This webinar will provide a basic introduction to budgeting in a nonprofit setting. Attendees will learn how to prepare and strategically use budgets for their organization.

1. Budgeting 101
Kevin Derrivan
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3. Today’s Speakers
Kevin Derrivan
Accounting Management
Solutions, Inc
Hosting: Sam Frank, Synthesis Partnership

4. Budgeting 101
Kevin Derrivan
Accounting Management Solutions, Inc.
December 15, 2010

5. Kevin Derrivan
Senior Consultant/Engagement Manager
Accounting Management Solutions, Inc.
5

6. 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.
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7. Agenda
• The basics of budgeting.
• Why budgets are important for control
purposes.
• Various types of budgets.
• When each type of budget is used.
• How to prepare and address some of the
important parts of a budget.
• What are their limitations?
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8. What is a Budget?
• Budgets are summaries of short-term operational
activities of a organization.
• For example, a organization may prepare a cash
budget to predict cash inflows and outflows.
• Budgets are quantitative representations.
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9. Budgeting vs. Forecasting:
There is a Difference
Budgeting vs. Forecasting there is a
• A forecast is a difference!
prediction.
• There are many hypothetical's before a forecast
looks like a budget.
• A forecast can only predict.
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10. Budgets are…
• …. a strategic organizational plan.
• …. based on facts, events in progress and actions
planned.
• …. a collaborative effort by finance and the
departments affected by obtaining input before
preparation.
• …. managed by department heads to make the
required steps to achieve the budget.
• …. necessary for planning and for controlling.
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11. Various Types of Budgets
Two Major Types:
• Operating Budgets
• Capital or Investment Budgets
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12. Characteristics of a Budget
• Stated in monetary units however, could contain non-
monetary items such as units produced, sold, no. of
items processed etc.
• Usually, short-term (one year) but could be
extrapolated from or to the longer term.
• Senior management must be involved in the process
and must approve it.
• Most important – budgets must be compared to actual
and the variances must be investigated.
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13. Critical to Forecast & Create a Plan
• Management should review Budget on a monthly basis
• The Board should receive a copy on a monthly basis
• Managers should meet with finance on a monthly basis
to discuss the financials and any unbudgeted
expenditures.
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14. The Budget Process:
Best Practices
• Know your goals and objectives
• Upper Management Support and “Buy In” on your process
• De-centralize the budgeting process
• Involve staff at other levels
• Create Strong Tools and Training (as needed)
• Work closely with revenue-generating staff
• Budget capital expenditures
• Budget a surplus
• Project cash flow
• Budget temporary and permanently restricted revenue
• Manage your operating budget & your audited financial
statements
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15. Best Practice: Know Your Goals &
Objectives
• PLANNING and GOAL SETTING MUST be
completed BEFORE the budgeting Process
BEGINS
• Lack of proper planning/goal setting may lead to poor
budgeting
• If people do not know their goals they may not know
how to start or may repeat current mode of operations
• May miss substantial changes - may budget too little or
too much, causing a lot of rework and frustration
15

16. Get Upper Management Support &
Create “Buy-In”
If they don’t care - no one else will. They need to:
• Lead approval of Organization Goals and Operations Plan
• Be involved/leaders in the budget process
• Support the process by MANAGING their staff to the
timelines and product completeness and accuracy
• Approve all budgets prepared by those they supervise
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17. De-centralize the Budget Process
• Every manager who has a responsibility for a budget should
be involved in the process
• Understanding the rationale for their budget enables them
to “own” it and act as stewards of their department
expenses; since they understand the costs of running their
program, they also become better fundraisers
• The finance department can help coordinate the budgeting
process but should not be putting together program
budgets; they are not the individuals responsible for the
budget
Holds everyone accountable for day to day activities!
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18. Involve Staff at Other Levels
Get their buy-in and delegate projects for them to plan and
budget; the more they are involved, the more they will work
to help the organization succeed
• Example: Budget for a Special Event – the Event Planner
reports to the Director of Fundraising; while the Director of
Fundraising is the manager involved in the budget process, the
Event Planner also needs to be part of the budget process
• Example: A Day Care Center has 4 breakfasts a year for the
mother’s of the toddler group; the Assistant Toddler Teachers
are in charge of this; get them involved in how much the
breakfasts will cost and how much they need to spend
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19. Create Strong Tools & Training
What can we do to involve others in
the budgeting process?
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20. Create Strong Tools & Training
• Host a Budget Training
• Create a Budget “toolkit” (typically your finance
team would create this; starts with providing key
assumptions and likely trends affecting the business
environment during the budget’s timeframe)
• Provide Written Instructions & Timelines with
Dates/Deliverables
• Budget Template (fill in the blanks) – managers fill in
blanks and the template automatically calculates and
assigns overhead and related costs
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21. Create Strong Tools & Training
Create a Budget “toolkit” (continued)
• Historical Info (Ops and Projects) and Year-to-date Info. -
adjust for any changes in the new budget (Incremental
Budgeting) Examples – COLA or inflation increases
• Some Research – For new programs or events, get estimates
and provide Narratives (Zero Based Budgeting - start from
scratch)
• Include any projects/costs for which you have received
restricted funds or grants
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22. Create Strong Tools & Training
Create a Budget “toolkit” (continued)
• Aligning the look and feel of your budget template to your
chart of accounts and the format of your financial statements
gets everyone on the page
• Some accounting software packages allow the importing of
budgets directly from Excel, so you may want to consider
using a worksheet in the template that allows each budget to
be automatically entered
22

