Budgeting For Grant Writers Grant Writers Network of Greater Houston John F.X. Prior, LCSW, ACSW Harris County Protective Services for Children and Adults Houston, Texas March 11, 2009
Definition A numerical expression of an organization’s dreams that serves as a guide or measure of acceptable financial performance.
Benefits of a Budget Establishes goals to be achieved Identifies work to be done Projects resources that will be needed to get work done Establishes timetables and deadlines Assigns individuals responsible for work
Overview of Budgets Well-prepared, clear and accurate budgets allow nonprofits to: Adjust plans, activities, and spending Achieve cost effective spending Receive CLEAN audits Avoid incurring questioned or disallowed costs or cost overruns
Overview of Budgets Brings together input from Board, clients, management, prospective donors, and general public Anticipate operational expenses and identify revenue sources Provide financial & operational guidance to implement policies and use resources Are tools for controlling spending, avoiding deficits, and assessing the financial situation. Integrates administrative, staff, and operating activities Serves as basis for performance reviews Ongoing process
Roles of Staff to Create a Budget Agency Accountant, Treasurer, or Chief Financial Officer IF NOT: Someone knowledgeable about the project & organization Person who regularly handles finances Collaborative Effort
Budget Planning Issues Balancing Timing Evolution Accountability Zero Basis vs. Incremental Forecasting
Types of Budget Income & Expenses Revenues by Type Individual project, department, or program Service delivery costs Capital Additions Investment income Cash Flow Fund raising events Income generating activities Personnel projections
Advantages Enhances likelihood that organization will be financial successful Tool that translate abstract goals into determinable information; stipulates performance goals Budgeting process leads organization to look at itself, set priorities, and to narrow its choices Facilitates coordination and cooperation between various programs and financial department Periodic budget comparison to actual performance can identify problems and allow time for a response to changing conditions Measures financial performance in relation to expectations.
Disadvantages Presence of controls may stifle creativity Tendency to emphasize cost control Budget based on historical data only can fail to keep up with changing circumstances Budgets completed by only nonfinancial personnel can result in a plan without adequate staff input Not easy to implement and may require enthusiasm among management staff to be accepted as useful
Budget Elements Personnel Fringe Benefits Travel Equipment Supplies Contractual Indirect Charges Program Income
General Budget Components INCOME Donations & Memberships Service Delivery Fees Grants and Contracts Investment Income
Budget Narrative Budget = Includes detailed calculations with estimation methods, quantities, unit costs, and other similar qualitative detail. Budget Narrative = Discusses necessity, reasonableness, and allocation of costs.
Indirect Charges Costs not readily identified with a particular aspect of organizational operation (i.e.: administration, fundraising, etc.)
Budgeting Do’s Budget for the life of the grant Allowable costs Indirect Cost Rate Agreement Cost of living increases Address matching requirements Seek non-Federal support Focus on sustainability
Evaluating Financial HealthOrganizational Budgets Positive Indicators Red Flags The Executive Director understands The executive director cannot explainthe financial aspects of the organization. the financial aspects of the organization.The expenses and income outlined in The board is not involved in the budgetthe budget are reasonable. development process.The organization appears to have In reviewing anticipated incomeappropriate income streams and a (committed, identified, unknown), therealistic budget that adequately covers unknown is too big.core operating costs. Budgeted income exactly equalsA comparison of the budget to actuals budgeted expense — this is a “plugged”year-to-date shows that the organization budget; nature is never this precise.is close to meeting its budget.There is someone in the organizationwho knows its financial performanceand can explain any patterns.
Evaluating Financial HealthProject Budgets Positive Indicators Red FlagsThe project budget is aligned with the The project budget is unrealisticorganizational budget. and/or not consistent with theThe overall project budget seems proposal narrative.appropriate for what is described in the In reviewing anticipated incomeproposal narrative.There appear to be appropriate income (committed, identified, unknown),streams and a realistic budget that the unknown is too big.adequately covers program costs.
Evaluating Financial HealthFunding Mix Positive Indicators Red FlagsThe organization has diversified The E.D. and board member(s)contributed income, as well as earned cannot articulate their funding mix.income (if appropriate). The organization is overlyThe fundraising goals (for the dependent on one source oforganization or the project) and overallbudget are realistic based on the funding.economy and past experience. The organization has had a difficult time meeting the public support test and maintaining its public charity status.
Evaluating Financial Health Financial Position & Trends Positive Indicators Red FlagsThe organization has a history of breaking The organization does not have enougheven or operating in surplus. cash on hand to meet demands.The financial manager and executive The organization has a growingdirector can describe the organization’s accumulated deficit, and is projectingcurrent financial state. another deficit this year.The organization has a long-term vision of The balance sheet shows negative netwhere it wants to be financially. assets. The organization has debt other than long- term debt for asset acquisition, and has no debt reduction plan. There are unusual items in the organization’s financials (loans from board members, unpaid salaries) that are not clearly accounted for. The auditor has issued a “qualified opinion.”
Evaluating Financial HealthFund Development Positive Indicators Red FlagsThere is a plan for raising money, The organization cannot articulate adeveloped with the involvement of plan for fundraising.board members. The board is not involved inThe board of directors is aware of fundraising. The board members responsible foror involved in the organization’s fundraising and development oversightfundraising goals and activities. don’t have the skills or interest. The budget projects a perfect breakeven, and the fundraising budget number is exactly the amount needed. Is it justified or just a “plugged” number.
Evaluating Financial Health Financial Systems & Health Positive Indicators Red FlagsRegular Audits for Organizations of There are no financial reports or$250,000 or more statements generated.Board has financial expertise and The organization has financialBoard conducts regular financial statements, but they are not reviewedreviews by the board, or they are out of dateBoard receives financial reports at (more than two months old).least quarterly The organization “borrows” fromManagement & Program staff other programs or restricted funds.understand how to read financial The organization’s mid-year financialstatements statements indicate it is way off Financial reports are used to inform budget.programmatic and other decisions Auditor’s letters to management indicate weakness in internal controls.
Identify Funding Sources andFinancing Strategies Do you know how much you need? Is the initiative pursuing a variety of financing options? Do you have a plan in place to pursue options?
Creating a Strategic Budget Plan Clarify What You are Budgeting For? Number of clients you want to serve Number of sites you want to operate Target population you want to serve Range of activities you want to provide, and Level of quality of services you want to provide.
Creating a Strategic Budget Plan Estimate Fiscal Needs Activities & strategies you want to sustain Over what time period do you want to sustain them? Ramp Up Assumptions: Scale of operations Start-up Costs and Timing Ongoing Operating Costs Infrastructure Costs
Creating a Strategic Budget Plan What funding sources currently support your initiative? Amounts? Type? What non-cash resources provide support to your initiative? Are these resources restricted to specific program elements or functions? Over what timeframe will these resources be available to you?
Creating a Strategic Budget Plan Assess Funding Gaps Identify Major Strategies or Activities Identify Total Costs Identify Available Resources Identify Gaps in Funding.
Creating a Strategic Budget Plan Identify Funding Sources and Financing Strategies Clarify your NEED and WHEN Review current funding mix Public Funding Time-limited grants of 1 to 3 years Longer term funding commitments of more than 3 years Any current funding sources that may be at- risk of reduction or termination
Creating a Strategic Budget Plan Identify Funding Sources and Financing Strategies (continued) How much revenue can be generated? What is the administrative burden? Does funding stream help diversify your funding mix? When can you expect to realize the revenue? How can the funding be used (allowable costs)? Does accepting funding provide opportunities to create new partnerships, or will it limit your abilities?