The Annual Budget: Who’s on First (and Second and Third)?

Developing an annual budget can be complex and time-consuming. The job will be less daunting if everyone knows their role. Each nonprofit handles budgeting a little differently, but here’s a quick summary of the key roles in this team project:

Management and staff. Following the not-for-profit’s strategic plan, the CEO or executive director and the finance director will decide which programs and activities to include for the coming year. Then staff responsible for each activity will crunch the numbers to contribute to the budget. They should base revenue and expenses on historical data — what’s happened in the past — and on any expected changes for the coming year. Accounting usually will create the budget for overhead and pull together the numbers from the rest of the staff to create the first budget draft.

The draft should include the previous year’s budgeted and actual totals, and the current year-to-date actual and budgeted amounts. It also may be helpful to annualize the current year numbers. Having this information in one place will facilitate answering questions as the process unfolds. Notes on the logic behind any new revenues or expenses and on any items that will change from the current year should also be included in the budget draft.

The finance committee. If your nonprofit has one, the finance committee will review the budget and likely ask questions. Its job is to ensure that the budget is reasonable and supported by sufficient revenue to be sustainable.

The committee will need to understand whether the budget is done on the cash or accrual basis and may ask to see the effects of your plan on cash flows. The budget may go through several drafts before it’s ready to be presented to the full board.

The board of directors. The board often takes the finance committee’s recommendation and approves the budget as presented. But when significant new programs are in the works, the board may have revisions, too.

The approved budget will be the organization’s road map for the year. But adjustments may be needed as the year progresses — if, for example, revenues turn out to be different than projected or unexpected expenses surface. These changes will require board approval.

It’s the prerogative of the board members to disallow unbudgeted expenditures. The responsibility of “proving” why unplanned expenditures — for instance, $1,000 to fund a new program activity — are necessary or desirable generally falls to staff.  Call us for more information.