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Budgeting and Financial Statement Basics for Nonprofits


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Ernie Paszkiewicz, CPA, of Gross Mendelsohn's Nonprofit Group presented "Budgeting and Financial Statement Basics for Nonprofits." The seminar was for executive directors, staff and board members of small or new nonprofit organizations. The presentation was designed to help attendees understand budgeting and forecasting revenue and expenses, as well as financial statements and audits.

Published in: Business

Budgeting and Financial Statement Basics for Nonprofits

  1. 1. Budgeting Basics for Nonprofits<br />on behalf of the Community Law Center<br />September 20, 2010<br />
  2. 2. About the Instructor<br />Ernie Paszkiewicz, CPA<br />Gross, Mendelsohn & Associates<br />36 S. Charles Street, 18th Floor<br />Baltimore, MD 21201<br /><br />office: 410.685.5512 | direct: 410.900.1339<br /> <br />Feel free to contact me anytime with questions.<br />
  3. 3. Goals for the Session<br /><ul><li>Have fun
  4. 4. Have interaction
  5. 5. No tests or practice sets
  6. 6. Customize the session to answer your specific questions while discussing some common issues</li></li></ul><li>Budgeting Basics<br /><ul><li>Budgeting doesn’t start with numbers or spreadsheets
  7. 7. How do you manage the organization? (balance sheet and income statement)
  8. 8. What are your external needs?
  9. 9. What are your in-house capabilities?
  10. 10. Simple or complex budgets</li></li></ul><li>Major Considerations<br /><ul><li>Cash or accrual basis
  11. 11. GAAP or non-GAAP items
  12. 12. Level of detail … account, programs, grant-specific
  13. 13. Fixed and variable costs
  14. 14. Compliance issues</li></li></ul><li>Cash vs. Accrual<br /><ul><li>Many organizations and people run organizations on a cash basis and it works fine for them
  15. 15. Accrual basis and its specific oddities are more for external reporting, but some people also like it for internal reporting</li></li></ul><li>Cash vs. Accrual<br /><ul><li>People without a strong financial background understand cash better
  16. 16. Trying to force them to manage on accrual basis can actually be a mistake since it can confuse them
  17. 17. Major difference is concept of receivables and payables
  18. 18. What’s your level of knowledge of cash vs. accrual?</li></li></ul><li>GAAP vs. Non-GAAP<br /><ul><li>Contributions vs. exchanges
  19. 19. When to record pledges
  20. 20. Restrictions placed by donors
  21. 21. Depreciation of fixed assets
  22. 22. In-kind contributions – goods and services
  23. 23. Dues</li></li></ul><li>GAAP vs. Non-GAAP<br /><ul><li>Programs vs. management and general vs. fundraising (SOP 98-2)
  24. 24. What is permanently restricted asset vs. an “endowment”?
  25. 25. Income vs. agency transactions
  26. 26. Incurred vs. encumbered</li></li></ul><li>Level of Detail<br /><ul><li>Program vs. management and general vs. fundraising again
  27. 27. Within program how many different programs?
  28. 28. Within a program how many different funding sources or individual grants?
  29. 29. Natural classification (salaries, rent, etc.)</li></li></ul><li>Fixed and Variable Costs<br /><ul><li>Fixed costs don’t decrease if a program goes away
  30. 30. Variable costs increase or decrease with number of participants
  31. 31. Some costs are a combination (i.e., one additional teacher for every ten new kids)</li></li></ul><li>Fixed and Variable Costs<br /><ul><li>Very important when budgets are tight and you evaluate cuts in programs
  32. 32. Funding of the costs (use of restricted funds for unrestricted expenses)</li></li></ul><li>Compliance Issues<br /><ul><li>Must make sure costs are allocated to proper grants
  33. 33. Must make sure costs are allowable under grants, particularly with federal fundings
  34. 34. Actual allocations must be on real level of effort, not budgeted level of effort
  35. 35. What is tolerance for over/under budget situations, and can budgets be modified?</li></li></ul><li>Mechanical Aspects of Budgets<br /><ul><li>Can your accounting package be used to its fullest to budget?
  36. 36. Do you opt for Excel or other spreadsheets for budgeting?
  37. 37. What are some tricks to spreadsheet formats?
  38. 38. Monthly vs. quarterly</li></li></ul><li>Mechanical Aspects of Budgets<br /><ul><li>Importing from accounting systems
  39. 39. Segregating input areas from calculation areas
  40. 40. Even vs. seasonal estimates
  41. 41. Over/under budget at a point in time vs. remaining budget approach</li></li></ul><li>Mechanical Aspects of Budgets<br /><ul><li>Budget to actual comparisons
  42. 42. A budget is a guide, so what about unbudgeted items? When do you change the budget?
  43. 43. Use the prior actual as a starting point and modify for changes</li></li></ul><li>Managing Cash Flow<br /><ul><li>You might budget income and expense, but need to watch the cash flow
  44. 44. Property purchases, debt payments, receivable collections, deferring payables
  45. 45. 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.</li>