Cobranded_Abila_Nonprofit_Budget_Roadmap

BUILDING A BETTER BUDGET:The Nonprofit Budget Roadmap

A nonprofit’s budget should serve as a guide to where your organization is going and how you’ll get there over the course of the next fiscal year. The National Council for Nonprofits describes the annual budget as, “...one of the fundamental building blocks of sound financial management.” Organizational and financial sustainability can only be achieved with a well-prepared and continually monitored budget. Conversely, a poorly developed budget can diminish mission-focused opportunities and threaten long-term success. The budget process can feel like a never-ending maze, but with commitment and the right tools, developing a “better budget” will serve to properly guide resources and equip your organization in the most effective and efficient ways possible for the coming year.

From start to finish, and every stop in between, here is your roadmap to building a better budget:

YOUR BUDGET IS YOUR ROADMAP

BUILDING A BETTER BUDGET: THE NONPROFIT BUDGET ROADMAP


3

BUDGET DEVELOPMENT The reality is there are many components and decisions that go into constructing a clear, effective, and efficient budget. Stripping the budget infrastructure down to its foundation takes us back to the fundamentals of budgeting and uncovers key questions that are important to ensuring your organization withstands the challenges of the year ahead.

Should the budget balance?Conventional wisdom says a budget should balance, but the truth is there are varying situations and scenarios that justify the need for a different kind of budget. It may make more sense for your nonprofit to adopt a: 1) Surplus budget. This type of budget drives an organization to increase reserve funds, generating more income than expenses. These surplus funds can then be used to pay down debt, ease cash flows, or improve net assets. A surplus budget should be realistic and attainable, with a policy and plan in place for how the reserves will be managed. 2) Deficit budget. When an organization has a large amount of reserve funds and seeks to strategically spend or invest those funds to benefit the organization in the long run, a deficit budget may be appropriate. Organizations may use these funds to expand services, invest in new programs, or for one-time purchases that ultimately lead them to have more expenses than income for the year. A deficit budget should be well planned and communicated as a planned deficit, so as not to be misrepresented as an unintentional, unplanned deficit for the year.

3) Break-even budget. This type of budget may not allow the organization to accumulate reserve funds or invest further in its future, but it can provide an adequate foundation to deliver the mission. A break- even budget will traditionally outline higher expenses than anticipated revenue, requiring the organization to find ways to boost income and cut costs. The organization must carefully plan out projections and implement programs aimed at these goals without sacrificing mission delivery. What the bottom line looks like should ultimately be determined by the desired financial outcome of the organization. Identifying, understanding, and focusing on that desired financial outcome will drive toward a well-prepared, intentional, and attainable budget.

Pantone 7711 Pantone 7752



1

4

23

1

4

5

23

6

7 789

10 10

5

6

89


4

Cash versus accrual?Budgets can be based on a cash or accrual accounting method. Specific requirements and needs help determine the appropriate budgeting method for your organization. The method used should be determined, communicated, and understood by all internal budget and financial stakeholders. Break it down to the basics first: 1) Cash method is focused on the simple inflow and outflow of cash, regardless of when revenue was actually earned or an expense was actually incurred. The organization earns revenue at the point a deposit is made, and incurs an expense at the point a check is cut, focusing most heavily and solely on cash flows. 2) Accrual budget is focused on recognizing revenues and expenses at the time in which they were actually incurred. So expenses incurred in June, but paid for in July, will still be recorded as an expense incurred in the month of June. Accrual method also focuses on matching revenue and related expenses within a certain period. The main difference between the two methods is the ability to budget accurately based on the needs and infrastructure of your organization. Factors in determining the best method for our organization include: • External Requirements – State regulations and/or grantors may require the use of full accrual accounting to provide full transparency and visibility into when costs are incurred and revenue is generated throughout a specific time period. • Cash Flow Position – If cash flow is either an integral part of or a concern at your organization, if your organization is smaller or seasonal, or if you don’t have strict regulatory requirements, the cash method may be easiest. • Internal Skill Set – The accrual method of accounting requires a high level of sophistication. If your organization and its finance team are relatively small, it may be difficult to adopt full accrual accounting. While these factors are key to consider, more often than not nonprofits will require the need to adopt an accrual accounting and budgeting method, based on the amount of payables and receivables, amount and variety of funding, and size of the organization and budget. Smaller to mid-sized organizations may also consider a compliant, hybrid approach: 3) Modified accrual combines both cash and accrual methods by allowing revenue to be recognized at the time it becomes available, and expenses to be recognized at the time they’re incurred. Small transactions and revenue are essentially recognized on a cash-basis method, and expenses on an accrual-basis method.


