Budgeting and Financial Planning for Nonprofit Organizations |

Reporting and Operations Budgeting and Financial Planning Note: Articles published before January 1, 2017 may be out of date. We are in the process of updating this content. Originally Posted: July 28, 2010 Topics:Budgeting and Strategic PlanningReportingEffective financial management is an ongoing process that features a cycle of good management habits. The financial management cycle is completed when board and staff leaders use the results of their analysis of the accurate and contextual reports they have received during the year to inform their plans going forward. Financial planning, in essence, is budgeting. Organizational Budget Operating Budget Associated with Statement of Activities (Income Statement, Profit & Loss) Planning income and expenses for a single fiscal year to accomplish immediate mission agenda Can be projected over multiple years as part of a strategic plan to include implementation of strategic initiatives SeeBudgeting Practices. Capital Budget Associated with Statement of Financial Position (Balance Sheet) Planning for optimal cash position (operating & emergency reserves, other strategic reserves) Planning for capital investments (equipment upgrade/replacement, facilities acquisition and/or maintenance, special projects, etc. over a longer time period) Planning for long term endowment (if appropriate) SeeBudgeting for Capital. An organization's financial planning should include budgets for operating and for capital. Together these comprise an Organizational Budget. Creating an annual operating budget is a familiar task. However, creating a capital budget, or capitalization plan, is often overlooked or deemed unnecessary for small or midsize groups or construed as only necessary for a capital campaign. The annualbudgeting Processshould be documented, with tasks, responsibility assignments and deadlines clearly stated. A good budgeting process: engages those who are responsible for adhering to the budget in the creation of the budget, allows time for the Finance Committee to participate, provides adequate time for research, review, feedback, revisions, etc. before the budget is ready for presentation to the full board, incorporates strategic planning initiatives, is characterized by realistic projections for income and expense is income-based (expenses do not exceed the realistic income projections) identifies fixed costs and relates them to reliable revenue, is driven both by mission priorities and fiscal accountability.