The Budget-Building Book for Nonprofits: A Step-by-Step Guide for Managers and Boards / Edition 2

by Murray Dropkin, Jim Halpin, Bill La Touche

Overview

This best-selling nuts-and-bolts workbook, now in its second edition, has become the gold standard for nonprofit managers and boards who must work through the budget cycle. The book offers practical tools and guidance for completing each step of the budgeting process. Designed to be comprehensive and easy to use, The Budget-Building Book for Nonprofits provides everything budgeters and nonfinancial managers need to prepare, approve, and implement their own budgets.

Includes new chapters on Zero-Based and Capital Budgeting as well as an accompanying website 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. 

Product Details

ISBN-13:	9780787996031
Publisher:	Wiley
Publication date:	11/02/2007
Series:	The Jossey-Bass Nonprofit Guidebook Series , #5
Edition description:	New Edition
Pages:	240
Product dimensions:	8.30(w) x 10.60(h) x 0.70(d)

About the Author

THE AUTHORS

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.

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Table of Contents

Preface xix

Acknowledgments to the First Edition xxiii

Acknowledgments to the Second Edition xxv

The Authors xxvii

Introduction: How to Use This Book xxix

Part One Understanding Budgeting Basics 1

1 Why Budgets and Budgeting Are Important to Nonprofits 3

A The Importance of Budgets and Budgeting 4

B The Basic Characteristics of Budgeting 5

2 Understanding Basic Types of Nonprofit Budgets: Overview 6

A Organization-Wide Operating Budgets 6

B Operating Budgets for Individual Programs, Units, or Activities 7

C Capital Budgets 8

D Cash Flow Budgets (Cash Flow Forecasts) 8

E Opportunity Budgets 9

F Zero-Based Budgets 10

3 Key Board and Staff Roles and Responsibilities in Nonprofit Budgeting 12

A The Board’s Role 12

B Executive Director’s, President’s, or CEO’s Role 14

C Chief Financial Officer’s Role 14

D Program, Unit, or Activity Manager’s Role 15

E Department Manager’s Role 16

F Other Possible Participants 16

4 Establishing Budget Guidelines, Priorities, and Goals 17

A Establishing Guidelines 17

B Identifying Priorities 18

C Setting Organization-Wide Goals 18

D Setting Individual Program and Unit Goals 20

5 How Different Sources and Types of Income Can Affect Budgeting 21

A Unrestricted Funds 21

B Contract or Grant Agreement Funds 21

C Restricted Contributions 22

D Income from Trade or Business Activities 22

E Asset-Generated Income 23

F Cash and Noncash Contributions, Including Pledges 23

G Funds Requiring a Cash or In-Kind Match 23

6 Strategies for Developing Organization-Wide Operating Budgets 25

A Strategy 1: Set Annual Organization Outcome Goals from the Top Down 26

B Strategy 2: Set Annual Income and Expense Targets from the Top Down 28

C Strategy 3: Request Draft Budgets That Show Priorities from Program or Unit Heads 28

