The Budget-Building Book for Nonprofits

Table of Contents

PART ONE: UNDERSTANDING BUDGETING BASICS.

1. Why Budgets and Budgeting Are Important to Nonprofits
   A. The Importance of Budgets and Budgeting.
   B. The Basic Characteristics of Budgeting.

2. Understanding Basic Types of Nonprofit Budgets: Overview.
   A. Organization-Wide Operating Budgets.
   B. Operating Budgets for Individual Programs, Units, or Activities.
   C. Capital Budgets.
   D. Cash Flow Budgets (Cash Flow Forecasts).
   E. Opportunity Budgets.
   F. Zero-Based Budgets.

3. Key Board and Staff Roles and Responsibilities in Nonprofit Budgeting.
   A. The Board’s Role.
   B. The Executive Director’s, President’s, or CEO’s Role.
   C. The Chief Financial Officer’s Role.
   D. Program, Unit, or Activity Manager’s Role.
   E. Department Manager’s Role.
   F. Other Possible Participants.

4. Establishing Budget Guidelines, Priorities, and Goals.
   A. Establishing Guidelines.
   B. Identifying Priorities.
   C. Setting Organization-Wide Goals.
   D. Setting Individual Program and Unit Goals.

5. How Different Sources and Types of Income Can Affect Budgeting.
   A. Unrestricted Funds.
   B. Contract or Grant Agreement Funds.
   C. Restricted Contributions.
   D. Income from Trade or Business Activities.
   E. Asset-Generated Income.
   F. Cash and Noncash Contributions, Including Pledges.
   G. Funds Requiring a Cash or In-Kind Match.

6. Strategies for Developing Organization-Wide Operating Budgets.
   A. Strategy 1: Set Annual Organization Outcome Goals from the Top Down.
   B. Strategy 2: Set Annual Income and Expense Targets from the Top Down.
   C. Strategy 3: Request Draft Budgets That Show Priorities from Program   or Unit Heads.
   D. Strategy 4: Use Zero-Based Budgeting.
   1. Possible Problems with ZBB.
   2. Benefits of ZBB.

PART TWO: STEP-BY-STEP BUDGETING GUIDELINES.

7. Start with the Budget-Building Checklist.

8. Designing Your Budgeting Policies and Procedures.
   A. Basic Budgeting Policies and Procedures.
   B. Basic Income Projection Policies and Procedures.
   C. Basic Expense Projection Policies and Procedures.
   D. Basic Cash Flow Projection Policies and Procedures.
   E. Policies Establishing the Fiscal Year.
   F. Other Needed Policies and Procedures.
   G. Checklist for Information to Include in Written Policies.
   H. Final Review and Integration.

9. Creating Your Budgeting Calendar.
   A. Five Steps for Developing the Budgeting Calendar.
   B. Instructions for Creating an Annual Budgeting Calendar.

10. Orienting Program and Department Managers and Staff to Budgeting.
    A. Budget Team Meeting.
    B. Practical Considerations When Planning Budget Team Meetings.

11. Contents of the Annual Budget Preparation Package.

12. Developing Organization-Wide Operating Budgets.
    A. Five Steps to Prepare for the Annual Budgeting Process.
    B. Five Steps to Create Annual Budgets.

13. Developing Operating Budgets for Individual Programs, Units, or Activities.
    A. Planning for Program or Unit Budget Development.
    B. Basic Steps in Creating a Program or Unit Budget.
    C. Setting Two Kinds of Program or Unit Goals.
    D. Preparing a Program or Unit Workplan.
    E. Identifying the People and Things Needed to Implement a Workplan.
    F. Identifying Personnel Costs.
    G. Identifying ‘Other Than Personnel’ Cost Categories.
    H. Identifying Specific Line-Item Costs.
    I. Providing Budget Justification or Cost Documentation.
    J. Matching and In-Kind Contributions.
    K. Distributing Copies of Final Program or Unit Budgets.

