Budgeting for Non-Profit Organizations
Introduction
A budget is a financial management tool or a guide that helps an organization plan for its resources as well as assess the current financial health of the corporation. The same tool can be used by non-profit organizations, especially because budgets for such organizations tend to be referred to severally during the year, by parties who are transacting with the organization. Other than planning for its resources, a non-profit organization can use a budget as a management and communications tool, as will be discussed herein.
The Budget as a Planning Tool From the definition of the term “budget”, it is clear that the major purpose of a budget is to plan the resources for an organization, as well as for its future growth. A budget can be used as a planning tool because it helps organizations analyze the available resources, so that it can allocate the expenditures within reasonable amounts; based on the resources accessible to the organization. The planning of the usage of resources is critical for an organization because it helps to
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Controlling is among the functions of management. So as to exemplify this, consider a situation where the non-profit organization has budgeted for travel allowances for its employees at $500 each month, using the cheapest airlines available. So as to ensure that the employees observe the budget and avoid catching more expensive flights for work purposes, the management ensures that the employees within the finance department book the flights for those travelling. The other employees should not have access to the resources within the finance department. Such controls manifest how the budget can be used as a management tool within a non-profit
Budgets are a resource that a nonprofit can utilize to develop strategic plans and tactical operational management plans to achieve their mission. Budgets can be used as a communications mechanism with internal and external stakeholders. “In most settings, budget and budgeting are overly feared exercises [however] with the proper knowledge they can be used as the management aids they are intended to be” (McLaughlin, 2016, p.176). The National Council of Nonprofits points to a budget as “a guide that can help a nonprofit plan for the future as well as assess its current financial health” (Council of Nonprofits, n.d.).
There are different challenges a non-profit organization face, although I believe that those same challenges are faced on for profit organization either at the same level or very similar. Trust is an issue that both non-profit and for profit organizations will encounter at some point in their business and therefore they would need to be as transparent as possible. Transparency entitles you to provide clear statements of where your money goes, how it is utilized in your organization, and how it is making your organization accomplish their goals. It is not the only thing that is necessary to make the stakeholders, other business, employees or anyone interested in other business to trust in your organization. For a non-profit organization trust is a key element to engage volunteers, donors and other business; without trust chances are that the organization might fail to achieve their mission. Trust is acquire by performing the goals you have set for your mission and not deviating from it, at least not too far from achieving the organizations goals either for non-profit or for profit organization. It is also important to have a plan (Taylor-Hamm) in case there is a catastrophic event that might jeopardize your organization, it will help you foresee adverse situations and you will be better prepared in case your first plan fails.
A not for profit organization is a corporation or an association that conducts business for the benefit of the general public without shareholders and without a profit motive (Legal, 2013).” There are immense community benefits as a not-for-profit generally accepts everyone regardless of ability to pay. Nonprofit organizations are granted tax-exempt status which helps them to provide services to the public and are expected to be effective managers of their finances as well as being efficient (Financial Management, 2010). In doing so, they can gain exemptions from federal and state incomes taxes and have the ability to solicit tax-deductible contributions (Financial Management, 2010). Organization must follow legal financial requirements and always adhere to sound accounting principles that produce reliable financial information (Financial Management, 2010).
(b) Diagnosis is the goal of what the organization needs to accomplish by maximizing the use of available resources. (c) Develop a budget plan, which is usually a cycle set for 12 months. (d) Implementation is the ongoing monitoring and analysis to avoid inadequate or excess funds at the end of fiscal year. (e) Evaluation is the periodic review or modification of the budget throughout the fiscal
There are over 1.5 million nonprofits in the United States. Of those, three-quarters (almost 1.2 million) have annual budgets under $1 million, and most are even smaller (Francis & Talansky, 2012). What are some strategies creating a financially stable non-profit? Some organizations tend to have positive attitudes toward government funding and others just don’t trust them. They felt they cannot rely on government nor on donations (Green and Dalton, 2016, pg. 305). New government make their rules, and can support nonprofit organizations by provide them with fundraising for several years. Once is the time to change government they might lose everything with the change of policies, and new members of government.
A company's budget serves as a guideline in planning and committing costs in order to meet tactical and strategic goals. Tactical goals such as providing budgetary costs for daily operations, and strategic objectives that include R&D, production, marketing, and distribution are all part of the budgeting process. Serving as a guideline rather than being set in stone, the budget is a snapshot of manager's "best thinking at the time it is prepared." (Marshall, 2003, p.496) The budget is a method in which to reign-in discretionary spending, and will likely show variances between what costs have been anticipated and what costs are actually incurred.
These words are parallel to the generic principles of budgeting. It calls for a need to forecast the resources required to deliver the services offered by an organization. A budget is a financial plan that includes estimated expenses as well as income for a period of time. In particular, a nursing budget is a systematic plan that is informed by nurse administrators of nursing revenues and expenses. It projects how revenues will meet expenses and projects a return on equity or profit.
