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Streetsmart Financial Basics for Nonprofit Managers by Thomas A. McLaughlin

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Appendix B

Budget Bloopers

Apart from bad formulas, misspellings, and general spreadsheet lapses, there are a number of common errors budget makers can make. Here are some of the more common budget bloopers other people (not you, now) can make.

  1. Taking prior-year adjustments as expenses—or revenue. Prior-year adjustments exist to set the record straight. Don't count on them for the future, and they have nothing to do with current-year revenue or expenses, either.
  2. Using different allocation bases in the same area of the budget. The purpose of allocating expenses is to spread costs evenly around an organization so that it is possible to get a true picture of what it takes to provide each kind of service. If the same kind of cost is allocated based on, say, square footage to one department and allocated on the basis of percentage of department revenue to another, doing so virtually guarantees that costs will be spread unevenly.
  3. Treating capital campaign proceeds as revenue (usually). Like loans, capital campaigns are financing tools, not a source of revenue. One exception is if one explicitly shows part of the capital campaign's total production as being for operating revenues for one or more years (such as when a new development person's salary is funded for three years as part of the campaign).
  4. Mixing capital spending with operating expenses. Capital spending is actually an investment—in effect, you move part of your cash assets to a different line on the balance sheet such ...

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