5

BUDGET PROCESS PRACTICESClearly identifying and documenting a complete process is crucial to keeping everyone involved and committed to the budget planning and preparation process.

Here are 10 key successful budget process practices: 1) Review financial performance Review current year income and expenses compared to budget, forecast for the remainder of the year, and analyze to determine financial health and position. 2) Prep for planning Identify and assemble budget team/committee. Discuss and agree upon budgeting approach, budgeting cycle, policies, and responsibilities of budget team members. 3) Establish a timeline Set deadlines and determine committee review schedule. Include ample time for further review and revisions to budget drafts before final approval. 4) Set goals Determine organizational goals, program goals, and desired financial outcomes. Outline core activities the organization will take on over the next year, as well as assumptions on how they’ll be financed. 5) Determine costs Determine costs required to reach goals, estimate expenses associated with activities (including fixed costs, variable costs, incremental costs, etc.), and estimate resources needed to meet expected goals. 6) Project income and forecast cash flows Identify expected and anticipated income from funding sources, noting what funds may be restricted for particular purposes. Summarize and understand when funds may be received throughout the year, especially for fundraising-driven anticipated income. Determine initial needs for more income than might be originally projected. 7) Draft budget Construct initial budget and assumption details, based on research and information gathered. 8) Review and revise draft budget Distribute draft budget to budget team, and collect recommendations, additional insight, and assumptions. Adjust to align expenses and revenue, based on the goals and outlined needs of the organization. Ensure everyone is in agreement with budget details and outline. Allow for enough time for multiple budget revisions, if needed. 9) Approve budget Prepare a budget proposal for the board and internal stakeholders. Include key program and organizational goals, as well as information to support the numbers. 10) Implement budget Distribute and communicate final budget internally, begin monitoring and tracking actual expenses and income to the budget month-over-month, and prepare to update and revise the budget as needed throughout the year.




1

4

23

1

4

5

23

6

7 789

10 10

5

6

89


6

THE CRITICAL WHO’S WHO OF THE BUDGET PROCESS There are many key roles and groups that contribute to developing a well-engineered and sustainable budget.

A successful and tactical budget team should consist of:

Remember – an effective nonprofit cannot rely solely on just one individual or focus area to prepare and propose needs, expenses, and resources for the entire organization. Input from accounting and non-accounting team members is critical throughout the budget process.




1

4

23

1

4

5

23

6

7 789

10 10

5

6

89

CFO/Director of FinanceThe finance team drives the budget process, establishing guidelines and preparing the budget in consultation with the budget team.

The finance role is instrumental in reviewing prior year finances and performance, estimating expenses, setting goals, estimating anticipated revenue, and planning for needed resources. The Director of Finance (or CFO) and the organization’s Executive Director work in tandem during the budget process to align the needs of all departments, help determine priorities, and manage the entire budget process from prep to approval.

Program Director/ Program ManagerProgram Directors help to provide clear and realistic expectations for the resources and

dollars needed to support mission-critical programs. While the accounting team can make an educated guess, based on historical trends and year-over-year numbers, the program team can help to set better expectations for the year ahead when it comes to prioritizing program needs; identifying challenges and changes, based on external factors; and properly allocating resources.

Executive DirectorThe nonprofit’s Executive Director works on the budget in tandem with the finance leader, while also developing and driving the

strategic plan for the organization – ensuring budget goals match and meet the needs for the year to come. The most successful nonprofit budget properly aligns to and complements an annual plan. The Executive Director plays a pivotal role in guiding the organization toward financial sustainability, based on the determined strategy and tone for the year ahead.

Development DirectorThe fundraising/development department is key to providing an accurate representation of future cash flows, based on planned and

projected fundraising efforts. These donor dollars will play a pivotal role in funding program expenses and forecasting for additional resources.

