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Transcript of Budgeting Basics for Presenters 2014 - Arts Midwest€¦ · · 2017-07-14Who we are Nonprofi ts...
Developed by Nonprofi ts Assistance Fund
Nonprofi t Financial Management Training
Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Budgets are the foundation of nonprofi t fi nance and are vital to your organization’s strategic planning and management. Budgeting can seem overwhelming, but it doesn’t have to be. Budgets are another tool for you to tell the story about your organization’s plans, priorities and aspirations.
This workshop is designed to build your confi dence in working with budgets. At this workshop, you will learn about the relationships between budgeting, planning, and fi nancial management. You will walk away with a proven 10 step process you can use to craft budgets within your organization. This workshop is right for you if you are new to the nonprofi t sector, nonprofi t fi nance, or your position as staff or board member. After this workshop, you will be able to:
• develop and monitor eff ective budgets
• develop accurate cash fl ow projections
• read, interpret, and discuss organizational and program budgets
The session will also include examples of individual event budget templates and models that are utilized by presenters in the fi eld.
Session Leader(s):
Phil Hatlie, loan offi cer/fi nancial specialist, Nonprofi ts Assistance Fund
Christine Tschida, director of Northrop, University of Minnesota
Budgeting Basics for Presenters
Who we are
Nonprofi ts Assistance Fund invests capital and expertise in nonprofi ts. We have always lived in, and served, the nonprofi t world so we understand the nuances of managing a nonprofi t. Your mission and success are our top priorities.
How we can help
Loans for nonprofi ts: For us, it is more than a loan. Nonprofi ts are unique. Mission, program mix, funding streams, and business models all impact what kind of loan will work best. From the beginning, we sit on your side of the desk, and we will be your fi nancial partner for the long haul.
Training: As a nonprofi t staff or board member, you want your nonprofi t to thrive. Finances get a whole lot easier and more surefooted when you have the right leadership skills, knowledge, and tools to make that happen. Our trainers are engaging and insightful experts who want to help you be the best in your role.
Financial advice: When nonprofi ts need a trusted advisor, we are here to help. Nonprofi ts Assistance Fund provides guidance to help nonprofi ts answer immediate questions, increase fi nancial understanding, and develop eff ective fi nancial practices and strategies.
Financial management and strategy resources: We are always looking ahead and anticipating external impacts on nonprofi ts. Having access to a comprehensive set of tools to help manage an organization’s fi nances is essential to success. Explore our extensive online resource library for fi nancial management articles, templates, and online learning to help you thrive.
Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Our Trainers
Kate Barr, Executive Directorkbarr@nonprofi tsassistancefund.org612.278.7182
Lu Hang, Loan Offi cer/Financial Specialistlhang@nonprofi tsassistancefund.org612.278.7167
Phil Hatlie, Loan Offi cer/Financial Specialistphatlie@nonprofi tsassistancefund.org612.278.7185
Stephanie Jacobs, Program Directorsjacobs@nonprofi tsassistancefund.org612.767.7141
Curt Klotz, CPA, Finance Directorcklotz@nonprofi tsassistancefund.org612.278.7186
Janet Ogden-Brackett, Associate Directorjogden-brackett@nonprofi tsassistancefund.org 612.278.7183
Allison Wagstrom, Loan Offi cer/Financial Specialistawagstrom@nonprofi tsassistancefund.org612.278.7189
Nonprofi ts Assistance Fund2801 21st Avenue South, Suite 210Minneapolis, MN 55408
www.nonprofi tsassistancefund.org
@NAFund on Twitter
1Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Fundamentals of Budgeting
Goals:Understand the purpose of budgeting1.
Discuss the role of budgets in planning2.
Review the steps in annual budgeting3.
Understand how budgets are used in fi nancial 4. management
What is a Budget?
2
What would happen without a budget?
Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
A Budget is...
A plan•
An idea of future likelihood•
A wish list•
Numbers that refl ect program and management priorities•
A set of assumptions about the year•
The allocation of resources among alternative choices•
A best guess working draft for the future•
Why Do We Need a Budget?
Need to allocate limited resources among unlimited needs•
Need fi nancial language for planning•
Need a way to agree on priorities•
Need clear guidance for staff and volunteers•
Need targets for fundraising and revenue•
Need a common standard for fi nancial accountability•
3
Organizational Planning
Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Mission
Organizational principles
Strategic plan
Tactical orbusiness plan
Budget andwork plan
4Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
The Practice of Budgeting
How does your organization develop your annual budget?
