By Kathleen M. O'Donnell, YNPNdc volunteer.
It's budgeting season for most organizations. As young professionals, we don't always have the practical skills to support the budget process. Fortunately, there are plenty of people who can help us. Enter A. Michael Gellman, CPA, CGMA, an independent fiscal and financial strategist for nonprofit organizations and a founding principal partner for Fiscal Strategies “4” Nonprofits, LLC. For over 30 years, Gellman has designed and trained professionals on budget and projection based systems and financial management systems.
Gellman also leads Nonprofit Financial Bootcamps at DC’s Center for Nonprofit Advancement. You can learn more about these courses and register here. YNPNdc members receive a discounted rate on Center for Nonprofit Advancement events.
To advance our knowledge, YNPNdc asked Gellman for some budgeting advice. Hear from this expert and learn how you can prepare for your professional future, which inevitably includes budgeting.
How are nonprofit budgets typically structured?
Gellman: Nonprofit organization budgets differ from for-profit budgets in that they are both driven by meeting mission expectations while balancing financial resources available and needed to deliver on programs and activities and provide resources for fundraising efforts and to cover administrative costs. Most people expect that a nonprofit budget should be "zero-based" with no surplus or deficit. This is usually not a best practice. Nonprofits should conservatively budget for sources of support and revenue (cash inflows) and expected expenses to support programs, operations and fundraising (cash outflows) with a small surplus left over so the organization, like individuals at home, can build up an operating reserve to help with unexpected circumstances in the future.
What are some of the key steps in the budgeting process?
Gellman:Nonprofit budgets are a balancing act of trying to be good stewards of the organization's mission and providing as much mission-based programming as possible while filling the fiduciary role of managing resources. With that said, it is often best to first budget for the revenue and support the organization that is expected to be received in the next fiscal year and then assemble the program, administrative and fundraising expense budgets. The last step is to make sure that the expense budget is smaller than the revenue and support budget to lower the risk that deficits will occur. One important key is to assemble supporting documentation and calculations to support the assumptions for each revenue, support and expense line-item in the budget.
Are there unexpected professional benefits to working on budgets?
Gellman: People often shy away from budgets. You should just jump in to the process. There is always a financial aspect to each decision made within an organization. Professionals who have budget experience benefit from demonstrating that they can connect both mission effectiveness and financial effectiveness. Also, professionals that understand and are actively involved in the budget process are in a better position to use financial resources wisely and less likely to have a surprise at the end of the year reporting on a program that lost money when you told the board that this would not happen.
For a young professional who may not have much experience with organizational finances, what are some resources you’d recommend so they can get acquainted?
Gellman: Although there are a lot of books and other resources out there, I would highly encourage you to sit with a person from a finance department at a nonprofit that you are familiar with and have them go over their budget with you and explain where the major sources of revenue and support come from and how they assemble their program and operating expense budgets. I also would search the internet for budgets for non profit organizations of interest to you and see if they make sense. Most nonprofit organizations post their annual budgets along with a summary of key assumptions and descriptions. These documents are very insightful.
What advice do you have for someone looking to move into a more senior position that may include budgetary responsibilities?
Gellman: Look into the programming or activity based responsibilities of the new position. Understand the key elements you will be responsible for (educational programs, membership, fundraising, etc.) and then look at the corresponding budgets that were assembled for the prior year and look to see if the budgets make sense, the programs have adequate support and if there is an opportunity to make positive changes for the future.