CAPITAL BUDGET
The capital budget is developed for spending activities related to large construction, major equipment, or other infrastructures (e.g., technology) that have an impact beyond 1 fiscal year of operations. Therefore, such spending activities cannot fit into an operating budget. The capital budget is an expression of commitment to the future or sustainability of an organization through investments that may take several years to complete, but will serve as an added value.
PREREQUISITES TO DEVELOPING A BUDGET
As indicated in Figure 7.3, the development of a budget is subject to prerequisites, such as strategic and action plans (goals, objectives, programs, activities), a finance committee, a timetable, guidelines (manual, procedures, and forms), assumptions (expected or presumed income and expenses), and assessment and documentation (e.g., evaluation of past budget, financial statements, financial reports, contracts, grant documents, investment reports).
Budget Timeline
The budget timeline is the process of developing organizational budgets from start to finish. The length of the timeline will vary from one organization to another. Table 7.1 illustrates the format of a budget timeline.
FIGURE 7.3 Budget prerequisites.
TABLE 7.1 Sample Budget Timeline
|
Activity |
Responsibility |
Outcomes |
Deadline |
|
Appointment of budget committee |
Executive director |
Minutes of meeting or August 1 appointment letter |
|
|
First meeting of budget Committee chair Minutes of the meeting committee |
September 1 |
||
|
Development of budget assumptions and guidelines |
Committee |
Budget assumptions and guidelines distributed |
December 1 |
|
Unit/department budgets developed |
Unit/department coordinator or managers |
Unit/department budget submitted to committee |
February 1 |
|
Development of cash and operating budget |
Chief financial officer (CFO) |
Budget document distributed |
March 1 |
|
Negotiation and revision |
All coordinators/ Revised version of managers and CFO budget distributed |
April 1 |
|
|
Development of master budget |
CFO and budget Budget proposal committee distributed |
May 1 |
|
|
Vote and approval of budget |
Board of directors |
Adopted budget |
June 1 |
|
Implementation of All managers Unit budgets are budget | distributed |
July 1 |
||
BUDGET AND STRATEGIC PLAN
A budget describes the financial situation of an organization, the sources of revenues, the expenditures and related activities that will help achieve the goals and objectives set in an organization strategic plan. Budgeting is a decision-making process that goes along with strategic planning and is connected to the past, present, and future of the organization. The past and current financial situations are used to make decisions that can help sustain, improve, or transform current situations into better situations. Frameworks to budgeting tend to be rational, incremental, or partially rational.
THE BUDGETING PROCESS IN NONPROFIT ORGANIZATIONS
As Figure 7.4 describes, the generic budgeting process includes goal setting, data gathering, past budget analysis, internal stakeholders' inputs, budget proposal, review of budget proposal, budget approval, communication and implementation, and monitoring.
Goal Setting
The goal-setting stage is the first step in developing a budget. The goal setting is inspired by the strategic and implementation plans of a nonprofit organization. As a result, a budget should clearly indicate the goals and objectives that it will help to achieve. Usually,
FIGURE 7.4 The budgeting process.
such goals and objectives are linked to specific programs, projects, or activities that either will generate revenue or involve expenses. The goal setting includes assumptions that may serve as guidelines for projected fund allocations to programs.
