Nonprofit Budgeting II: Building Better Budgets Shannon Ellis - - PowerPoint PPT Presentation

SLIDE 1

Nonprofit Budgeting II: Building Better Budgets

Shannon Ellis Project Director

CompassPoint Nonprofit Services

SLIDE 2

CompassPoint intensifies the impact of fellow nonprofit leaders, organizations, and networks as we achieve social justice together.

SLIDE 3

Welcome

• 9:30am – 4:30pm. 1 hour lunch around noon.

A break in the morning and afternoon.

• Please sign in
• Silence mobile phones
• Wifi = CPGuest / Password = CPwelcome
• Return from breaks on time
• Questions are encouraged
• Confidentiality

SLIDE 4

Introductions Name Organization Role

SLIDE 5

Learning Objectives

By the end of this workshop, you will:

• Be inspired to develop impactful budgeting process,

tools, and reporting;

• Increase your skill in communicating about the

budget in order to build a culture of learning and shared leadership throughout the organization;

• Use the budget to spark new thinking for powerful

conversations with funders and donors;

• Explore new ways of thinking about nonprofit

budgeting and resource management.

SLIDE 6

Intentions

What brings you here today? What do you want to walk away with by the end of our time together?

SLIDE 7

Agenda

• Values and Context
• Budget Assessment

– Expense Planning – Revenue Modeling – Structural Decisions

• Designing the Process
• Action Planning

SLIDE 8

Budgeting Overview: 7 Stage Process

Design the process Clarify context and articulate goals Decide on budget structure Estimate costs Forecast income Draft budget Adopt and implement

SLIDE 9

Values Reflection

• What does this value

mean to you? How is it expressed at your

• rganization?
• How does this value

connect to how we generate and distribute

• ur resources?

SLIDE 10

Values Mixer

• Write your organizational

values on a large post‐it.

• Find 1‐2 others who have a

value in common with you.

• Share with your small

group how this value connects to how you think about resource generation

• r distribution at your org.

Racial Justice Integrity Learning

SLIDE 11

Clarify context and articulate goals

Identify… and reflect on… Past successes

How did this success contribute to our intended impact as an

• rganization? What factors contributed to the success of this

effort? What might we need to do more or less of to fuel more opportunities like this?

Past failures

What went wrong? What did we not anticipate? What can we learn from this? What specific changes will we make to our programs or operations to ensure it doesn’t repeat?

Known factors

What changes for next year have we already committed to implement? Are we launching or sunsetting any programs, partnerships, or initiatives? How will this affect the resources needed and/or how they will be distributed?

Emerging trends

Thinking about the community/field/movement that we work within, where is the momentum that we can leverage to extend our impact? Is our current approach on the leading edge of our field or becoming stagnant? What new initiatives

• r funding trends in our field will affect our work?

SLIDE 12

Clarify context and articulate goals

Goal: what do we plan to do next year? Objective: how will doing this influence our budget for the year? Continue to develop an “emergent design” approach in our cohort leadership programs

• Increased average grant amount for programs

that include emergent design

• Opportunities for staff to share experiences and

learning with each other on new approaches

• Professional development opportunities for staff

Develop common stance on racial justice to guide internal and external work

• Temporary decrease in earned revenue to allow

staff time for internal process work and program re‐design where needed

• Hard costs for consulting team
• Change compensation and supervision structures

Improve financial reporting process and structures

• Investment in upgrading finance systems to

better align to current organizational needs

• Reduction in staff time spent navigating current

systems by year end

SLIDE 13

Domestic Violence Intervention & Prevention Agency 2016-17 Final Budget for Finance Committee As of June 5, 2016 Core New Costs/ Variable/ Total Work Change Capital Pass-Through 2016-17 Contributions 80,000

• 80,000

Fundraising events - net 135,000

• 135,000

Foundation grants 90,000 35,000

• 125,000

Total support 305,000 35,000

• 340,000

Government contracts 565,009

• 250,000

815,009 Interest and dividends 10,000

• 10,000

Total earned revenue 575,009

• 250,000

825,009 Net assets released from restriction 408,000

• 42,000

450,000 Total income 1,288,009 35,000 292,000 1,615,009 Salaries 778,910 21,920

• 800,830

Payroll taxes 79,849 2,236

• 82,085

Employee benefits 80,083

• 80,083

Training 5,600

• 5,600

Personnel expenses 944,442 24,156

• 968,598

Accounting 17,500

• 17,500

Bank charges 5,000

• 5,000

Building expenses 27,500

• 27,500

Clients, direct assistance to

• 250,000

250,000 Conferences and meeting 7,500

• 10,000

17,500 Depreciation 29,634 9,263

• 38,897

Dues and subscriptions 3,650

• 3,650

Equipment rental/maint. 3,200

• 3,200

Insurance 29,000

• 29,000

Interest 8,016

• 8,016

Other professional fees 7,500

• 32,000

39,500 Postage and delivery 12,000

• 12,000

Printing and copying 16,000

• 16,000

Supplies 51,500

• 51,500

Telephone 36,000

• 36,000

Travel 20,250

• 20,250

Utilities 42,500

• 42,500

Non-personnel expenses 316,750 9,263 292,000 618,013 Total expenses 1,261,192 33,419 292,000 1,586,611 Change in net assets 26,817 1,581

• 28,398

Impact‐Based Budgeting

Presents an annual budget that distinguishes between an

• rganization’s “core” work and

specific projects that may be temporal or require particular focus, including capital investments, one‐time events, and pass‐through funds such as subcontracts or direct program expenses that would not be incurred without a specific source of funding.

