Monday, December 17, 2007

Best Practices When Preparing Budgets

The first step in the budget process is a review of program and management achievements and fiscal performance over the year just ending. This includes, but is not limited to, reviewing objectives achieved, comparing budgets to actual figures, and looking at the number of people served in each program. By dividing the true cost of each program by the number of people served, you can also analyze the cost per unit of service.

Based on this review, new goals and objectives should be discussed and agreed upon in a preliminary way. These goals and objectives should fit into your strategic, long-range plan, and help you make progress towards your mission. Then, estimate the costs required to achieve your objectives including staff, supplies, and other resources. You can rely on past experience, as reflected in budget to actual reports, to determine some of this information for continuing programs. Take into account upcoming changes, especially in areas such as insurance, which are subject to significant fluctuations.

You must budget for income as well as expenses. Even though unpredictable events may influence fees and contributions, you can estimate revenues with some degree of accuracy based on past experience. Make adjustments when you have sufficient information to anticipate.

Preparing Budgets for Organizational Purposes:
1. Decide on mission and program goals first
2. Get wide input and involvement in the budget process
3. Make sure assumptions have some substance and reality behind them
4. Allow sufficient time for the budget process so you can balance, adjust and discuss
5. Yes, the budget is “just a guideline,” but it shouldn’t be science fiction

Preparing Budgets for Grant Proposals:
Include and identify the following items in your grant application/budget section:
1. Organizational budget
2. Project budget
3. A Form 990 in grant applications
4. Restricted funds - explain how or why they are restricted funds
5. A balance sheet - this gives a picture of the health of the organization.
6. Make sure:
• the budget matches the scope of the project
• everything requested in the budget is in the narrative
• you use current rates, if your institution has them
• to “do the math” and have it double-checked
7. Think about all costs associated with your project
8. Compute a percentage (typically 10-20 percent) for indirect costs (Some funders have specific guidelines regarding indirect costs. Some will not allow indirect costs, others limit these costs to a specific percentage.)

Web sites of Interest for Budgets and Grantwriting:
1. Minnesota Council on Foundations for the MN Common Grant Application form. http://www.mcf.org/mcf/grant/applicat.htm
2. Cash Flow Template - An excel worksheet to help nonprofit financial managers build a customized cash flow projection. Instructions for using the template are included in the workbook. http://www2.nonprofitsassistancefund.org, click on Financial Management Resources.

Sources:
Sue Foxwell, UW-Stout, Research & Development
Kate Barr, Nonprofits Assistance Fund
Staff and Trustees, Otto Bremer Foundation

Maltee McMahon, NRS, Wisconsin

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