Board of Directors and Board TreasurerThe board doesn’t just provide approval of the final budget, it plays an even more important

role in setting the strategy and tone for the year ahead. Direction and focus should be communicated from the top down to help steer the organization in the right direction. This may include developing new programs, improving fiscal responsibility, expanding services, and more, to which proper budgeting and allocation is vital. The board and treasurer should also consistently review, update, revise, and monitor the budget throughout the year.


7

ASSESSING, REVISING, AND MONITORING THE BUDGET A successful budget isn’t one that’s created, approved, and tucked away. It must be continually monitored and revised throughout the year. While a final budget is indeed approved, certain factors and unplanned changes can result in the budget becoming less than realistic in meeting organizational goals.

You must consider your budget somewhat fluid, revising as needed to account for:

• Changes in actual funding received versus projected funding (such as receiving more or less from planned grant funding or fundraising activities)

• A shift or pivot in the strategy or direction of the organization

• Unforeseen events (disaster, legal, economic)

• Organizational structure change (such as consolidations)

• Unexpected regulatory changes

Monitoring a better budget with technologyTechnology can help organizations better and more easily track, revise, and monitor budget activities throughout the year. Purpose-built software enables you to:

• Create multiple budget worksheets, based on specific programs or grants, and added together to rollup and display as the total budget

• Track revisions from version to version

• Report on multiple budget versions – original budget versus revised budget

• Manage and report on the entire budget and all programmatic budgets within one application, instead of multiple spreadsheets

• Create budget variances to help determine if further revisions are needed, based on budget versus actual

• Grant executive view access to provide further visibility into financial performance compared to budget throughout the year

Learn more about true fund accounting™ and what powerful budgeting capabilities coupled with purpose-built technology can do for your organization at abila.com/mip.




1

4

23

1

4

5

23

6

7 789

10 10

5

6

89


8

ARE WE THERE YET?THE BUDGET CALENDAR

JULY/AUGUST2016

JULY/AUGUSTPlanning and Prep

Review financial performance(prior year and forecasted year-end)

Assemble budget team and assign responsibilities

✓

✓

SEPTEMBERTimeline and Goals; Estimate and Draft Set deadlines and review schedule

Determine organizational and program goals

Determine expenses, project income, forecast cash flow

Draft initial budget

✓

✓

✓

✓

SEPTEMBER2016

OCTOBER2016

DEC/JAN2016/2017

NOV/DEC2016

OCTOBERReview and Revise

Distribute draft budget; collect recommendations;and revise, based on feedback and assumptions

Rinse and repeat if needed

✓

✓

NOVEMBER/DECEMBER Propose and Approve

Prepare budget proposal

Seek final approval from board

✓

✓

DECEMBER/JANUARYImplement and Monitor Internally communicate budget and goals for

the new year

Begin managing, tracking, and monitoring actualto budget

✓

✓

Properly planning one’s budget is crucial to ensuring mission achievement. Once created, it should serve as the guideto managing your nonprofit’s programs and financial responsibilities throughout the year. As a rule, a schedule shouldbe established four months prior to the end of the fiscal year to ensure key stakeholders – including the board ofdirectors – are committed, in agreement, and ready to tackle the budget process.

Time to start planning!

Here’s what your calendar year-end budget preparation schedule should look like:


Abila is the leading provider of software and services to nonprofit organizations and associations that help them improve decision making, execute with greater precision, increase engagement, and generate more revenue. Abila combines decades of industry insight with technology know-how to serve nearly 8,000 clients across North America. For more information, please visit abila.com. To subscribe to our blog, visit Forward Together at blog.abila.com.

About Abila

©2016 Abila, Inc. All rights reserved. Abila, the Abila logos, and the Abila product and service names mentioned herein are registered trademarks or trademarks of Abila, Inc., or its affiliated entities. All other trademarks are the property of their respective owners. 08152016

LEARN MORE

www.1stchoiceadvisors.com727-512-5413 John Francis

http://abila.com

http://blog.abila.com

Documents

Cobranded_Abila_Nonprofit_Budget_Roadmap