SLIDE 14

Impact‐Based Budgeting

“Why Funding Overhead is Not the Real Issue: The Case to Cover Full Costs” by Claire Knowlton, Nonprofit Finance Fund

‐ Nonprofit Quarterly, January 26, 2016

SLIDE 15

Domestic Violence Intervention & Prevention Agency 2016-17 Final Budget for Finance Committee As of June 5, 2016 Core New Costs/ Variable/ Total Work Change Capital Pass-Through 2016-17 Contributions 80,000

• 80,000

Fundraising events - net 135,000

• 135,000

Foundation grants 90,000 35,000

• 125,000

Total support 305,000 35,000

• 340,000

Government contracts 565,009

• 250,000

815,009 Interest and dividends 10,000

• 10,000

Total earned revenue 575,009

• 250,000

825,009 Net assets released from restriction 408,000

• 42,000

450,000 Total income 1,288,009 35,000 292,000 1,615,009 Salaries 778,910 21,920

• 800,830

Payroll taxes 79,849 2,236

• 82,085

Employee benefits 80,083

• 80,083

Training 5,600

• 5,600

Personnel expenses 944,442 24,156

• 968,598

Accounting 17,500

• 17,500

Bank charges 5,000

• 5,000

Building expenses 27,500

• 27,500

Clients, direct assistance to

• 250,000

250,000 Conferences and meeting 7,500

• 10,000

17,500 Depreciation 29,634 9,263

• 38,897

Dues and subscriptions 3,650

• 3,650

Equipment rental/maint. 3,200

• 3,200

Insurance 29,000

• 29,000

Interest 8,016

• 8,016

Other professional fees 7,500

• 32,000

39,500 Postage and delivery 12,000

• 12,000

Printing and copying 16,000

• 16,000

Supplies 51,500

• 51,500

Telephone 36,000

• 36,000

Travel 20,250

• 20,250

Utilities 42,500

• 42,500

Non-personnel expenses 316,750 9,263 292,000 618,013 Total expenses 1,261,192 33,419 292,000 1,586,611 Change in net assets 26,817 1,581

• 28,398

Impact‐Based Budgeting

Fixed Costs: Expenses that have to be paid by the organization regardless of the revenue generated. These costs do not change when the amount of services increase or

• decrease. For most organizations,

basic operating expenses such as salaries, rent, and insurance fall into this category. Variable Costs: Expenses that increase or decrease depending on the amount of services provided. For example, the cost of workshop personnel and supplies could vary with the number of sessions offered, the cost of meals could vary with the number of participants served, or the cost of filing fees will vary with the number of legal orders filed.

SLIDE 16

Impact‐Based Budgeting

Pass‐through revenue: Funds provided to the organization that must be spent on behalf of, or passed through to, a secondary

• agent. Common examples include

re‐grants or specifically funded program expenses such as site rental or participant stipends.

Domestic Violence Intervention & Prevention Agency 2016-17 Final Budget for Finance Committee As of June 5, 2016 Core New Costs/ Variable/ Total Work Change Capital Pass-Through 2016-17 Contributions 80,000

• 80,000

Fundraising events - net 135,000

• 135,000

Foundation grants 90,000 35,000

• 125,000

Total support 305,000 35,000

• 340,000

Government contracts 565,009

• 250,000

815,009 Interest and dividends 10,000

• 10,000

Total earned revenue 575,009

• 250,000

825,009 Net assets released from restriction 408,000

• 42,000

450,000 Total income 1,288,009 35,000 292,000 1,615,009 Salaries 778,910 21,920

• 800,830

Payroll taxes 79,849 2,236

• 82,085

Employee benefits 80,083

• 80,083

Training 5,600

• 5,600

Personnel expenses 944,442 24,156

• 968,598

Accounting 17,500

• 17,500

Bank charges 5,000

• 5,000

Building expenses 27,500

• 27,500

Clients, direct assistance to

• 250,000

250,000 Conferences and meeting 7,500

• 10,000

17,500 Depreciation 29,634 9,263

• 38,897

Dues and subscriptions 3,650

• 3,650

Equipment rental/maint. 3,200

• 3,200

Insurance 29,000

• 29,000

Interest 8,016

• 8,016

Other professional fees 7,500

• 32,000

39,500 Postage and delivery 12,000

• 12,000

Printing and copying 16,000

• 16,000

Supplies 51,500

• 51,500

Telephone 36,000

• 36,000

Travel 20,250

• 20,250

Utilities 42,500

• 42,500

Non-personnel expenses 316,750 9,263 292,000 618,013 Total expenses 1,261,192 33,419 292,000 1,586,611 Change in net assets 26,817 1,581

• 28,398

Change Capital: Specific infusion

• f funds meant to support periods

when the organization is experiencing volatility in its pursuit

• f change. During these periods,
• rganizations must take risk and

have room in their budgets for trial and error.

