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Budget Basics for Nonprofit Board Members

By Sibi Thomas, CPA, CFE, CGMA  |  December 15, 2017

Earlier this year, we provided a blog post entitled Financial Basics for a Nonprofit’s Board. We’re now wrapping up the fourth quarter, and many nonprofit organizations are reviewing and approving 2018 budgets. It’s worth taking a look at some additional financial basics for nonprofit board members pertaining to the creation and approval of an annual budget.

Nonprofit board members are passionate about the causes they serve. However, they may lack training or relevant experience when it comes to the budgeting process. So here are some budgeting basics for nonprofit board members.

Budget Basics

A budget is a planning tool reflecting an organization’s mission, support programs, staffing and physical presence – including building, grounds, vehicles, etc. – as well as a document supporting the organization’s strategic plan. It is typically prepared by staff in collaboration with the board’s finance and/or budget committees.

The budgeting process usually begins at least three months before the end of the fiscal year to allow for necessary modifications and then the review and approval process by the board of directors.

Budget Development/Approval Process

Here’s a simple punch list to help the nonprofit board better understand the budget creation, review and approval process:

1. Develop a Budget Timeline:
       a. Allow enough time for each step in the review, reconciliation and discussion process.
       b. Set a target date for budget approval.
       c. Be sure to approve the budget in a timely fashion, before the start of the new fiscal year.

2. Establish Goals:
       a. That reflect program prioritization. 
       b. That align with the organization’s strategic objectives.
       c. That are achievable and measurable.

3. Review Current Financial Status:
       a. Review current year income and expenses vs. budget.
       b. Identify and review variances.
       c. Forecast to the end of the year.

4. Set Budget Process/Approach:
       a. Assign roles and responsibilities.
       b. Agree on decision-making authority.
       c. Identify how much uncertainty can be accounted for.
       d. Establish any mandates – such as creation of a balanced budget. 

5. Create Draft Income Budget:
       a. Project income based on current/historic fundraising and revenue-generating activities.
       b. Project additional revenue streams based on new initiatives.

6. Create Draft Expense Budget:
       a. Estimate expenses/costs based on historical data and program goals.
       b. Determine estimated costs to reach strategic and organizational goals.

7. Review Draft Budget:
       a. Draft should aim to meet organizational and program goals.
       b. Review/discuss all assumptions.
       c. Don’t plan on a “best-case scenario” from an income or expense standpoint.
       d. Make appropriate adjustments based on goals and planned programs to properly align income and expenses.
       e. Review final draft against ability to achieve goals and organizational objectives.

8. Approve Budget:
       a. Begin with any committees, as needed (e.g. Budget Committee/Executive Committee).
       b. Present to full Board of Directors for approval.

9. Document Budget Decisions:
       a. Create consolidated budget spreadsheets and file.
       b. List all assumptions. 

10. Implement/Monitor Budget:
       a. Assign management and oversight responsibilities.
       b. Incorporate into organization’s accounting system.
       c. Report monthly status to Board of Directors.
       d. Monitor and make changes as needed throughout the year.

The budgeting process can be overwhelming for board members, especially if they have a limited business background or are new to a nonprofit board seat. During the budget process, be sure to bring everyone along – with more seasoned and business savvy board members helping explain how the whole budgeting process works. Keep in mind that fiduciary responsibilities are some of the most important any nonprofit board member will exercise in serving the organization.

Marks Paneth offers a team of experienced professionals who can help ensure that your nonprofit organization is following accounting/financial reporting best practices. In addition, we offer board-training services. Marks Paneth’s Nonprofit, Government & Healthcare Group provides audit, tax and advisory services to more than 150 charities.

For more information on our nonprofit accounting capabilities, please contact:

Sibi Thomas - Partner Nonprofit, Government & Healthcare Group | Marks Paneth
212.201.3004 | sthomas@markspaneth.com

This material has been prepared for general informational and educational purposes only and is not intended, and should not be relied upon, as accounting, tax or other professional advice.

Please refer to your advisors for specific advice.

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About Sibi B. Thomas

Sibi Thomas is a Partner in the Nonprofit, Government & Healthcare Group at Marks Paneth LLP. He has more than 13 years of accounting, auditing, tax and consulting experience in the nonprofit industry. Mr. Thomas serves on the AICPA’s Not-for-Profit Entities Expert Panel and has been recognized by the CPA Practice Advisor as a 40 under 40 honoree for his leadership in the accounting profession.  Mr. Thomas plans, coordinates and conducts audits of nonprofit organizations including: large... READ MORE +


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