The Budget Primer: Building and Using Budgets Better
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The Budget Primer: Building and Using Budgets Better

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Through real world nonprofit examples, learn how to build a budget and then use that budget to further the organization's mission.

Through real world nonprofit examples, learn how to build a budget and then use that budget to further the organization's mission.

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The Budget Primer: Building and Using Budgets Better The Budget Primer: Building and Using Budgets Better Presentation Transcript

  • The Budget Primer Building and Using Budgets Better Paul Konigstein October 16, 2013 Twitter Hashtag - #4Glearn Part Of: Sponsored by:
  • INTEGRATED PLANNING Advising nonprofits in: • Strategy • Planning • Organizational Development Part Of: www.synthesispartnership.com (617) 969-1881 info@synthesispartnership.com Sponsored by:
  • Coming Soon Part Of: Sponsored by:
  • Today’s Speakers Paul Konigstein Senior Consultant Accounting Management Solutions Assisting with chat questions: Jamie Maloney, 4Good Part Of: Founding Director of Nonprofit Webinars and Host: Sam Frank, Synthesis Partnership Sponsored by:
  • 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 Cannot accommodate inability to predict demand 13
  • ZERO BASED PROCESS 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
  • 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 Senior Management and Board Determine appropriate budget process for organization Finance and Development Estimate revenue and provide background materials Department/Program Managers Draft budgets for their areas 17
  • TIMELINE AND RESPONSIBILITY CONTINUED Finance and Department/Program Managers Justify draft budgets Finance Check and compile draft budgets Senior Management Set priorities for aligning revenue and expense 18
  • TIMELINE AND RESPONSIBILITY CONTINUED Finance Finalize budget 1. CEO 2. Finance Committee 3. Board Approve budget Finance and Department/Program Managers Disseminate and monitor budget 19
  • AN EXAMPLE Save the Children – Mali Program 20
  • 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 WHEN YOU IGNORE BUDGET VARIANCES.. 25
  • QUESTIONS?? Paul Konigstein Senior Consultant Accounting Management Solutions, Inc. pkonigstein@amsolutions.net 516-270-5070 www.amsolutions.net 26