23. Budget Template
See example budget template in Excel:
• Has instruction page
• Fill in the blank format based on color codes
• Some info filled in for them
• Data entry creates final budgets (linked
worksheets) and import into accounting system
• Budget and GL should be in format that allows
easy reporting for UFR and audit
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24. Budget Template
Very Specific and easy to
understand
24

25. Budget Template
Automatically filled in
from worksheets
Historical Data
25

26. Budget Template- Staff “Fill-In”
Simply Fill In the Blue shaded area
The Purple Areas automatically get
created
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27. Budget Template- Import Page
Formatted to automatically upload into
your accounting system
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28. Budget Template- Final Budget
Summary by Program
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29. Budget Timeline
Work timeline back from final approval deadline
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30. Review the Template
• Historical Info • Place for Narrative
Provided information
• Summary Page • Projects
• Salary, Benefits, Ops • Import Page into
Page Accounting System
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31. Revenue-Generating Staff
• Work closely with your development office to assist
with revenue piece if you are a grants-based
organization
• Work closely with your finance department if you are a
membership organization
• Weigh potential revenue sources by %’s (likelihood of
receiving X)
• Goal is to work with all staff throughout the org. to look
at external markets, including sources of funding at the
local, regional, and national economy
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32. Components of the Budget
Discussion on Participants Current Practices
• Do you budget cash or accrual basis?
• Besides the basic revenue and expense budgets – what
other things are included in your budget process?
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33. Budget Components
Besides the basic operating revenue and
expense, what are the different components of
your budget?
• Capital Expenditures/Fixed Assets/Construction in Progress
(CIP)
• Surplus
• Cash Flow Projection
• Temporarily/permanently restricted revenue
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34. Budget Capital Expenditures
Why budget for these items (capital expenses) if
they do not hit my income statement?
They will:
• Increase your budgeted depreciation expense
• Increase your overall expenses
• Thereby increasing needed operating revenue
• Increase your cash flow/cash outlays needed
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35. Why Budget a Surplus?
• Ensuring that your organization can sustain itself
during an unexpected change or difficult period
• Work with management to project a surplus;
identify other revenue sources
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36. Project Cash Flow
• Prepare a cash flow projection with your budget
• Monitor and adjust monthly
• Review with management and the board
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37. Budget Temporary & Permanently-
Restricted Revenue
Why budget for these revenue sources if they do
not hit my Unrestricted Column on my
Statement of Activities?
They will:
• Affect your final organization surplus/deficit result
• Provide revenue goals and results for fundraising for
future years
37

38. Manage Your Operating Budget &
Your Audited Financial Statements
• Don’t forget to budget for non-cash expenses
(depreciation expenses, vacation expenses, deferred
salary or benefits, etc.)
• Vacation accruals can turn a $10,000 surplus on an
operating budget into a deficit – don’t be surprised at
year end
• Understand the difference between the cash basis
and accrual basis of accounting; communicate this to
management
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39. On-going Activity
• The budget process is not a once-a-year activity
• Management should be meeting with the managers
once a month to review the actual vs. budgeted
performance and plan (project) for the rest of the yr.
• Some organizations even re-budget mid-year if there
are substantial operational changes
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40. Policies & Processes for Budgeting:
Internal and the Board
Discussion on Participants Current Practices
• What are your organizations current policies on budget
adoption and changes (internal and the Board)?
40

41. Policies & Processes
• Once all draft budgets have been analyzed, modified,
balanced, etc. prepare an overall budget document
and presentation
• This includes who presents, when they present, and
what format they present the organization’s budget to the
board of directors for approval
• The presentation should include the goals and
objectives for the upcoming year
• A summary of the total income and expenses contained
in the budget
• Have an Organizational Chart/Staffing Plan available
for review
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42. Policies & Processes
• Have an summary of income by individual sources
• A summary of expenses by broad categories such as
salaries and wages, consultants and contract services,
supplies, facilities, materials
• Overall budget summary should have comparative data
from the prior year and current year (with projections);
include a column indicating total change either by % or $
amount
• Depending on the organization, the finance/executive
committee should review and approve the budget before
the full Board
• Provide guidelines on how changes to the budget are
made an approved, how expenditures that exceed
budgeted amounts are approved, etc.
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43. Other Supplemental Data
Budgeted Expense 2010
1% 1%
1%
2%
6% 3%
7%
43%
7%
8%
9%
12%
Salaries Payroll Taxes and benefits
Office expense Consultants
Professional fees Rent and building expense
Depreciation and am ortization Program supplies and expenses
Training and travel Interest
Insurance Real estate taxes
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44. Policies & Processes: Flex Budgets
• If the organization reaches financial goals during the
year, it can do more; build a flex budget into the
budget process
• Flex budgets provide a financial management and
motivation tool
• Gives the board comfort in knowing that the
organization won’t risk financial operations to reach
stretch goals
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45. Other Policies & Processes
• Work Plans – Every Department/Program should have
one at the beginning of each fiscal year; mirror
organizational budget plan
• Federal or State Grants – Any carryover funds,
if allowed, should be monitored; any budget
modifications should be requested in writing (any
budget changes from a prior fiscal year will affect this)
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46. Group Discussion
Discussion- Sharing of everyone’s experiences
with Cash Flow and Budgeting
• What challenges have you faced in your experiences?
• What strategies have you used to meet those
challenges?
• What worked well vs. not well?
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47. Contact Information
Kevin Derrivan
Senior Consultant
Accounting Management Solutions, Inc.
kderrivan@amsolutions.net
781-419-9266
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