ROLE OF BUDGETING

Role of Budgeting in the World Characterized by Globalization

Role of Budgeting in the World Characterized by Globalization

Role of Budgeting

“It's not in the budget” is a familiar refrain. An unanticipated major repair, a long-standing grant that is not renewed these events can alter expense and revenue in ways that can compromise the ability of a non-profit organization to fulfil its charitable purpose. A budget gives a projection of revenue and expense over the course of a year. It is a plan that communicates an organization's priorities and a tool that can be used to monitor revenue and expense. A budget is usually prepared by an executive director and approved by a board of directors. Operating budgets, program budgets, cash flow budgets, and capital budgets are routinely used by non-profits.

This chapter begins with a discussion of what goes into a budget and how a budget is prepared, offering examples of an operating budget and a cash flow budget. It continues with an examination of trends and forecasting in the context of non-profits engaged in health care, education, human services, and the arts. One significant development is an increase in revenue from fees and earned income. For this reason, the chapter concludes with examples of how to estimate cost; specifically break-even and marginal cost analysis. This approach ensures the future forecast will be a financial success.

Method of Majoring Financial Performance

In majoring the financial performance the operating budgets are used. Operating budgets, often referred to as simply the budget, are prepared on a cash basis; expense is incurred, and revenue is received over the 12 consecutive months that make up the fiscal year. Usually, a budget is balanced; that is, revenue is equal at the expense. The process of formulating expense and revenue projections often begins 6 months before the start of a new fiscal year. It involves the executive director, program director(s) or department heads, and the chief financial officer (if there is one). Typically, an executive director asks program directors to project expenses for their program. Revenue is generally estimated after expense. Revenue and expense planning may also involve the treasurer of the board of directors or a board finance committee. The board of directors formally approves the final budget (Maddox 1999, 221-229).

Expense

Often, 50% or more of a nonprofits' total expense is associated with the people who deliver services. Personnel expense involves a base salary and benefits. A base salary includes time off. Personnel policies generally offer 6 to 8 days of sick leave, 2 or 3 personal days, 8 to 10 paid holidays, and at least 2 weeks of vacation each year. Workers' compensation, unemployment, and social security are calculated from the base salary. Benefits often include health insurance.

Employers, including non-profit organizations, withhold 7.65% of each employee's salary for social security. Employers match this with another 7.65%. Withholding must be deposited by employers each quarter. The penalty for failure to do so is stiff. Employers pay into an unemployment fund based on the amount of the nonprofits' payroll and ...