Who is involved?1.
Who takes the lead?2.
What information is used?3.
What is the timeline?4.
How are decisions and choices made?5.
5Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Board of directors
Determine and support the mission and strategic plan•
Set/agree to goals for the organization’s activities•
Set/agree to goals for organizational needs and • development
Participate in decisions about priorities and balancing•
Understand the assumptions for the proposed budget•
Approve a realistic budget•
Approve budget before year begins•
Monitor actual results to budget•
May use Finance Committee•
Executive director
Set the tone and commitment to the process•
Maintain connection to mission and strategic plan•
Coordinate budget process•
Make sure roles are clear•
Communicate throughout the organization•
Facilitate choices among alternatives•
Roles in Budgeting
6Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Financial staff or treasurer
Oversee calendar and schedule•
Provide information and forecasts•
Monitor progress and provide assistance and support•
Assemble and analyze drafts•
Finalize and convey for approval•
Other staff or volunteers
Understand roles and responsibilities•
Understand overall budget process and priorities•
Meet deadlines and follow guidelines•
Analyze costs and propose budget amounts•
Propose additions or changes based on program goals•
Communicate program needs and rationale•
Development staff or committee
Understand process and roles•
Provide information about funders, prospects, and funding • schedules
Verify or track information about current grants and • requirements
7Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Types of Budgets
Overall organizational budget: The most common budget, includes all items and all activities.
Program, project, or event budget: Complete budget for one specifi c activity area (part of organizational budget).
Grant or contract budget: Specifi c for a grant request, according to grantmaker’s guidelines. May be the same as an overall, program, or project budget.
Cash fl ow budget (projection): A plan for receipts and disbursements of cash for a time period.
Long-term budget: Financial plan for more than one year, usually with less detail than an annual budget.
Capital budget: Separate plan for expenditures on fi xed assets (equipment, buildings, major repairs or renovations). May cover more than one year.
Organizational Budget
Program A Budget
Contract C
Fee-based Project
DGrant E Potential
Grant F
Program B Budget
Grant GFee-
based Project
H
General Admin Budget
Fund-raising Budget
8Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
10 Steps of Budgeting
1. Determine timeline
Set target date for board approval
Allow time for each step and for review and discussion
Approve before fi scal year begins
2. Agree on goals
Prioritize programming goals
Set organizational fi nancial goals
Clarify annual goals from strategic plan
3. Understand current fi nancial status
Review current year income and expense compared to budget
Forecast to the end of the year
Analyze and understand any variances
4. Agree on budget approach
Assign roles and responsibilities
Agree on authority to make decisions
Agree on how much uncertainty can be included (how many unknowns)
5. Develop draft expense budget
Determine costs (expenses) to reach programming goals
Determine costs to reach organizational and strategic goals
6. Develop draft income budget
Project income based on current fundraising and revenue activities
Project new income based on new activities
7. Review draft budget
Verify that the draft meets program and organizational goals
Review and discuss all assumptions
Make adjustments, based on goals and capacity, to match income and expenses
Review fi nal draft for all goals and objectives
8. Approve budget
Present to any committees as needed
Present to the board for approval
9. Document budget decisions
Create a consolidated budget spreadsheet and fi le
Write down all assumptions
10. Implement budget
Assign management responsibilities
Incorporate into accounting system
Monitor and respond to changes as needed
9Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Step 1: Determine Timeline
Set target dates and timeline:Board should approve the budget before the new fi scal 1. year begins
Consider the number of board and/or committee 2. conversations desired, then work backwards to determine process timeline
10Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Establish target dates for board and/or committees to have the following conversations:
Step 2: Agree on program and organizational goals
Step 3: Thorough review of current fi nancial status
Step 4: Agree on budget approach
Step 7: Review draft budget
Step 8: Approve budget
Establish target dates for staff to:
Step 5: Develop draft expense budget
Step 6: Develop draft income budget
Step 7: Review draft budget and make necessary adjustments
11Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Step 2: Agree on Goals
1. Prioritize programming goals
2. Set organizational fi nancial goals
3. Clarify annual goals from strategic plan
Example organizational
goal
• Build cash reserve to two months of expenses
Budgetimpact
• Must have surplus
Example program
goal
• Increase youth program to two new elementary schools
Budgetimpacts
• New staff• Travel costs• Artists’ costs
12Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Step 3: Understand Current Financial Status
Review current • year income and expense compared to budget
Forecast to the • end of the year
Analyze and • understand any variances
13Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Balance Sheet: Financial Position
Statement of fi nancial position as of a specifi c date
Assets:• what we own
Liabilities:• what we owe
Net Assets:• what we’re worth
14Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Step 4: Agree on Budget Approach
Assign roles and responsibilities
Agree on authority to make decisions
How will budget assumptions be reviewed?•
Who has authority to make decisions about assumptions?•
Budget approach
Bottom up budgeting: Gather input and combine•
Top down budgeting: Establish overall budget and assign•
Combination•
15Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Goal to produce operating surplus
Dollar amount or percent of annual budget•
Operating reserve goals•
Other designated or reserve funds•
Budgets with a defi cit
Expenses greater than income results in defi cit•
When to use “carryover” from prior years•
Grant funds for multi-year time periods•
Depreciation
Inclusion of depreciation in budget•
Budget surplus with depreciation•
Benefi ts of funding depreciation•
Level of uncertainty
Acceptable level of risk or uncertainty in income budgets•
Acceptable contingency amounts or line items•
Flexibility in developing and managing budgets•
Budget Considerations
16Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Step 5: Develop Draft Expense Budget
Project the costs of achieving programming and organizational goals.
Start with current expenses
What expenses will stay the same?•
What expenses will be diff erent?•
Methods
Incremental: using past experience with small change•
Zero-based: review all items as if they were new•
Budgeting new types of expenses•
17Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Step 5: Develop Draft Expense BudgetTypes of Expenses
Contractual and mandatory expenses
Leases for space and equipment•
Existing contracts•
Insurance required by contracts•
Required taxes and insurance for staff •
Fixed expenses
Fixed expenses are the same no matter what activities•
Examples: rent, heat, phones, insurance, audit•
Salaries and benefi ts for Executive Director and Program • Manager
Variable expenses
Variable expenses depend on artists, activity levels, and • complexity of the program
Examples: artists’ fees, technical requirements, travel and • accommodation, marketing and advertising costs
Wages and benefi ts for hourly labor•
18Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Step 5: Develop Draft Expense BudgetPersonnel Expenses
Budget your largest expense type fi rst.
Salary and wage expenses
List current staff salaries and hourly wages•
Estimate salary and wage adjustments and raises•
Plan for needed positions and related salary levels•
Estimate how staff time will be allocated to programs and • administrative activities
Employee benefi ts and taxes
Mandatory costs for employer portion of social security and • Medicare taxes
Mandatory costs for unemployment and workers comp • insurance
Budget for employee insurance, retirement plans•
Benefi ts can be budgeted as a percent of salary or detailed • per staff person
Obtain projected costs for all benefi ts•
Review benefi t plans for possible modifi cations•
Changes to benefi t types or costs may require deeper • discussions
19Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
20Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Step 5: Develop Draft Expense BudgetOther Expenses
Line by line expense review and analysis
What will be the SAME as the current year?•
What will be DIFFERENT from the current year?•
Factors to consider
Cost increases due to infl ation and price changes•
Changes in variable expenses due to changes in programs•
Changes in expenses needed to achieve specifi c goals, • such as marketing or development
Contractual changes in expenses such as rent•
Changes in expenses to build organizational infrastructure•
Building in cushions or contingency amounts•
21Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Programming Budget Worksheet
22Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Programming Budget Worksheet
23Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
24Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Step 6: Develop Draft Income Budget
Refl ect decisions made regarding program activities. Any new income included in budget needs a plan.