There used to be a time when zoos used to be full of animals. A time when extinction was not a problem. That was the past. Today, zoos all around the world are missing many animals such as the African elephant or the dodo bird. All of these wonderful animals became extinct because we were careless enough to let them all die. World Wildlife Fund (WWF) is an organization that is trying to prevent extinction from happening. WWF is an environmental organization dedicated to “protecting the world’s wildlife and wetlands” ("World Wildlife Fund"). It is one of the largest private supported conservation organizations in the world, with support from one million members in just the United States. WWF was formed on September 11, 1961 in Morges, Switzerland by Sir Peter Scott. It originally worked by fundraising and providing grants to existing non-governmental organizations. As more resources became available, its operations expanded into other areas such as the preservation of biological diversity. This organization is mostly volunteer-led. Volunteers of all ages are welcome at WWF, whether it is a student looking for volunteer opportunities or an adult looking to help animals. WWF also offers internships for college students who are looking to gain experience for their jobs. Not only does WWF help protect the environment, it also helps protect endangered species and spaces like national parks. WWF saves the animals through varieties of programs, including “education, habitat conservation and increasing the capacity of local governments and people within the endangered animals’ home” ("World Wildlife Fund"). WWF has gained most of its publicity from periodic fundraisers in which volunteers go from door to door asking people to support WWF ...
Quantitative plans are called budgets. Budgets are prepared to impose cost controls on the activities of an organization (Chenhall, 1986).Budgets are then used to evaluate the performance of the management and budget itself is considered as a standard to evaluate the performance Solomon, 1956). The purpose of the budget is also to implement the strategy of the organization and communicate it to the employees of the organization Rickards (2006). The change in the external environment has led to the change in the budgeting approaches from the initial cash based budgets to the zerio based budgets (Bovaird, 2007).
The Analysis of the financial statements will be compared with another Non-profit that aids others. The compared to Non-profit is Red Cross, a non-profit that provides care to those in need during times of disasters and around the world, whose main mission is ensure everyone in America has access to shelter, food, and life-saving blood.
Line Item budgeting is the most widely used approach in many organizations due to its simplicity and its control orientation. “It is referred to as the "historical" approach because administrators and chief executives often base their expenditure requests on historical expenditure and revenue data. One important aspect of line-item budgeting is that it offers flexibility in the amount of control established over the use of resources, depending on the level of expenditure detail (e.g., fund, function, object) incorporated into the document” (National Center for Education Statistics). The advantages of line item budgeting are that it offers simplicity; “you can easily budget for each area or department of your company based on historical expenditures required in previous years. If the amount of these expenditures has been consistent over a period of years, line-item budgeting can offer a simple and reliable means of anticipating expenses for the coming year while saving time and effort in the budget preparations” (Joseph). “Another advantage of a line-item budget is that it can be easy to justify the expenditures. Proposed expenditures are based on historical needs, which makes very little to dispute among departments within the organizations. This allows companies and business owners to maintain tight budgetary control, while reducing the possibility of frivolous spending” (Joseph). There are a few dis advantages of line item budgeting; it can create a phony analysis of expenditures. Budget preparers may simply accept the current situation and continue to use the same budgeting method that worked well in previous fiscal years. “By accepting the current situation it could eliminate the opportunity to take an in-depth look at each ...
Profitability review. It is easy to lose sight of where a company is making most of its money, during the scramble of day-to-day management. A properly structured budget points out what aspects of the business produce money and which ones use it, which forces management to consider whether it should drop some parts of the business, or expand in others.
There are many weaknesses of traditional budgeting model and it has been the matter of considerable caviling. From recently research by Libby and Linsay, 2010 cited from Hansen et. al., 2003 encapsulated several discussions of budgets an...
Budget is combining your income and expenses to decide how much money you are going to spend on an item. Budget is an important step to determine your financial health and financial stability. It’s an important financial tool because it can help plan for expenses, cut cost were unneeded, save for future goals, plan for emergencies that occur inexpediently, and list what you are spending and saving.
It requires an adequate and sound organizational structure, that is, there must be a definite assignment of responsibility for each function of the enterprise. Budgeting compels all the members of management, from the top to bottom to participate in the establishment of goals and plans. Budgeting compels departmental managers to make plans in harmony with the other departments and of the entire enterprise. Budgeting helps the management to put down in figures what is necessary for a satisfactory performance. Budgeting helps the management to plan for the most economical use of labor, material and capital. Budgeting tends to remove the cloud of uncertainty that exists in many organizations, especially among lower levels of management, relative to basic policies and objectives. Budgeting promotes an understanding among members of management of their co-workers' problems. Budgeting force management to give adequate attention to the effects of general business conditions. Budgeting aids in obtaining bank credit as banks commonly require a projection of future operations and cash flows to support