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.


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?


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


Mission

Organizational principles

Strategic plan

Tactical orbusiness plan

Budget andwork plan


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.


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


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


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


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


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


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


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


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


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


Step 4: Agree on Budget Approach



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•


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


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•


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•


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


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•


Programming Budget Worksheet


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•


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


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•


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•


Step 7: Review Draft Budget


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


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?•


Final Budget


Step 8: Approve Budget



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.


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


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•


Break the budget down into monthly amounts when activities will occur

Review monthly•

Compare actual income and expenses to budget

Understand variances•


Signifi cant, material diff erences•


Income Statement with Variance


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•


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



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 fi nal draft for all goals and objectives

8. Approve budget



9. Document budget decisions

Create a consolidated budget spreadsheet and fi le

Write down all assumptions

10. Implement budget

Assign management responsibilities




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

budgeting basics for presenters 2014 - arts midwest€¦ · · 2017-07-14who we are nonproﬁ ts...

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