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 Boards Role 12
B Executive Directors, Presidents, or CEOs Role 14
C Chief Financial Officers Role 14
D Program, Unit, or Activity Managers Role 15
E Department Managers 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
