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Not-for-Profit Budgeting: 10 Things to Keep in Mind

August 11, 2015

The following ten items should be considered during the not-for-profit budgeting or budget revision process.  This also should be considered by anyone preparing a budget for a business organization. Joyce_Mayeresky_300dpi

  1. Use actual results from the prior year and the current year actual amounts projected to year end as well as the prior and current year budget as starting point. Analyze budget variances and look for unusual or non-recurring items that should not be included in the new budget.
  2. Include projections of known or anticipated transactions based on programmatic changes, new initiatives, committed capital expenditures or directives from the Board.
  3. Identify changes in activities that would result in decreases in revenue which may then result in decreases in expenses. This is sometimes due to a reduction in government contracts or grants, the termination of a project because of recurring losses to operate, or activities that are no longer within the mission of the organization.
  4. Include direct costs, indirect and overhead allocated costs and capital expenses if not financed and expected to be covered by current revenues. If capital costs are financed, then the periodic payments should be included in the budget if they are to be paid from current revenues and not from a capital campaign or other sources outside the operating budget.
  5. A supporting list of in-kind items which is expected to be received to offset cash outlays should be attached to the budget. This would reduce the expenditures of the organization and may allow budget modifications to certain budget lines. Unless the items are committed by donors, the expenditure should remain in the original budget until received.
  6. Consider the need to identify unrestricted revenue to offset some program costs when there is a matching requirement from a funder. This match may be required from the organization in order to fully fund a program or project; and accordingly those funds would not be available for other purposes or to cover general and administrative expenses.
  7. Consider the effect of restricted time or purpose contributions and revenue contained in the budget. If the organization received and budgeted revenue that contains these restrictions, then those funds may not be expendable in the budget year. A matching of the revenues and related current expenditures should be made to identify remaining restricted funds carried to the next year for expenditure.
  8. Review separate program budgets prepared by other departments or program personnel to support specific funding requests to ensure that all are included in the overall budget. If those budgets are prepared on a program period that differs from the agency fiscal year, then adjustments should be made to include the portion of those budgets as well as a projection of the continuing project on a fiscal year basis.
  9. Include explanations or budget justifications to document what was included in the various budget line items, especially if the line item was based on fluctuating criteria (such as for the travel line item- projected staff mileage, estimated gas costs, estimated vehicle rental costs, etc.)
  10. Consideration should be given to preparing a cash flow budget on a month-by-month basis in order to determine if certain discretionary expenditures should be made at a later date. Management needs to obtain input from their fundraising department, major donors, and government funding sources to estimate when funds will actually be received.

Once the budget is completed and reviewed, a monthly or quarterly budget to expense report should be prepared to assist in the monitoring process. This report should be shared with the governance body and could contain additional information including prior year activity to serve as a benchmark for the explanation of variances. Based on the monthly or quarterly review, the budget may need to be modified for the remaining term.

The budget process should help to bring together the needs and perspectives of those members of the organization responsible for the mission, financial stability, operational effectiveness and management of the organization. If properly completed, it will also effectively communicate the goals and priorities of the organization and reflect the annual outcomes which could strengthen the organization.

This blog was written by Joyce M. Mayeresky, CPA, PSA, CFE, CGFM, Partner in our Government and Not-for-profit and Education groups. She can be reached at 732.828.1614 or jmayeresky@withum.com

One Comment leave one →
  1. 6hawthorne permalink
    August 11, 2015 1:54 pm

    HI ED VERY GOOD ARTICLE BOB NAGLER

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