14. Major Components of Operating Budgets.
    A. Projected Income.
    B. Projected Expense Categories and Subcategories.
    C. Projected Expenses by Line Item.
    D. Budget Narrative or Justification.

15. Estimating Income and Expenses.
    A. Estimating Future Income.
    1. Making Needed Annual Policy Decisions.
    2. Projecting Various Kinds of Income.
    B. Estimating Expenses.
    1. Annual Policy Decisions.
    2. Projecting Salaries and Wages.
    3. Projecting Fringe Benefits.
    4. Projecting Other Operating Costs.
    C. Summarizing Proposed Changes in Draft Budgets.
    D. Budget Highlights.

16. Allocating Administrative, Overhead, and Shared Costs.
    A. Allocation Methods.
    B. Worksheet for Allocating Costs.

17. Revising Draft Operating Budgets.
    A. Updating Fiscal Projections.
    B. Trimming Draft Budgets.
    C. When More and Deeper Cuts Are Needed.
    D. Avoiding Potential Budget-Cutting Problems.

18. Zero-Based Budgeting.
    A. Overview.
    B. Five Basic Questions.
    C. nformation Provided by the Program.
    D. Potential Demand.
    E. Break-Even Analysis.
    F. Decision Time.
    G. Getting Started with ZBB.

19. Capital Budgeting.
    A. Strategic Fit.
    B. Viability.
    C. Return on Investment.
    D. Financing.
    1. Mortgages and Loans.
    2. Lines of Credit.
    3. Leases.
    4. A Note on Bond Financing.
    E. Two Types of Projects.
    F. Cash Flow Budgeting.
    G. Final Considerations.

20. Presenting Your Annual Budget Proposal to the Board.
    A. Letter of Transmittal.
    B. Total, Organization-Wide Budget Summary.
    C. Program, Unit, or Activity Budget Summaries.
    D. Detailed, Organization-Wide Line-Item Expense Budget.
    E. Individual Program or Unit Budgets.
    F. Other Useful Information.

21. Board Review, Revision, and Approval of the Final Budget.

22. Cash Flow Reporting, Forecasting, and Management.
    A. Fundamentals of Cash Flow Forecasting.
    B. Cash-Basis Accounting for Cash Inflows.
    C. Cash-Basis Accounting for Cash Outflows.
    D. Cash Flow Forecasting Based on the Operating Budget.
    1. Reviewing the Operating Budget.
    2. Adjusting the Operating Budget to Create the Cash Flow Forecast.
    E. Reviewing and Approving the Cash Flow Forecast.
    F. Short-Term Cash Flow Forecasting.
    G. Periodically Reviewing the Cash Flow Forecast.
    H. Corrective Actions for Forecast Cash Shortages.
    I. Cash Flow Reporting, Monitoring, and Analysis.

23. Monitoring and Modifying Approved Budgets.
    A. Regular, Timely Financial Reporting and Monitoring.
    B. Planning and Taking Corrective Action.
    C. Modifying Budgets.
    1. Reasons for Modifying an Approved Budget.
    2. Creating Written Budget Modification Policies and Procedures.
    D. Cash Flow Projections and Planning.
    1. Causes of Cash Flow Problems.
    2. Using Monthly Projections for Planning.
    3. Addressing Cash Shortfalls.
    4. Some Possible Drawbacks.

24. Conclusion.

PART THREE: PRACTICAL BUDGETING RESOURCES.

Resource A: Master Worksheet for Creating a Program or Unit Workplan.

Resource B: Worksheets with Sample Budget Formats.

Resource C: Examples of Financial Reports for Analyzing and Monitoring Income and Expenses.

Resource D: Tools for Analyzing Financial Reports and Planning Corrective Action.

Resource E: Example of a Detailed Organization-Wide Expense Budget.

Resource F: Additional Useful Checklists and Examples.

Resource G: Tools on the Accompanying CD.

How to Use the CD-ROM.