Estimated reading time: 4 minutes, 17 seconds

ImageThe idea of a budget is one that most eight year olds can grasp: it's simply an itemized summary of how much you expect to spend along with an estimate of how you expect to collect enough income to cover those expenses. Ideally, the two numbers -- expenses and income -- will match, or come close. Most fiscal conservatives tout the benefits of balancing a budget -- with expenses on one side and income on the other allowing the arm of a metaphorical balancing scale to remain level.


But expand a budget beyond an individual -- to a family, a small business, or a nonprofit organization of any size, and things, as you know, become a lot more complicated. Fortunately, financial managers for nonprofits now have the benefit of a mature market of software tools, which can be combined with an bushelful of common-sense "best practices" to assist them in attaining a balanced budget, which can seem maddeningly elusive. And they also have the Internet, which provides a wealth of free information on the topic. Carter McNamara's extensive Basic Guide to Non-Profit Financial Management  includes original material and links to other sites and covers everything from creating your first budget to managing cash flow to analyzing statements.

The Process
The McKnight Foundation Toolkit includes a helpful two-page primer, "The Nonprofit Budgeting Process," which includes step-by-step guide to planning a budget from scratch, and outlines the keys to success in a sidebar:
  • Determine clear program objectives
  • Determine how much money you have and how much money you need to achieve the objectives
  • Use the expertise of your board and staff
  • Write everything down, especially assumptions
  • Understand that your organization is unique and will require its own budgeting process
But following through on best practices is a much bigger challenge than understanding what they are. For example, says Joe Scarano, the CEO of Araize  (Cary, NC), which produces the FastFund Nonprofit Software  suite, "A lot of our support calls include helping with basic accounting issues." Scarano, a CPA who has overseen the company since it started selling DOS-based solutions for nonprofits in 1985, has had the opportunity to observe the most common problems nonprofits face in budgeting. pro

Among the most prominent problems, according to Scarano:
  • A lack of fiscal stewardship and accountability. Scarano says that this is usually caused by staff shortages -- in small and medium-size organizations the financial person often wears many other hats, and simply doesn't have the time to pay close enough attention to budgeting issues.
  • Closely related to the above, the lack of time and adequate tools to prepare reports tailored to and required by funding sources, for preparing grant reports and 990 forms.
  • Closely related to the above, says Scarano, are board members who are poorly prepared to deal with budgeting issues. Scarano explains: "The board members will say, 'Oh, just use QuickBooks,' but they don't understand that QuickBooks requires a lot more extra work to prepare for audits, 990s, and grant reports.
Software for Budgeting and Financial Management
There are several different methods for building and tracking your organization's budget. Unfortunately, for some nonprofits its "shoeboxes and spreadsheets," says John T. Everett, who is the executive director of Community Involvement Programs in Minneapolis. Everett, who's also a professor of finance in the public administration and nonprofit management masters degree program at St. Paul, MN-based Metropolitan State University, says that one of the key components of good budget management is "matching the software to nonprofit accounting standards."

To do that, you can use custom accounting software for nonprofits. One popular package is Intuit QuickBooks Accounting Premier Industry Edition for nonprofits. It's not a complex application, but, Everett cautions, no matter what software is used," it can be a bit of a challenge finding people who have both the accounting and technical background to make it work. You have to know your way around it," and be able to customize functions and reports specifically for your organization.

Araize's software suite, which is a bit pricier than QuickBooks for nonprofits, enables you to easily perform such specialized tasks as tracking budgets by multiple grants and programs, tracking grant budgets that cross fiscal years, and outputting reports by fund, program, and functional areas.

Larger nonprofits, according to Idealware's excellent Feb. 2008 roundup, A Few Good Accounting Packages, often employ general accounting applications. One example is Microsoft's high-end Solomon package (now known as Dynamics SL, which Everett uses to manage Community Involvement Programs' finances. It's not for the faint of heart (or the understaffed), as, Everett notes, it requires a five-figure investment in support and "requires a lot of customization."

The Takeaway
Whether you're creating the first budget for a new nonprofit, completely retooling an old budget process, or simply looking to streamline your existing process, the key seems to be in either recruiting (and paying for) someone who has business-class financial chops or giving a current staff member the tools and time needed to master whichever accounting package you use or plan to use. And your organization's top officers and board members should also devote plenty of time and attention to your budget before it spirals out of control. Last modified on Sunday, 19 May 2013
Read 13198 times
Rate this item
(0 votes)

Visit other PMG Sites:

Template Settings

Color

For each color, the params below will give default values
Tomato Green Blue Cyan Dark_Red Dark_Blue

Body

Background Color
Text Color

Header

Background Color

Footer

Select menu
Google Font
Body Font-size
Body Font-family
Direction
PMG360 is committed to protecting the privacy of the personal data we collect from our subscribers/agents/customers/exhibitors and sponsors. On May 25th, the European's GDPR policy will be enforced. Nothing is changing about your current settings or how your information is processed, however, we have made a few changes. We have updated our Privacy Policy and Cookie Policy to make it easier for you to understand what information we collect, how and why we collect it.
Ok Decline