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Through real world nonprofit examples, learn how to build a budget and then use that budget to further the organization's mission.
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Sponsored by:
The Budget Primer
Building and Using Budgets Better
Paul Konigstein October 16, 2013
Twitter Hashtag - #4Glearn
Part
Of:
Sponsored by:
Advising nonprofits in:
• Strategy
• Planning
• Organizational Development
www.synthesispartnership.com
(617) 969-1881
info@synthesispartnership.com
INTEGRATED PLANNING
Part
Of:
Sponsored by: Part
Of:
Coming Soon
Sponsored by:
Today’s Speakers
Paul Konigstein Senior Consultant
Accounting Management Solutions
Assisting with chat questions: Jamie Maloney, 4Good
Founding Director of Nonprofit Webinars and Host:
Sam Frank, Synthesis Partnership
Part
Of:
The Budget Primer
Building and Using Budgets Better
Paul Konigstein
Senior Consultant
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.
6
TODAY’S AGENDA
• Types of budgets
• Creating the budget
• After the budget is
completed
7
TYPES OF BUDGETS
• Operating – day to day activities of the entire
organization
• Program – activities of one program
• Grant – activities supported by one grant
• Cash flow – cash in and cash out
• Capital – investment activities of the
organization
8
TIME SPANS
• Year – most common
• Month – most precise – for organizations that
close monthly. Also commonly used for cash
flow
• Multi-year – for strategic planning
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NO TWO NONPROFITS ARE ALIKE
10
TWO BUDGET CREATION CHOICES
1. Traditional budgeting - modify last year’s
budget
2. Zero based budgeting – start from scratch
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ADVANTAGES OF ZERO BASED BUDGETING
1. The environment is changing too rapidly
for historical trends to remain meaningful.
2. Basing budgets on past history
encourages managers to spend every
penny in their budget when it may not be
efficient or effective to do so.
3. Mistakes that inadvertently creep into the
budget are replicated year after year.
12
DISADVANTAGES OF ZERO BASED BUDGETING
13
Cannot accommodate inability to predict demand
1. Start with volume goal
for each program
2. Determine inputs
necessary to achieve
volume
3. Cost out each input
4. Align costs to revenue
14
ZERO BASED PROCESS
TRADITIONAL PROCESS
1. Estimate revenue/growth contraction from
previous year
2. Grow/decrease expenses in line with revenue
change
3. Change all expenses proportionately or
change one program/project/department and
leave others intact
15
ESTIMATING REVENUE: FINANCE AND DEVELOPMENT PARTNERSHIP
• Assess current funding
• Assess prospects
• Assessment methodology:
• probability of obtaining funding OR
• most Likely, somewhat likely, least likely
• Earned Revenue – assess based on market
trends
• Other Revenue – Investment earnings
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TIME LINE AND RESPONSIBILITY
Department/Program Managers
Draft budgets for their areas
Finance and Development
Estimate revenue and provide background materials
Senior Management and Board
Determine appropriate budget process for organization
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TIMELINE AND RESPONSIBILITY CONTINUED
Senior Management
Set priorities for aligning revenue and expense
Finance
Check and compile draft budgets
Finance and Department/Program Managers
Justify draft budgets
18
TIMELINE AND RESPONSIBILITY CONTINUED
Finance and Department/Program Managers
Disseminate and monitor budget
1. CEO 2. Finance Committee 3. Board
Approve budget
Finance
Finalize budget
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AN EXAMPLE
20 Save the Children – Mali Program
BUDGETS AS A FINANCIAL CONTROL TOOL
Budgets provide:
• Transparency
• Accountability
• Expectations
21
MONTHLY REPORTING
BUDGET REPORT
BUDGET ACTUAL VARIANCE
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KEY TO FINANCIAL CONTROL
• The management team regularly reviews
budget variances.
• Everyone must understand the reason for
the difference.
• A variance which cannot be explained is
likely to indicate improper expenditures and
should be investigated thoroughly.
• Determine action items for variances which
are explained.
23
REASONS FOR BUDGET VARIANCES
• Program plans change in mid-year.
• Environmental factors affect program
delivery
• A miscalculation is made in the budget
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A CASE STUDY
25
WHEN YOU IGNORE BUDGET VARIANCES..
QUESTIONS??
Paul Konigstein Senior Consultant
Accounting Management Solutions, Inc.
pkonigstein@amsolutions.net
516-270-5070
www.amsolutions.net
26
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