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Budgeting For Grant Writers Grant Writers Network of Greater Houston John F.X. Prior, LCSW, ACSW Harris County Protective Services for Children and Adults Houston, Texas March 11, 2009 Definition A numerical expression of an organization’s dreams that serves as a guide or measure of acceptable financial performance. Benefits of a Budget Establishes goals to be achieved Identifies work to be done Projects resources that will be needed to get work done Establishes timetables and deadlines Assigns individuals responsible for work Overview of Budgets Well-prepared, clear and accurate budgets allow nonprofits to: Adjust plans, activities, and spending Achieve cost effective spending Receive CLEAN audits Avoid incurring questioned or disallowed costs or cost overruns Overview of Budgets Brings together input from Board, clients, management, prospective donors, and general public Anticipate operational expenses and identify revenue sources Provide financial & operational guidance to implement policies and use resources Are tools for controlling spending, avoiding deficits, and assessing the financial situation of a nonprofit. Integrate administrative, staff, and operating activities Serve as basis for performance reviews Ongoing process – monitoring, data gathering and Roles of Staff to Create a Budget Agency Accountant, Treasurer, or Chief Financial Officer IF NOT: Someone knowledgeable about the project & organization Person who regularly handles finances Collaborative Effort Budget Planning Issues Balancing Timing Evolution Accountability Zero Basis vs. Incremental Forecasting Types of Budget Income & Expenses Revenues by Type Individual project, department, or program Service delivery costs Capital Additions Investment income Cash Flow Fund raising events Income generating activities Personnel projections Advantages Enhances likelihood that organization will be financial successful Tool that translate abstract goals into determinable information; stipulates performance goals Budgeting process leads organization to look at itself, set priorities, and to narrow its choices Facilitates coordination and cooperation between various programs and financial department Periodic budget comparison to actual performance can identify problems and allow time for a response to changing conditions Measures financial performance in relation to expectations. Disadvantages Presence of controls may stifle creativity Tendency to emphasize cost control Budget based on historical data only can fail to keep up with changing circumstances Budgets completed by only nonfinancial personnel can result in a plan without adequate staff input Not easy to implement and may require enthusiasm among management staff to be accepted as useful Budget Elements Personnel Fringe Benefits Travel Equipment Supplies Contractual Indirect Charges Program Income General Budget Components INCOME Donations & Memberships Service Delivery Fees Grants and Contracts Investment Income Budget Components EXPENSES Personnel Fringe Benefits Travel Equipment Supplies Contractual Construction Indirect Charges Budget Narrative Budget = Includes detailed calculations with estimation methods, quantities, unit costs, and other similar qualitative detail. Budget Narrative = Discusses necessity, reasonableness, and allocation of costs. Indirect Charges Costs not readily identified with a particular aspect of organizational operation (i.e.: administration, fundraising, etc.) Budgeting Do’s Budget for the life of the grant Allowable costs Indirect Cost Rate Agreement Cost of living increases Address matching requirements Seek non-Federal support Focus on sustainability Evaluating Financial Health Organizational Budgets Positive Indicators The Executive Director understands the financial aspects of the organization. The expenses and income outlined in the budget are reasonable. The organization appears to have appropriate income streams and a realistic budget that adequately covers core operating costs. A comparison of the budget to actuals year-to-date shows that the organization is close to meeting its budget. There is someone in the organization who knows its financial performance and can explain any patterns. The Red Flags executive director cannot explain the financial aspects of the organization. The board is not involved in the budget development process. In reviewing anticipated income (committed, identified, unknown), the unknown is too big. Budgeted income exactly equals budgeted expense — this is a ―plugged‖ budget; nature is never this precise. Evaluating Financial Health Project Budgets Positive Indicators The Red Flags project budget is unrealistic and/or not consistent with the proposal narrative. In reviewing anticipated income (committed, identified, unknown), the unknown is too big. The project budget is aligned with the organizational budget. The overall project budget seems appropriate for what is described in the proposal narrative. There appear to be appropriate income streams and a realistic budget that adequately covers program costs. Evaluating Financial Health Funding Mix Positive Indicators The Red Flags E.D. and board member(s) cannot articulate their funding mix. The organization is overly dependent on one source of funding. The organization has had a difficult time meeting the public support test and maintaining its public charity status. The organization has diversified contributed income, as well as earned income (if appropriate). The fundraising goals (for the organization or the project) and overall budget are realistic based on the economy and past experience. Evaluating Financial Health Financial Position & Trends Positive Indicators The Red Flags organization does not have enough cash on hand to meet demands. The organization has a growing accumulated deficit, and is projecting another deficit this year. The balance sheet shows negative net assets. The organization has debt other than long-term debt for asset acquisition, and has no debt reduction plan. There are unusual items in the organization’s financials (loans from board members, unpaid salaries) that are not clearly accounted for. The auditor has issued a ―qualified opinion.‖ The organization has a history of breaking even or operating in surplus. The financial manager and executive director can describe the organization’s current financial state. The organization has a long-term vision of where it wants to be financially. Evaluating Financial Health Fund Development Positive Indicators There Red Flags The is a plan for raising money, developed with the involvement of board members. The board of directors is aware of or involved in the organization’s fundraising goals and activities. organization cannot articulate a plan for fundraising. The board is not involved in fundraising. The board members responsible for fundraising and development oversight don’t have the skills or interest. The budget projects a perfect breakeven, and the fundraising budget number is exactly the amount needed. Is it justified or just a ―plugged‖ number. Evaluating Financial Health Financial Systems & Health Positive Indicators Regular Red Flags are no financial reports or statements generated. The organization has financial statements, but they are not reviewed by the board, or they are out of date (more than two months old). The organization ―borrows‖ from other programs or restricted funds. The organization’s mid-year financial statements indicate it is way off budget. Auditor’s letters to management indicate weakness in internal controls. There Audits for Organizations of $250,000 or more Board has financial expertise and Board conducts regular financial reviews Board receives financial reports at least quarterly Management & Program staff understand how to read financial statements Financial reports are used to inform programmatic and other decisions Identify Funding Sources and Financing Strategies Do you know how much you need? Is the initiative pursuing a variety of financing options? Do you have a plan in place to pursue options? Creating a Strategic Budget Plan Clarify What You are Budgeting For? Number of clients you want to serve Number of sites you want to operate Target population you want to serve Range of activities you want to provide, and Level of quality of services you want to provide. Creating a Strategic Budget Plan Estimate Fiscal Needs Activities & strategies you want to sustain Over what time period do you want to sustain them? Ramp Up Assumptions: Scale of operations Start-up Costs and Timing Ongoing Operating Costs Infrastructure Costs Creating a Strategic Budget Plan What funding sources currently support your initiative? Amounts? Type? What non-cash resources provide support to your initiative? Are these resources restricted to specific program elements or functions? Over what timeframe will these Creating a Strategic Budget Plan Assess Funding Gaps Identify Major Strategies or Activities Identify Total Costs Identify Available Resources Identify Gaps in Funding. Creating a Strategic Budget Plan Identify Funding Sources and Financing Strategies Clarify your NEED and WHEN Review current funding mix Public Funding Time-limited grants of 1 to 3 years Longer term funding commitments of more than 3 years Any current funding sources that may be atrisk of reduction or termination Creating a Strategic Budget Plan Identify Funding Sources and Financing Strategies (continued) How much revenue can be generated? What is the administrative burden? Does funding stream help diversify your funding mix? When can you expect to realize the revenue? How can the funding be used (allowable costs)? Does accepting funding provide opportunities to create new partnerships, or will it limit your abilities?
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