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The All-Important Budgeting Process

This is part of a special series, brought to you by the Standards for Excellence Institute, to provide nonprofit leaders with a brief nonprofit governance and management tip weekly over the course of 2020. We hope these short tips will be helpful to you and the nonprofits you serve. If you have suggestions for future topics, please forward these to acmadsen@standardsforexcellence.org.

At the end of last year, due to term limits, I ended my service as the chair of the finance committee of a nonprofit that is near and dear to my heart. It was a position that involved a lot of work and many challenges, but I am grateful for the chance to have served. The opportunity to work with the nonprofit’s experienced and dedicated finance staff made my work so much easier, and in fact, a pleasure in many cases.

As I look back on the term, I can’t help but recall the budget setting process with its many steps and iterations. Seeking input from the different program areas, getting buy-in from committee members – and ultimately, our governing board—were all important parts of the budgeting journey. Our budget had a variety of different program areas and line items for the expense categories. Of course, we also spent time considering and developing the income categories and determining the best ways to pay for all of the important program initiatives. Each year, we looked closely at the budget categories and proposed amounts in each of the categories—these included pledged gifts, special giving campaigns, events income, and a variety of different types of earned revenue, just to name a few. Unfortunately, in some organizations, the revenue side of the budget is not as well planned (and executed) as the expense side of the budget.

The Standards for Excellence: An Ethics and Accountability Code for the Nonprofit Sector states “Nonprofits should have sound financial and operational systems in place and should ensure that accurate records are kept. The organization’s financial and non-financial resources must be used in furtherance of tax-exempt purposes. Organizations should conduct periodic reviews to address accuracy and transparency of financial and operational reporting, and safeguards to protect the integrity of the reporting systems” and that “the board should annually approve the organization’s budget and the organization should be operated in accordance with this budget.”

One of the most comprehensive Standards for Excellence educational resource packets, Financial Budgeting Reporting and Monitoring, was just updated and re-released in the last few months. In the packet, you will find a sample budget (with annotations) as well as a discussion of the budgeting process and the various roles different board and staff leaders play in the process. The packet also features resources on financial statements, audits, direct and indirect costs and much more.

This educational resource packet and the full series of all packets - including sample policies, tools and model procedures to help nonprofits achieve best practices in their governance and management - can be accessed by contacting a licensed Standards for Excellence replication partner, one of the over 150 Standards for Excellence Licensed Consultants, or by becoming a member of the Standards for Excellence Institute.

By Amy Coates Madsen | February 28, 2020 | Best Practices , Operational management , Policies

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About the Author: Amy Coates Madsen

Amy Coates Madsen is the Director of the Standards for Excellence Institute, a national initiative to promote the highest standards of ethics and accountability in nonprofit governance, management, and operations, and to facilitate adherence to standards by all organizations. The Standards for Excellence Institute is a program of the Maryland Association of Nonprofit Organizations where Amy has served for more than twenty-two years. Amy is responsible for coordinating all aspects of the association’s comprehensive ethics and accountability program and efforts to replicate the program nationally. She serves as a frequent trainer and writer in the areas of board conduct, program evaluation, program replication, fundraising ethics, and nonprofit management. She has taught courses on nonprofit ethics and accountability at the Johns Hopkins Institute for Policy Studies Certificate Program on Nonprofit Management. She has held positions at the Trenton lobbying firm of the Princeton Public Affairs Group, and the Public Policy Liaison Unit at the world headquarters of Catholic Relief Services. Amy received her Master of Arts in Policy Studies degree from the Johns Hopkins University – Institute for Policy Studies in Baltimore, Maryland; and her Bachelors degree from the Virginia Polytechnic Institute and State University in Blacksburg, Virginia. Amy is a member of Phi Beta Kappa. Amy serves on the Internal Revenue Service Advisory Committee on Tax Exempt and Government Entities (ACT). Amy is a former member of the Disaster Action Team of the Central Maryland Chapter of the American Red Cross and is qualified to provide disaster preparedness training to children and adults. She has also served as the former President of Central Maryland CAN TOO and was a member of the Board of Trustees of the largest United Methodist Church in Baltimore City. She serves on the board of her children’s preschool PTA and is a volunteer with the Girl Scouts of Central Maryland. Amy is currently leading an effort to establish an endowment for the Virginia Tech University Honors Program.