BUDGET
January
Income
Expenses
Difference
February
March
April
May
June
100,000
85,000 100,000
85,000
95,000 100,000
95,822
95,822 95,822
95,833
95,833
95,833
4,178 (10,833)
(833)
4,167
4,178
(10,822)
Cash at Beginning of
Month
250,000
254,178 243,356 247,534 236,701 235,867
Cash at End of Month
254,178
243,356 247,534 236,701 235,867 240,034
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
250,000
250,000
53,000
165,000
Individual
50,000
50,000
General Funds
28,808
28,808
112,000
381,808
493,808
Client Services
50,000
200,000
250,000
Personnel
25,000
75,000
100,000
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
100,000
340,900
440,900
12,000
40,908
52,908
112,000
381,808
493,808
Govt Grants
Fnd Grants
Total
112,,000
EXPENSES
Consultants
Total Direct Expenses
Indirect/Overhead Rate (12%)
TOTAL
REPORT TO FUNDER
Actual
Foundation Y
Budget
Variance
Govt Grants
Actual
Budget
TOTAL Project
Variance
250,000
250,000
0.00%
165,000
165,000
0.00%
Individual
45,000
50,000
-10.00%
General Funds
31,680
28,808
10.00%
491,680
493,808
-.043%
Fnd Grants
Total
112,000
112,000
112,000
112,000
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
Indirect/Overhead Rate
(12%)
100,000
100,000
-
439,000
440,900
-0.043%
12,000
12,000
-
52.680
52,908
-0.043%
TOTAL
112,000
112,000
-
491,680
493,808
-0.043%
EXPENSES
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
• needles.dale@gmail.com
QUESTIONS & DISCUSSION
?