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Managing the Budget Process

Posted by Gail Doyle,

This outline is from a presentation created for national service programs. This information, however, is useful to any nonprofit or community service organization working to create a budget.

What is a Budget?

A financial blueprint projecting expenditures for the grant award period, e.g. six months; one year; three years, etc. Uses:

  • Management oversight
  • Fundraising
  • Accountability
  • Forecasting

Why are Budgets important?

  • It's a Corporation requirement
    - All organizations must submit a budget
    - Budgets become part of the contractual obligation
  • They provide a financial blueprint to follow and establish realistic goals and objectives for individual program/grant budgets and overall organization budgets
  • Method for an organization to effectively allocate shared cost and resources across individual program or grant budgets

Managing the Budget Process

Qualities of an Effective Budget

  • Realistic
  • Consistent with organizational objectives
  • Flexible (amendable if conditions are not as expected)
  • Consistent with Corporation goals

Managing the Budget Process

Who should be involved?

The budget process should be a team effort that includes:

  • Board of Directors
  • Executive Directors
  • Program/Project Director
  • Program/Project Staff
  • Fiscal Staff

Budgeting Basics

  • Review program goals and objectives
  • Estimate the cost of each goal or objective:
    - Gather historical information
    - Include both program and fiscal staff who will be involved in performing the activities related to the above goals and objectives
    - Estimate direct program cost
    - Estimate supporting costs (i.e., administrative expenses that do not correlate to a specific program activity)
  • Estimate total income
    - Estimate grant revenues
    - Estimate cash contributions
    - Estimate in-kind contributions
    - Review the organization's cash reserves

Budget Creation Checklist

  • Review budget to ensure it is appropriate to accomplish goals and objectives outlined in proposal
  • Ensure necessary resources are dedicated to enable successful completion of project
  • Ensure that it is inclusive and covers all necessary costs of operation

Budget Narrative Preparation

  • Organization should allocate costs based on a consistent and documented cost allocation plan. The plan can be based on level of effort or usage, for example:
    - Level of effort: (percentage of time spent on activity x salary)
    - Rent: (total CNCS program space/total host agency space) x rent = CNCS share

Budget Analysis and Review

  • The budget process is like a journey . . . The budget represents the roadmap . . . During your journey you need to assess where you are in relationship to your ultimate goal.

  • How do you determine where you are?
    - Perform variance analyses
      - Determine how budgeted expenditures are actually expended
         1) Evenly based on passage of time
         2) Varied based on activities
    - Identify potential areas of over-runs and under-runs
    - Develop method to forecast expected final result

Budgetary Controls

What are budgetary controls?

Budgetary controls include:

  • Regular monitoring of budgets to actual year-to-date and current period expenditures or outlays
  • Explaining any budget variations that are unexpected or unusual and determining necessary adjustments
  • Ensuring compliance with laws, regulations, and CNCS provisions, particularly matching percentage requirements
  • Requesting prior approvals for modification, if necessary

Why have budgetary controls?

  • Link programmatic activities and financial records
  • Help organizations achieve budget targets and monitor program goals
  • Prevent cost over-runs (and disallowed costs)if monitored on a regular basis
  • Improve reliability of financial reporting
  • Help staff responsible for specific activities to maintain control over expenditures

Basic Reminders

  • Budget should be approved as part of a formalized process within your organization
  • Approved Budget should be recorded in your accounting system (Recommended)
  • The budget should be periodically reviewed against actual expenses, e.g. monthly, quarterly
  • Categorize general ledger accounts to mirror budget categories

Key Budgeting Tips

  • Increasing in-kind match reduces cash that must be raised to meet matching requirements
  • Keep in mind the amount of documentation required to properly support expenditures, some expenses are more labor intensive to track than others
  • Be aware of supporting documentation requirements. Service partners, may have good intentions but may not be able to obtain proper support for in-kind donations
  • Identify in-kind donations prior to creating the budget -- will facilitate allocation of funds between Corporation and Grantee
  • Divide the annual budget into smaller segments i.e., quarterly, monthly for meaningful comparisons
  • Program and fiscal staff should review budget and be knowledgeable about funds available
  • A budget is not a tool to allocate costs to grants, it is only a forecast
  • Budget should be flexible to allow for unforeseen contingencies
  • Individuals monitoring budget should know necessary requirements and thresholds for amendments

To successfully accomplish your program or project objectives within budget, all of the organization's staff must be on the same road, moving in the same direction.