The Budget Process
Our topic for discussion at this month's meeting will focus on the development of a budget for the
next fiscal year. The topic is important as it will ensure the organization’s success to achieving its
mission.
Purpose of the Budget
The budget and budget process have several purposes that are key to operating an organization
well.
1. Budget Process:
 The prices should flow from the strategic plan.
 The process should cause/allow director leadership to determine key steps to
implement the plan for next year.
 The process should incorporate actions needed to address SWOT analysis issues.
 The process should point to the risks and opportunities for the next year.
2. Budget Use:
 The budget presents a financial picture of the organization for the future planning.
 The budget's financial picture allows for anticipation of financial and operational issues
before the year begins.
 During the year the budget allows measuring actual results against anticipated results
for learning and adjusting of operations.
 The budget allows for efficient forecasting of the rest of the year as the year progresses.
Budgeting Methods
Various approaches to budgeting have been developed to address various issues within an
institution. All approaches work, but some are easier to apply. Nonprofit organizations run well
thrive on efficiency. The following is a summary of an efficient approach for a nonprofit
organization:
1. Zero-based
 Zero-based Budgeting starts each year with a clean slate and forces the explanation of
every dollar that will be spent. This budgeting approach is inefficient since it neglects
the learning cycle from the past. Non profit organizations often have a repeat yearly
performance in correlation of funding and activities. It is essential that these
organizations build from past revenues and expenses to maintain strong security in
future progress.
2. Top-Down
 In Top-down Budgeting the executive director determines the organization's direction
and produces the first draft of the budget. It is then sent to the various sub committees
for review. This method is comparable to Program budgeting; however, each sector of
the organization is not examined independently.
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3. Program Budgeting
 Program Budgeting is useful for organizations that provide multiple services. The
budgeting is designated to the lowest directing positions in correlation to executive
director input. The involvement of all directors increases the awareness of fund usage
as well as possible opportunities for expansion or decline in services. This approach
provides the executive director with a snap shot of the organization's various programs
that are financially sufficient and those that may be inadequate. Overall this approach
may prove beneficial to most organizations as all directors have united sense of
completing objectives within designated budget.
The Recommended Budget Process
For nonprofit organizations, the budgeting process could reveal operating with a significant deficit.
It is important that organizations work on means to reduce the deficit with realistic objectives.
Inflating estimations on revenues will only lead to further conflicts throughout the year.
1. Revenues: Review this year’s month by month revenues and set next year’s
expected funding revenue
 Review organization's fiscal performance to establish next year’s target
 Review this year’s monthly program allocation
 Adjust for known issues
 Allocate next year’s target to months based on your this year’s adjusted funding
 Tie funding/revenue targets to your operating strategy
 Review you existing donor base to continuously build relations with donors for
securing future financial needs. The goal is to identify where funding is likely to
come from. Examples are:
1. Existing relations
2. New Grant writing proposals
3. New sectors within the organization
 Evaluate your potential funding gap. The gap needs a strategy to fill it. At Cathedral
Consulting Group, LLC prayer and God's providence are accepted; but for these
purposes, we recommend the farmer's approach to God's aid – after praying get
busy with the hoe!
 Develop three strategies for how to fill this gap.
 Always keep in mind the seasonality of your organization as you generate your
budget.
 It is important to always keep revenues within guidelines established by the Internal
Revenue Service as to minimize loss of federal tax-exemption status.
Government funding can be difficult to accurately forecast. It is important to focus on past
funding information as well as using the most reliable sources of information in estimating
future funds.
2. Expenses: Evaluate line by line to determine which items will require reallocation of
available funding
 Review compensation to ensure that it is within projected funding
 If compensation is growing, look at the reasons, such as:
■ Hired additional human capital
■ Added benefits and other related costs
■ Established new program within organization
 60 -70% of expenses span from personnel costs
 Examine the top three expenses to determine if you can more efficiently
manage them.
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3. Budgeting Cash Flow
 To budget cash flow you first have to budget using full financials.
 Income Statement (what is usually done)
 Balance Sheet
 Cash Flow Statement
The Cash Flow Statement starts with budgeted net income then adjusts for changes in
the Balance Sheet. The change in the Balance Sheet tells what operating cash will be
used to sustain the budget.
Articles for Further Reading
1. Strategic Management for Nonprofit Organizations. This book provides all the steps from
establishment through budgeting for a nonprofit organization.
http://books.google.com/books?id=yJ9txWojyRQC&pg=PA127&lpg=PA127&dq=nonprofit+
budgeting+process&source=web&ots=TT6Z9z1Wxx&sig=QP7Fn7RbmtRnnfpM6ek4ER_xY
a4&hl=en&sa=X&oi=book_result&resnum=10&ct=result#PPA132,M1
2. “Create a Budget That Works for You.” This online article provides a step-by-step process
along with examples on how to create a budget for organizations.
http://www.snpo.org/samples/V150446.pdf
3. “The Nonprofit Budgeting Process.” The Nonprofits Assistance Fund published a brief
summary of the various budgeting topics that should be monitored when looking forming a
budget.
http://www.nonprofitsassistancefund.org/files/MNAF/ArticlesPublications/BudgetingProcess.
pdf
4. “Tax Information for Charities and Other Nonprofits.” The Internal Revenue Service's
website is an excellent source to always refer to when concerning profits in budget
formation. <http://www.irs.gov/charities/index.html>
Peter Giersch is COO of Cathedral Consulting Group, LLC and a Managing Director in the
Midwest office.
For more information, please visit Cathedral Consulting Group LLC online at
www.cathedralconsulting.com or contact us at info@cathedralconsulting.com.
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