Budgeting: A Guide for Small Nonprofit …

1 budgeting : A. Guide for Small Nonprofit Organizations A free resource provided by the Virginia Society of Certified Public Accountants budgeting : A Guide for Small Selecting the Budget Committee Nonprofit Organizations A budget is a planning tool for the NPO. The budget com- mittee should reflect the collective knowledge of the orga- A free resource provided by the Virginia nization concerning the goals and objectives for the period Society of Certified Public Accountants in question. Volunteers who serve on the budget commit- tee should have the following qualities: A familiarity with prior years' activities and the Introduction changes that are contemplated in the year(s) to come, Selecting the budget committee particularly the objectives in the strategic plan The task of the budget committee A desire to serve the organization as a whole rather Setting budget priorities and realities than to lobby for a particular project revenues A knowledge of ordinary budgeting , whether on the personal or business level Setting budget priorities and realities.

2 Expenses and costs While the qualities listed above are desirable, their absence should not preclude excellent service by volunteers who When to prepare the budget are otherwise interested and dedicated, especially if the A budget for cash flow volunteers have a desire and willingness to learn about A budget for capital expenditures budgeting . bought or received Restricted grants The Task of the Budget Committee The task of the budget committee is to develop the budget Changes to the budget for the next year (or future years, in the case of a multi-year Conclusions budget). The steps in developing a budget are as follows: Define the budget timeline.

3 Develop a list of ob- jectives or goals for the year. A familiarity with prior Introduction years' activities and the changes that are contem- Nonprofit organizations (NPO) wrestle continually with plated in the year(s) to come are necessary to prepare maintaining and improving their operations, especially dur- a comprehensive budget. If the organization has a ing today's uncertain economy. In short, NPOs must con- strategic plan, consider activities in the plan that will stantly strive for sustainability. A well-planned budget will impact the budget and plan accordingly. focus on the primary goals and objectives of the organiza- Estimate the cost or resources required to achieve tion and provide financial and programmatic adaptability each objective or goal.

4 The previous year's actual key ingredients to maximize sustainability. expense or budget can be used as a starting point, but the NPO should make budgeting decisions based Every volunteer brings to a Small NPO the enthusiasm and on many factors, not just the prior year's budget. If interest necessary to do a good job. These volunteers are the objective or goal involves new programs or activi- critical to an NPO's success, because most Small NPOs lack ties, estimate the cost by creating an itemized list the funds necessary to seek and pay for professional guid- of all the expenses involved in achieving that ance in the business world. particular objective.

5 Estimate the expected dates and amounts of rev- This Guide is written to present the theories and practicali- enue that will be generated. ties of budgeting for the Small NPO staffed by volunteers, Compare the expected dates and amounts of rev- whose expertise do not always correspond with the bud- enue to the estimated expenses. geting needs of the organization . Develop the final budget. In this Guide , Goodworks, Inc., is a hypothetical NPO that Present the budget to the board for approval. receives funds from grants, the general public and sales of A final budget should be approved by the board be- logo items. These funds pay for the programs that support fore the start of the organization 's next fiscal year.

6 Its missions. The example of Goodworks should provide guidance for many NPO budget situations. 2. The timeframe for the budget process generally will con- Has a major contributor had a good year or a bad sider the calendar year, the fiscal year and the approval year financially? process. The calendar year often determines the timing of What are the fundraising possibilities of the organiza- certain expenses and revenues, particularly end-of-year tax tion itself? deductible donations. The fiscal year is the period that the What are the costs of fundraising? NPO uses to measure funds: the federal government has a fiscal year that ends Sept. 30, while many NPOs have a fis- cal year that ends June 30.

7 A fiscal year ending June 30 is Grants and restricted funds: particularly appropriate for NPOs that intend to complete Can the NPO comply with the grantor's require- their audit prior to the deadline of mid-January, a common ments? (For example, does the NPO have adequate deadline to submit grant applications. The time required funds if matching contributions are required or does for the approval process will generally determine how long it have metrics to prove it's meeting the grantor's before the end of the fiscal year it must begin. performance standards?). Do separate accounting reports need to be provided For example, Goodworks receives a grant from the United to the grant-giving organization ?

8 Way, but Goodworks' fiscal year might end at a different time than when the United Way requires annual audited Is the use of funds restricted to a particular purpose financial statements. In such a case, the budget process ( , scholarships or building)? for the following fiscal year might begin as the current Does the grant provide an allowance for overhead year's United Way statements are prepared. Goodworks' expenses of the organization ? fiscal year ends June 30, but it will submit the United Way Must the organization be audited in order to qualify application on Jan. 15. Then Goodworks might begin its for the grant? budget process on Feb.

9 1, once approval is received. Does the grant lead to sustainability, allowing for the creation of a program that can be carried on finan- The need to present the budget to the board for cially after the grant funds are used? approval will be the overriding constraint in planning the timeframe for the budget process. There must be time to Will the grant lead contributors to believe their con- consider, question and change the budget both before tributions are not needed? and after the presentation to the board. A minimum of Could the grant overwhelm the organization ? Some- three months should be allowed for the process. A wise times the administration of grants, particularly grants board that demands full financial statements each month from large government agencies, are beyond the should have a good understanding of the previous year's technical skills of most Small NPOs.

10 Monthly cash flows and the budget categories that were Ticket sales, auction proceeds and fees for goods and over- or underfunded. services: Setting Budget Priorities and Realities What are the revenue expectations? Are the expectations realistic? Is there a history of Revenues success with similar events or products in past years? The budget committee will need to examine the reason- What are the legal and tax implications of the sale? able expectations of revenue. Each potential source of revenue must be examined to determine possible en- Are "suggested donations" better than a fee for a hancements in the future. Typical sources of revenue are production or fundraiser?