D Strategy 4: Use Zero-Based Budgeting 30

1 Possible Problems with ZBB 31

2 Benefits of ZBB 31

Part Two Step-By-Step Budgeting Guidelines 33

7 Start with the Budget-Building Checklist 35

8 Designing Your Budgeting Policies and Procedures 38

A Basic Budgeting Policies and Procedures 38

B Basic Income Projection Policies and Procedures 38

C Basic Expense Projection Policies and Procedures 39

D Basic Cash Flow Projection Policies and Procedures 40

E Policies Establishing the Fiscal Year 40

F Other Needed Policies and Procedures 40

G Checklist for Information to Include in Written Policies 41

H Final Review and Integration 42

9 Creating Your Budgeting Calendar 43

A Five Steps for Developing the Budgeting Calendar 43

B Instructions for Creating an Annual Budgeting Calendar 45

10 Orienting Program and Department Managers and Staff to Budgeting 48

A Budget Team Meeting 48

B Practical Considerations When Planning Budget Team Meetings 49

11 Contents of the Annual Budget Preparation Package 51

12 Developing Organization-Wide Operating Budgets 55

A Five Steps to Prepare for the Annual Budgeting Process 55

B Five Steps to Create Annual Budgets 56

13 Developing Operating Budgets for Individual Programs, Units, or Activities 58

A Planning for Program or Unit Budget Development 58

B Basic Steps in Creating a Program or Unit Budget 60

C Setting Two Kinds of Program or Unit Goals 60

D Preparing a Program or Unit Workplan 61

E Identifying the People and Things Needed to Implement a Workplan 62

F Identifying Personnel Costs 63

G Identifying “Other Than Personnel” Cost Categories 64

H Identifying Specific Line-Item Costs 65

I Providing Budget Justification or Cost Documentation 65

J Matching and In-Kind Contributions 66

K Distributing Copies of Final Program or Unit Budgets 66

14 Major Components of Operating Budgets 68

A Projected Income 68

B Projected Expense Categories and Subcategories 68

C Projected Expenses by Line Item 69

D Budget Narrative or Justification 69

15 Estimating Income and Expenses 70

A Estimating Future Income 70

1 Making Needed Annual Policy Decisions 70

2 Projecting Various Kinds of Income 74

B Estimating Expenses 75

1 Annual Policy Decisions 75

2 Projecting Salaries and Wages 75

3 Projecting Fringe Benefits 76

4 Projecting Other Operating Costs 77

C Summarizing Proposed Changes in Draft Budgets 78

D Budget Highlights 79

16 Allocating Administrative, Overhead, and Shared Costs 81

A Allocation Methods 82

B Worksheet for Allocating Costs 83

17 Revising Draft Operating Budgets 86

A Updating Fiscal Projections 86

B Trimming Draft Budgets 87

C When More and Deeper Cuts Are Needed 88

D Avoiding Potential Budget-Cutting Problems 89

18 Zero-Based Budgeting (ZBB) 90

A Overview 91

B Five Basic Questions 92

C Information Provided by the Program 93

D Potential Demand 94

E Break-Even Analysis 94

F Decision Time 96

G Getting Started with ZBB 97

19 Capital Budgeting 98

A Strategic Fit 99

B Viability 100

C Return on Investment 100

D Financing 101

1 Mortgages and Loans 102

2 Lines of Credit 103

3 Leases 103

4 A Note on Bond Financing 104

E Two Types of Capital Projects 104

F Cash Flow Budgeting or Forecasting 106

G Final Considerations 106

20 Presenting Your Annual Budget Proposal to the Board 107

A Letter of Transmittal 107

B Total, Organization-Wide Budget Summary 109

C Program, Unit, or Activity Budget Summaries 109

D Detailed, Organization-Wide, Line-Item Expense Budget 109

E Individual Program or Unit Budgets 112

F Other Useful Information 112

21 Board Review, Revision, and Approval of the Final Budget 113

22 Cash Flow Reporting, Forecasting, and Management 117

A Fundamentals of Cash Flow Forecasting 118

B Cash-Basis Accounting for Cash Inflows 118

C Cash-Basis Accounting for Cash Outflows 119

D Cash Flow Forecasting Based on the Operating Budget 120

1 Reviewing the Operating Budget 120

2 Adjusting the Operating Budget to Create the Cash Flow Forecast 121

E Reviewing and Approving the Cash Flow Forecast 122

F Short-Term Cash Flow Forecasting 122

G Periodically Reviewing the Cash Flow Forecast 123

H Corrective Actions for Forecast Cash Shortages 124

I Cash Flow Reporting, Monitoring, and Analysis 125

23 Monitoring and Modifying Approved Budgets 127

A Regular, Timely Financial Reporting and Monitoring 127

B Planning and Taking Corrective Action 128

C Modifying Budgets 128

1 Reasons for Modifying an Approved Budget 129

2 Creating Written Budget Modification Policies and Procedures 129

D Cash Flow Projections and Planning 131

1 Causes of Cash Flow Problems 131

2 Using Monthly Projections for Planning 132

3 Addressing Cash Shortfalls 133

4 Some Possible Drawbacks 133

24 Conclusion 134

Part Three Practical Budgeting Resources 137

Resource A: Master Worksheet for Creating a Program or Unit Workplan 139

Resource B:Worksheets with Sample Budget Formats 144

Resource C: Examples of Financial Reports for Analyzing and Monitoring Income and Expenses 154

Resource D: Tools for Analyzing Financial Reports and Planning Corrective Action 166

Resource E: Example of a Detailed Organization-Wide Expense Budget 177

Resource F: Additional Useful Checklists and Examples 188

Resource G: Tools on the Accompanying CD 195

How to Use the CD 199

What People are Saying About This

From the Publisher

“This book is the gold standard for providing executives and managers with information essential to making the best decisions for their organization and it will give them the confidence in their fiscal systems they need in the competitive world of nonprofit management.”—Don Sykes, former director, the Office of Community Services for the Clinton Administration, and president, Community Development Solutions

“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

Editorial Reviews

"This is a book every nonprofit needs." —Peter F. Drucker

"Provides clarity, strategy, and utility to the financial management and asset management of social sector organizations." —Frances Hesselbein

"This book is clear, insightful and required reading for all who are responsible for the success of not for profits. If you work for or run a not for profit agency you should read this book" —Peter Block, author of Flawless Consulting and The Empowered Manager

"The Budget Building Book for Nonprofits is a definitive and practical guide to the art of budgeting. It is well written and reliable as well as easily understandable." —Ron Werthman, vice president, finance/treasurer and CFO, Johns Hopkins Health System, The Johns Hopkins Hospital

From the Publisher