Budgeting for Nonprofit Organizations

Currently, in the practice of both commercial and nonprofit organizations, the method of financial planning based on budgeting has become widespread. This method is positioned as the most effective in foreign practice. Here is more about it.

Peculiarities of budgeting in nonprofit organizations

Budgeting is one of the main elements of management control systems, as it provides the board with the ability to plan, coordinate and control. However, the budgeting process is often laborious and unenthusiastic among the people involved in its preparation.

Financial planning of activities in a nonprofit organization (NPO), based on budgeting, allows you to calculate the budgets of individual programs and projects. With its help, the possibility of choosing the best option for implementing a project, program, and also ensuring that activities are carried out under the statutory goals is increased.

Budgeting can be implemented in several stages:

    • formulation of the goals of the activities of a nonprofit organization for a certain;
    • assessment of the cost of implementing each goal;
    • forecast of the receipt of financial resources from all available sources;
    • comparison of projected receipts and planned distribution of financial resources (in this case, it is recommended to lay a reserve fund for financial support of unrecorded);
    • approval of the prepared financial plan.

The resources of NPO budgets

There are the following forms of NPO budgets:

      • The budgets of projects and programs are divided into budgets, which are drawn up in funding applications, and budgets for contractual work performed under contracts with other organizations. Project and program budgets, as a rule, are drawn up for individual programs and projects for the period of their implementation.
      • The consolidated budget, allows you to determine the total income and expenses in all areas of the non-profit organization, including administrative expenses. The term for compiling the consolidated balance sheet has a fairly long period, usually six months or a year.
      • The cash income budget shows how much, for what types of work, and when funds should be received and spent for the entire planning period. This type of budget is directly related to the consolidated budget.
      • The fixed assets budget is prepared only when large expenditures are planned to meet the needs and needs of the entire organization, while these costs are not related to administrative expenses and are not included in the budgets of individual projects. Such expenses include the cost of acquiring expensive equipment, vehicles, etc.

The cost-sharing in NPOs: drawing up a budget plan

The preparation of a plan for administrative costs, as well as the distribution of administrative costs between projects carried out by the organization, are important steps in the formation of a financial plan for the implementation of activities by the budget of the organization. When providing an organization with paid services or selling goods, administrative costs should be distributed, including between entrepreneurial activities and targeted projects.

In the annual budget scheme, the administrative budget is highlighted separately. This is important for financial management purposes, but when budgeting the project, these costs must be included in the funding amount. Thus, the organization’s annual financial plan allocates an administrative budget, while there may not be a separate administrative project activity.

Charitable foundations, when tracking earmarked funding, also pay attention to the distribution of overhead (administrative) costs between projects implemented by the organization. With insufficient justification, these costs may be recognized as non-targeted and not offset in the report on the intended use of project funds.