Budgeting Basics and Beyond

24.6. Budgeting Revenue

The estimated revenue for the not-for-profit firm differs from that of the profit-oriented firm in two ways. First, the revenues of many not -for-profit organizations have no direct relationship to the services provided. Second, since the firm is nonprofit, the excess of revenues over expenditures in any period should be available in the next period, since the objective in any one period is to have equality between revenues and expenditures. Finally, a difference arises in the budgeting process: rather than allowing the estimation of revenues to limit expenditures, necessary program expenditures may be estimated first and revenues raised accordingly. For example, property taxes are often levied on this basis.

Most not-for-profit organizations have one or more revenue sources that provide the bulk of their resources. These are called primary sources, while the varied sources that provide smaller amounts are called secondary sources. In estimating primary revenues, the actual sources are easily identified. A city's primary source will generally be the property taxes; a hospital's primary source is patient revenue, either from the patients themselves or from third-party reimbursements. A church's primary source is the weekly offerings from its members. A university may have several primary sources, such as tuition and room and board.

Nonprofit organizations often have difficulties in budgeting revenues, because so many revenues are not a direct result of the ...