1. A Five-Step Guide to Budget
Development
Instituting “Team Decision-Making” in the Budget Process
All material herein © 2012 Fiscal Management Associates, LLC. All rights reserved.

2. • Supports organizational planning and decision making on how to allocate
resources
• Establishes a benchmark against which to monitor financial activity and
results
• Provides a tool to:
– Put strategy into operation
– Control spending
– Communicate plans and expectations
– Minimize the possibility of fraud
– Support long-term financial health and sustainability
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3. 1. Assemble a Budget Team
2. Create a Budget Calendar
3. Prepare for and Conduct Budget Kickoff
a) Set financial goals
b) Gather data and build budget template
c) Conduct team kickoff meeting
4. Draft the Budget
a) Forecast current year results
b) Budget expenses and revenues
c) Assemble the organization-wide budget
d) Secure board approval
e) Forecast cash flow
5. Monitor the Budget
a) Create mid-year revision if necessary
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4. 1. ASSEMBLE A BUDGET TEAM
The Budget Development Process
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5. • Team Decision Making (TDM) fosters collaboration across the
organization, encouraging staff to work together to:
– Define goals
– Allocate resources
– Monitor progress
• TDM provides program and other non-finance staff with the skills and
tools to contribute to the budget development process and monitor the
budget for their area of responsibility.
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6. Team composition and titles will vary based on organization size and structure, but this
is a typical configuration.
Chief
Executive
Officer (CEO)
Program and Human
Department
Managers Chief Resources
Director
Financial
Officer (CFO)
with Finance Staff
Board
Development Treasurer,
Director Finance
Committee
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7. • The Chief Financial Officer leads the budget development process:
– Creates a budget calendar
– Designates a budget team (with CEO)
– Creates a budget template
– Assembles necessary materials (historical financials, etc…)
– Leads a budget kickoff meeting
– Presents the budget to the board’s finance committee (with CEO)
• Depending on organization size, the CEO or board treasurer may also
lead aspects of the budget development process
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8. 2. CREATE A BUDGET CALENDAR
The Budget Development Process
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9. • The CFO drafts the calendar which includes meeting dates and
deadlines.
• The calendar typically starts six months before the upcoming fiscal year.
• Separate calendars should be established for budget monitoring and
internal reporting and other aspects of fiscal management.
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10. Budget Development Calendar
Fiscal Year End: June 30
January February March April May June
Prepare mid‐year budget revision for current fiscal year based on actual results
for Q1 and Q2
Obtain Finance/Audit committee approval of mid‐year budget revision for
current fiscal year
Begin next fiscal year budget process; identify Budget Director and Budget
Timetable; gather information necessary to develop expense and revenue
budget for the next fiscal year
Assemble draft budget for next fiscal year, incorporating fiscal and program
personnel
Circulate draft budget and budget narrative to Finance/Audit Committee;
incorporate comments and recommendation
Send budget package to Board of Directors; Board meets to approve budget for
next fiscal year
Incorporate next fiscal year's board‐approved budget into organization's
accounting system
Update cash flow templates for coming 12‐month period
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11. 3. PREPARE FOR AND CONDUCT
BUDGET KICKOFF
The Budget Development Process
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12. • In conjunction with the board of directors, the CEO and CFO set overall
financial goals, considering:
– Anticipated increases or decreases in program activities
– Operating results strategy
• Break-even?
• Surplus?
• Planned deficit?
– Strategic plan and long-term goals
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13. Gather Data Build a Budget Template
• CFO and finance staff assemble • CFO and finance staff build a
historical results by program and blank template for each program
department: and department:
– Current fiscal year budget – Contains all line items under the
– Remaining budget for the relevant manager’s control
current fiscal year (“controllable costs”)
– Current year-to-date actuals – Includes columns for the
– Prior year budget and actuals remaining months of the current
fiscal year and 12 months of
upcoming fiscal year
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14. • The CFO rolls out the budget development process in a kickoff meeting.
• All staff involved in the budget development process attend.
• Introduction to the budget
• Communication of financial goals
The • Distribution of blank budget
template, historical data, and
Agenda general ledger account definitions
• Instructions on next steps
• Staff questions
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15. 4. DRAFT THE BUDGET
The Budget Development Process
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16. • Managers of programs/departments use the budget template to forecast
remaining expenses by month for the current fiscal year.
– Helps the finance staff update the organization-wide forecast
• Where will the organization be at the end of the current year? (i.e., break-even,
surplus, or deficit)
• How does this relate to and impact financial goals for the upcoming year?