Carefully evaluate funding sources
Are there changes to current sources of funding?•
Are there changes to formulas, amounts, or criterion?•
Review the overall economy and your area of service•
25Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Types of income
Support: contributed income
Revenue: earned income
Grants
Consider certainty
Committed grants•
Restricted grants already in-hand•
Grants from prior funders•
Grants from identifi ed new funders•
Grants from unidentifi ed sources•
Restricted and unrestricted grants
Timing of grants may be diff erent from budget year
26Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Individual and Business Contributions
Project using past experience•
Expectations based on the same fundraising activities•
Refl ect new or reduced fundraising activities planned•
Assign responsibility and timeline for activities•
Special Events
Project using past experience•
Assumptions for new or diff erent results•
Budget gross fundraising event income and all expenses•
Assign responsibility and timeline for activities•
27Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Contracts
Current and approved contracts•
Projected contracts•
Review all terms and requirements•
Review budgets submitted with proposal or contract•
Payments based on expected activity or participation levels•
Payments based on payment agreement or calculations•
Timing of contract may be diff erent from budget year •
Earned Revenue
Based on expected activities or participation•
Based on experience•
New activity based on assumptions•
Assumptions for revenue per client or activity•
Review fee levels or amounts•
Other income
Rental income•
Investment or interest income•
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29Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Step 7: Review Draft Budget
Review and discuss all assumptions
Include staff , board, and volunteers (if appropriate)•
Complete a draft budget when there is still time to review•
Verify that all contract and grant commitments are met in the budget
Double check that the budget meets program and organizational goals
Be sure that all the parts of the budget, including all programs and projects, roll up to the total
Finalizing the Budget
Make adjustments, based on goals and capacity, to match income and expenses
When the budget shows a defi cit (loss)
Prepare for lower expenses•
Prepare for more income•
Final budget must be realistic and backed up with work plans to support the assumptions
What needs to be done to generate the income in the • budget?
How will the expense budget be managed?•
30Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Final Budget
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Step 8: Approve Budget
Present to any committees as needed
Present to the board for approval
Approve before fi scal year begins•
Committee and board review and approve assumptions as well as the numbers
Step 9: Document Budget Decisions
Create a consolidated budget spreadsheet and fi le. Write down all assumptions.
32Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Plan B budget
“What if” income is much less than projected?•
It is valuable to be prepared if reductions need to be made•
Variable expenses are the easiest to reduce•
Requires agreement on priorities•
Core, or baseline, budget
May be diffi cult to predict 12 month period with any • certainty
Develop a baseline budget of fi xed expenses and most • reliable income
Use project/event budgets for additional expenses • contingent on available income
Wish list budget
“What if” you receive more income than expected?•
Helpful to have advance agreement about priorities and • costs
Consider impact on fi xed expenses and administrative • needs
Budget Scenarios
33Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Step 10: Implement Budget
Assign responsibility for monitoring and controlling the budget
Financial staff •
Development staff •
Program managers•
Executive director•
Finance committee•
Board of directors•
Incorporate into accounting system
Break the budget down into monthly amounts when activities will occur
Review monthly•
Compare actual income and expenses to budget
Understand variances•
Monitor and respond to changes as needed
Signifi cant, material diff erences•
34Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Income Statement with Variance
35Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Mid-Year Evaluation
Complete a mid-year projection of probable fi nancial results for the year
Changing the Budget
Change the budget only if new budget is materially diff erent
Based on signifi cant changes in assumptions, new income • sources, new activities
Consider existing grant agreements and contracts•
36Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
10 Steps of Budgeting
1. Determine timeline
Set target date for board approval
Allow time for each step and for review and discussion
Approve before fi scal year begins
2. Agree on goals
Prioritize program delivery goals
Set organizational fi nancial goals
Clarify annual goals from strategic plan
3. Understand current fi nancial status
Review current year income and expense compared to budget
Forecast to the end of the year
Analyze and understand any variances
4. Agree on budget approach
Assign roles and responsibilities
Agree on authority to make decisions
Agree on how much uncertainty can be included (how many unknowns)
5. Develop draft expense budget
Determine costs (expenses) to reach program goals
Determine costs to reach organizational and strategic goals
6. Develop draft income budget
Project income based on current fundraising and revenue activities
Project new income based on new activities
7. Review draft budget
Verify that the draft meets program and organizational goals
Review and discuss all assumptions
Make adjustments, based on goals and capacity, to match income and expenses
Review fi nal draft for all goals and objectives
8. Approve budget
Present to any committees as needed
Present to the board for approval
9. Document budget decisions
Create a consolidated budget spreadsheet and fi le
Write down all assumptions
10. Implement budget
Assign management responsibilities
Incorporate into accounting system
Monitor and respond to changes as needed
37Copyright © 2004-2014 Nonprofi ts Assistance Fund • www.nonprofi tsassistancefund.org
Review the annual budget for income and expense • assumptions and documentation
Discuss how the budget was developed•
Review reports of actual results compared to budget for • eff ectiveness
How to Use Today’s Workshop