Sponsored by:

The Budget Primer

Building and Using Budgets Better

Paul Konigstein October 16, 2013

Twitter Hashtag - #4Glearn

Part

Of:

Sponsored by:

Advising nonprofits in:

• Strategy

• Planning

• Organizational Development

www.synthesispartnership.com

(617) 969-1881

info@synthesispartnership.com

INTEGRATED PLANNING

Part

Of:

Sponsored by: Part

Of:

Coming Soon

Sponsored by:

Today’s Speakers

Paul Konigstein Senior Consultant

Accounting Management Solutions

Assisting with chat questions: Jamie Maloney, 4Good

Founding Director of Nonprofit Webinars and Host:

Sam Frank, Synthesis Partnership

Part

Of:

The Budget Primer

Building and Using Budgets Better

Paul Konigstein

Senior Consultant

ABOUT US

• For more than a decade,

Accounting Management

Solutions, (AMS) has

provided accounting support

and financial management

leadership at the consulting

CFO, controller and

accounting manager level to

dynamic companies

throughout the Northeast.

6

TODAY’S AGENDA

• Types of budgets

• Creating the budget

• After the budget is

completed

7

TYPES OF BUDGETS

• Operating – day to day activities of the entire

organization

• Program – activities of one program

• Grant – activities supported by one grant

• Cash flow – cash in and cash out

• Capital – investment activities of the

organization

8

TIME SPANS

• Year – most common

• Month – most precise – for organizations that

close monthly. Also commonly used for cash

flow

• Multi-year – for strategic planning

9

NO TWO NONPROFITS ARE ALIKE

10

TWO BUDGET CREATION CHOICES

1. Traditional budgeting - modify last year’s

budget

2. Zero based budgeting – start from scratch

11

ADVANTAGES OF ZERO BASED BUDGETING

1. The environment is changing too rapidly

for historical trends to remain meaningful.

2. Basing budgets on past history

encourages managers to spend every

penny in their budget when it may not be

efficient or effective to do so.

3. Mistakes that inadvertently creep into the

budget are replicated year after year.

12

DISADVANTAGES OF ZERO BASED BUDGETING

13

Cannot accommodate inability to predict demand

1. Start with volume goal

for each program

2. Determine inputs

necessary to achieve

volume

3. Cost out each input

4. Align costs to revenue

14

ZERO BASED PROCESS

TRADITIONAL PROCESS

1. Estimate revenue/growth contraction from

previous year

2. Grow/decrease expenses in line with revenue

change

3. Change all expenses proportionately or

change one program/project/department and

leave others intact

15

ESTIMATING REVENUE: FINANCE AND DEVELOPMENT PARTNERSHIP

• Assess current funding

• Assess prospects

• Assessment methodology:

• probability of obtaining funding OR

• most Likely, somewhat likely, least likely

• Earned Revenue – assess based on market

trends

• Other Revenue – Investment earnings

16

TIME LINE AND RESPONSIBILITY

Department/Program Managers

Draft budgets for their areas

Finance and Development

Estimate revenue and provide background materials

Senior Management and Board

Determine appropriate budget process for organization

17

TIMELINE AND RESPONSIBILITY CONTINUED

Senior Management

Set priorities for aligning revenue and expense

Finance

Check and compile draft budgets

Finance and Department/Program Managers

Justify draft budgets

18

TIMELINE AND RESPONSIBILITY CONTINUED

Finance and Department/Program Managers

Disseminate and monitor budget

1. CEO 2. Finance Committee 3. Board

Approve budget

Finance

Finalize budget

19

AN EXAMPLE

20 Save the Children – Mali Program

BUDGETS AS A FINANCIAL CONTROL TOOL

Budgets provide:

• Transparency

• Accountability

• Expectations

21

MONTHLY REPORTING

BUDGET REPORT

BUDGET ACTUAL VARIANCE

22

KEY TO FINANCIAL CONTROL

• The management team regularly reviews

budget variances.

• Everyone must understand the reason for

the difference.

• A variance which cannot be explained is

likely to indicate improper expenditures and

should be investigated thoroughly.

• Determine action items for variances which

are explained.

23

REASONS FOR BUDGET VARIANCES

• Program plans change in mid-year.

• Environmental factors affect program

delivery

• A miscalculation is made in the budget

24

A CASE STUDY

25

WHEN YOU IGNORE BUDGET VARIANCES..

QUESTIONS??

Paul Konigstein Senior Consultant

Accounting Management Solutions, Inc.

pkonigstein@amsolutions.net

516-270-5070

www.amsolutions.net

26