The Budget-Building Book for Nonprofits: A Step-by-Step Guide for Managers and Boards, 2nd Edition
November 2007, Jossey-Bass
Includes new chapters on Zero-Based and Capital Budgeting as well as a CD with spreadsheets, worksheets and a new budget-building software, the CMS Nonprofit Budget Builder, designed to help you implement the concepts in the book. The software includes an expandable standard chart of accounts (COA) and will aid in building, organizing, tracking and planning budgets.
Acknowledgments to the First Edition.
Acknowledgments to the Second Edition.
Introduction: How to Use This Book.
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.
B. Five Basic Questions.
C. Information 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.
C. Return on Investment.
1. Mortgages and Loans.
2. Lines of Credit.
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.
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.
MURRAY DROPKIN is president of CMS Systems, Inc., a consulting firm that specializes in improving the financial operations of nonprofit and for-profit organizations. He is the coauthor of Bookkeeping for Nonprofits and The Cash Flow Management Book for Nonprofits.
JIM HALPIN has written articles for technical publications and has developed accounting software and other applications for clients in a wide variety of industries. He is the coauthor of Bookkeeping for Nonprofits and the coauthor, with Dropkin, of the newsletter Nonprofit Report.
BILL LA TOUCHE used his writing, planning, training and organizing skills to help a wide range of individuals, groups, and organizations get what they want from complex business, governmental, and nonprofit entities.
Electronic spreadsheets/tools for budget development and monitoring
CD with tools and worksheets to make budget-building even easier!
“Written in clear language easily understood by the layman, it contains guidance on both proper procedures and the real-world challenges of getting the organization to adopt them. The worksheets and sample forms alone are worth the price.”--Elizabeth Rosen, retired chief financial and systems officer, The Morgan Library and Museum
“Everything you ever wanted to know about budgeting and didn’t know who to ask is contained in this second edition of The Budget-Building Book for Nonprofits. It’s practical, sophisticated, and contains many useful forms and examples. Whether you are an experienced nonprofit executive, board member, finance person or new to the field, you will want to add this budget book to your library. It’s a tremendous resource for everyone who works or volunteers to support the nonprofit sector.”--Carol Wolff, executive director, Area Health Education Center, Camden, New Jersey
“The second edition of The Budget-Building Book for Nonprofits presents a primer for managers with limited financial expertise and resources in nonprofit settings. In my 20 years of consulting to behavioral health systems, these kinds of adjustments are often the critical difference in the financial health of an organization. This book should be mandatory reading for the nonfinancial administrator of any nonprofit organization.”--Harvey E. Hoffman, president, Healthcare America, Inc.
“Too often the process of building a budget in nonprofit organizations fails to receive the attention and focus appropriate to its importance. When a properly constructed budget is used effectively it represents far more than a simple spending plan. Rather, it becomes a guiding statement of values and priorities and a road map for how the organization plans to achieve its goals for the budgeting period. That view—carefully honed by these highly skilled authors after many years of experience on the front lines—is well-captured in this second edition of The Budget-Building Book for Nonprofits and forms the foundation for the practical methods so clearly presented. Nonprofit executives and their boards of trustees alike will be well-served by this edition and well-advised to make it their own.”--Alan G. Kaufman, former director, New Jersey Division of Mental Health Services, and president, Argus Solutions for Behavioral Health
“The Budget Building Book for Nonprofits is a clear, well-written guide for nonprofit managers, whether experienced or new to the job, and demonstrates the importance of the budgeting process. Using plain language and real-life examples, the authors provide a comprehensive and systematic approach to developing and monitoring the budget. It should be required for all nonprofit managers and boards.”--Irwin Nesoff, associate professor and director of the New Jersey Institute for Nonprofit and Social Work Management, Social Work Department, Kean University