– Indicates how reflective of reality the current year’s budget was
– Prepares staff to project expenses and activities for the upcoming fiscal year
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17. • Initial expense budgets should reflect best estimates of what it truly costs
to run programs/operations .
– Adjustments will be made later in the process if the level of budgeted
expenses cannot be supported.
• Managers of programs/departments use the budget template to project
personnel and direct other-than-personnel (OTPS) expenses.
– Indirect expenses such as occupancy will be allocated across programs and
functions by the finance staff later in the process.
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18. • The development director projects revenue anticipated from individual
donors, foundations, corporations, special events, and other non-
government sources.
• Finance staff, with support from other staff as needed, project revenues
from government entities based on existing and anticipated contracts.
• Program staff, with support from finance staff as needed, project fee-for-
service revenue streams based on past performance and future plans.
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19. • If there is high uncertainty around revenue projections, draft a scenario
budget reflecting the likelihood of receiving each source.
• Next, draft expense scenarios ranking potential reductions.
• Board approved benchmarks to trigger action can be implemented.
– Example: If $A funding from B funder doesn’t come through by C date, $X of
specified expense reductions will be made.
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20. • Finance staff pulls together the organization-wide budget based on the
completed budget expense templates and revenue projections
– Indirect costs are allocated to programs using a consistent methodology,
such as one of the following:
• Headcount (FTEs)
• Percent of salary dollars
• Square footage or other facilities utilization measures
– Revenues are matched to expenses by program.
• The CFO presents the draft budget to senior management.
– If adjustments are needed to align budget with financial goals, templates
are redistributed to program/department managers with instructions on
level of necessary adjustments.
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21. CFO submits draft budget to the finance committee six to
eight weeks before the new fiscal year
Senior management and finance staff make revisions
Once approved by Finance Committee, submit to full board
Full board approves before the new fiscal year begins
Once the budget is approved, the CFO conducts an information session to orient
managers to the overall organizational picture and to their budget for the year.
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22. • Once the budget is approved and finalized, the CFO and finance staff
should develop a cash flow forecast showing the expected timing of cash
receipts and disbursements over the course of the fiscal year.
• This forecast should be updated and monitored over the course of the
year to identify in advance any potential cash shortfalls that may need to
be addressed.
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23. 5. MONITOR THE BUDGET
The Budget Development Process
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24. Reporting Monitoring
• Finance staff enters the approved • The CFO and senior management
budget into the accounting software. analyze variances between budgeted
• Managers begin to approve and actual revenues and expenses.
expenditures against budgets for their – Discuss root causes with
area of responsibility. appropriate manager
• Finance staff produces monthly – Create action plan to address
reports for: significant variances
– Program, development and
department managers
– Senior management
– Board
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25. • Internal reporting should provide timely, reliable and relevant information.
– Supports program-level decision making
– Facilitates senior management in making strategic financial decisions to
support long-term sustainability
• The following reports are recommended on at least a quarterly basis:
– Program, department and development directors
• Budget-to-actuals for area of responsibility, including variances
– Senior management
• Budget-to-actuals by program, including variances
• Reports distributed to the Board
– Board of directors
• Management budget narrative highlighting significant activity
• Consolidated budget-to-actuals, including variances
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26. • In many cases, it is advisable to develop a formal budget revision around
the mid-point of the year. You should consider a budget revision if:
– Actual revenues or expenses exceed pre-established thresholds for budget
revision
– Unanticipated events occur which alter financial expectations in a significant
way
– Programmatic or financial goals change in ways that affect financial plans
• Note that the revised budget becomes the new standard by which the
organization sets its revenue and spending plans. As with original
budgets, budget revisions should be formally approved by the board.
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27. The following resources available on The Wallace Foundation’s Resources
for Financial Management website can assist you with particular
elements of the budget process described in this presentation:
• Fiscal Management Activities Calendar
– Click here
• Program-Based Budgeting Template
– Click here
• Revenue Analysis Worksheet
– Click here
• Cash Projection Template
– Click here
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28. FMA is a management consulting firm established in 1999 to serve not-for-profit
organizations around the country.
– We provide customized financial management, accounting, software, organizational
development, human resources, and other consulting services.
– We work directly with organizations or through funder-supported management and
technical assistance programs.
FMA works to build a nonprofit sector where every organization practices
the sound and effective management necessary to carry out its mission.
For additional information please contact:
Hilda Polanco, CPA John Summers
Managing Director Manager
hpolanco@fmaonline.net jsummers@fmaonline.net
212-931-9240 212-931-9133
440 Park Ave South, 3rd Floor 440 Park Ave South, 3rd Floor
New York, NY 10016 New York, NY 10016
www.fmaonline.net
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