Budgeting basics for nonprofits
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Budgeting basics for nonprofits

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This presentation is for executive directors of small organizations or other staff who need to understand and use budgets. The session covered basic accounting principles and how to use them to ...

This presentation is for executive directors of small organizations or other staff who need to understand and use budgets. The session covered basic accounting principles and how to use them to develop an accurate annual budget. The presenter reviewed components of a budget, identified common errors made by nonprofit organizations in budgeting, and taught methods for handling items specific to the nonprofit sector, including donations and in-kind contributions and services.

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Budgeting basics for nonprofits Budgeting basics for nonprofits Document Transcript

  • Budgeting Basics Maryland Association of Nonprofit Organizations June 12, 2012 Bright ideas. Smart solutions. www.gma-cpa.comAbout the InstructorErnie Paszkiewicz, CPAGross, Mendelsohn & Associates36 S. Charles Street, 18th FloorBaltimore, MD 21201epaszkiewicz@gma-cpa.comoffice: 410.685.5512 | direct: 410.900.1339www.gma-cpa.comFeel free to contact me anytime with questions. 1
  • Goals for the Session Have fun Have interaction No tests or practice sets Customize the session to answer your specific questions while discussing some common issuesBudgeting Basics Budgeting doesn’t start with numbers or spreadsheets How do you manage the organization? (balance sheet and income statement) What are your external needs? What are your in-house capabilities? Simple or complex budgets 2
  • Major Considerations Cash or accrual basis GAAP or non-GAAP items Level of detail … account, programs, grant-specific Fixed and variable costs Compliance issuesCash vs. Accrual Many organizations and people run organizations on a cash basis and it works fine for them Accrual basis and its specific oddities are more for external reporting, but some people also like it for internal reporting 3
  • Cash vs. Accrual People without a strong financial background understand cash basis better Trying to force them to manage on accrual basis can actually be a mistake since it can confuse them Major difference is concept of receivables and payables What’s your level of knowledge of cash vs. accrual?GAAP vs. Non-GAAP Contributions vs. exchanges When to record pledges Restrictions placed by donors Depreciation of fixed assets In-kind contributions – goods and services Dues 4
  • GAAP vs. Non-GAAP Program vs. management and general vs. fundraising (SOP 98-2) What is permanently restricted asset vs. an “endowment”? Income vs. agency transactions Incurred vs. encumberedLevel of Detail Program vs. management and general vs. fundraising again Within program how many different programs? Within a program how many different funding sources or individual grants? Natural classification (salaries, rent, etc.) 5
  • Fixed and Variable Costs Fixed costs don’t decrease if a program goes away Variable costs increase or decrease with number of participants Some costs are a combination (i.e., one additional teacher for every ten new kids)Fixed and Variable Costs Very important when budgets are tight and you evaluate cuts in programs Funding of the costs (use of restricted funds for unrestricted expenses) 6
  • Compliance Issues Must make sure costs are allocated to proper grants Must make sure costs are allowable under grants, particularly with federal funding Actual allocations must be on real level of effort, not budgeted level of effort What is tolerance for over/under budget situations, and can budgets be modified?Mechanical Aspects of Budgets Can your accounting package be used to its fullest to budget? Do you opt for Excel or other spreadsheets for budgeting? What are some tricks to spreadsheet formats? Monthly vs. quarterly 7
  • Mechanical Aspects of Budgets Importing from accounting systems Segregating input areas from calculation areas Even vs. seasonal estimates Over/under budget at a point in time vs. remaining budget approachMechanical Aspects of Budgets Budget to actual comparisons A budget is a guide, so what about unbudgeted items? When do you change the budget? Use the prior actual as a starting point and modify for changes 8
  • Managing Cash Flow You might budget income and expense, but need to watch the cash flow Property purchases, debt payments, receivable collections, deferring payables What’s a good target cash reserve level? Will funders think you aren’t worthy if you have too much cash? The penalty for fiscal responsibility. 9