SLIDE 17

Change Capital

Change Capital is defined as an investment that is:

• Extra‐ordinary, and of limited duration: it is not meant to

function as regular earned or contributed revenue.

• Flexible: how the organization chooses to spend the

investment matters less than what it achieves.

• Understanding: the funds are meant to support periods when

the organization is experiencing volatility in its pursuit of

• change. During these periods, organizations must take risk

and have room in their budgets for trial and error. It can, on

• ccasion, cover planned temporary operating deficits.
• Must support long‐term sustainability: Once the capital is

spent, the organization should be able to more fully cover costs using reliable revenue, until their next period of change.

Nonprofit Finance Fund http://www.nonprofitfinancefund.org/financial‐terms/change‐capital

SLIDE 18

Change Capital Organizations use Change Capital for a variety of purposes, which include but are not limited to:

• Supporting projects (e.g., technology, facility,

services) specifically intended to improve the efficiency or quality of its programs or operations.

• Supporting growth, downsizing, or other

adjustments to the size and scope of the

• rganization.

Nonprofit Finance Fund http://www.nonprofitfinancefund.org/financial‐terms/change‐capital

SLIDE 19

Assessing the Budget

SLIDE 20

Values Reflection Does this expense item align with your

• rganizational values?

SLIDE 21

Risk/Opportunity Assessment for Expenses

Expense Grouping % of Total Commitment Variability Prior Year Performance Risk factor

SLIDE 22

Risk/Opportunity Assessment for Income

Income Type % of Total Commitment Variability Prior Year Performance Risk factor

SLIDE 23

Reflection: Budget Structure

• What’s most important to tend to

in this year’s budget process?

• How might you design a tool that

emphasizes those elements?

SLIDE 24

Estimate Costs/Forecast Income

__ Calculate known/steady expenses for the coming year (i.e. increases in rental space, insurance premiums, planned software purchases, etc.). __ Conduct deeper research and/or analysis on areas

• f particular risk (i.e. new/unknown costs, areas of

prior year over‐ or under‐spending). __ Develop support schedules that substantiate areas

• f greatest dollar amount and risk (i.e. enrollment

expectations, release schedule for restricted funds, detailed fundraising plans, foundation prospects).

SLIDE 25

Process Planning: 7 Stage Process

Design the process Clarify context and articulate goals Decide on budget structure Estimate costs Forecast income Draft budget Adopt and implement

SLIDE 26

Process Planning: Decision Making

REFLECTION: Who holds what responsibility?

RACI Role Description Responsible

“the doer” a person who does the work of developing the budget

Accountable

“buck stops here” a person who is ultimately responsible for the budget; holds yes/no decisions

Consult

“in the loop” a person who is engaged before decisions are made; two‐way communication

Inform

“in the know” a person who is informed after decisions are made; one‐way communication

SLIDE 27

Power Mapping

• 1. Who is involved in, affected by, and/or

influencing the budgeting process?

• 2. What sources of power do they draw upon?
• 3. What is the quality of connections between

these people?

“Power in its most basic form is the ability of people to achieve the change they want.”

Source: Power: A Practical Guide for Facilitating Social Change (Hunjan and Pettit)

SLIDE 28

Reflection: How is Power Distributed?

• How is decision‐making power currently

distributed in your organizational budgeting process?

• Are there concentrations of power that should

be dissipated for an improved process?

• Are there new connections that should be

made?

• Who is positioned to influence these changes?

Drawing from which source of power?

SLIDE 29

Communication: Mapping the Journey

• Where have we been?
• Where are we headed?
• What are the non‐

negotiables for now?

SLIDE 30

Troika Consulting

• Reflect on your “consulting question” (the challenge and the

help needed) you will ask when they are the client. 1 min.

• First client shares his or her question with the group. 2 min.
• Consultants ask the client clarifying questions. 2 min.
• Client turns around with his or her back facing the consultants.
• Together, the consultants generate ideas, suggestions,

coaching advice. 4 min.

• Client turns around and shares what was most valuable about

the experience. 2 min.

• Groups switch to next person and repeat steps.

SLIDE 31

Action Plan

Three things I will do differently, practice, focus on additional learning, try, or share with my coworkers:

• 1. X
• 2. X
• 3. X

SLIDE 32

Wrap up & Evaluation

• Resources will be emailed after workshop
• Email me with questions –

shannone@compasspoint.org

• Other upcoming workshops
• Evaluation
• Thank you!