Budgeting and Reporting Tips for Non-Profits – Part I

The first step is creating a world class budgeting and financial reporting solution begins with the budget.

TIP # 1 When creating budgets, don’t start with last year’s budget.   Start from scratch.   Zero-based budgeting forces you to rethink your entire budget.    Furthermore, don’t just look at revenues and expenses.   Look at the broader picture by creating a budgeted Statement of Financial Position and Statement of Cash Flows, in addition to your budgeted Statement of Activities.      In the process of creating your budgets, be sure to look closely at your program expenses versus your management and general expenses.    Although every organization is different, a general rule of thumb is that your management expenses be no more than 15% of your total expenses.

TIP # 2 If you have multiple departments or business units and your department heads and directors are involved in the budgeting process, consider investing in formal budgeting software.      This streamlines your budgeting process and gives you more control over the end result by allowing you to define and enforce budgeting rules, manage and track budget changes and expedite the approval process through web-based electronic approval workflow.   Microsoft Forecaster is an excellent example of a budgeting, software for nonprofits, that provides this functionality.

TIP # 3 Make sure that your overhead expenses are allocated fairly.     For example, if your Executive Director spends up to 50% of his or her time directly on programs, allocate his or her compensation accordingly.    Similarly, if you have five departments and you are trying to allocate expenses across departments, don’t allocate utility expenses by dividing by five.    Instead, use a relevant basis like square footage, headcount or wages to allocate costs proportionately.     Most of today’s good accounting packages like Microsoft Dynamics GP can do this automatically.    If you’re not sure how to do this with your system, check with your software vendor, or call us.    We can help.

Maner Costerisan is a Michigan-based CPA and Technology Consulting firm specializing in Not-for-Profits.    As a CPA firm, we not only understand technology, we understand the unique reporting requirements of 501(c)3’s and other non-profit organizations.   Whether it’s for your internal use or for your board, we’ll make sure that you have the information you need when you need it.   For more information on Microsoft Dynamics GP, Forecaster and other budgeting & reporting solutions for not-for-profits, contact James Meyer at jmeyer@manersolutions.com.

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ERP professionals providing insight and advice for not for profit organizations.