Budgeting Basics and Beyond

24.5. Budget Development

Initially, the nonprofit organization must estimate revenues. This task is typically performed by the chief financial officers, because many units do not fund themselves or do so only partly. The upper management must make decisions with regard to issues such as what service levels to provide, what to charge for services performed, how to obtain other funds required to support these services, and how to allocate these funds among programs or departments.

The organization should determine its revenues first on an overall basis, and then on an individual basis. This approach gives the units initial direction in budget preparation. The unit's budget report should identify revenue by type, expenses by category, output measures, and unit cost for the service. It is difficult to project revenues over the next year; to cover the range of possibilities, the organization may estimate different revenue levels on a best-case/worst-case basis, and then design its program budget and activity plans to meet the different levels.

After the responsibility unit receives estimates of its activity level and its expected revenues, it then budgets its expenditures. Prepare worksheets that divide expenditures into categories, including personnel compensation, supplies, capital expenditure items, and so on.

When preparing expense budgets, responsibility units need to evaluate how their costs change depending upon the service level provided. Many costs will be fixed over a large ...