Financial Goal Setting

Budgeting in The Nonprofit Sector

Budget process in the nonprofit sector are comparable to those of government, except their processes are not as protracted. For the average mid-sized nonprofit, program directors will often submit a wish-list budget to a budget or finance officer, who then scrutinizes their budget in relation to the organizations strategic plan and policy priorities. Larger nonprofits will provide program directors with specific guidance on policy priorities, budget format, and key assumptions. For a vast majority of small to medium sized nonprofits, budget preparation is generally a responsibility of the executive director. The executive director, together with the finance officer, will finalize the budget and present the proposed budget to the finance committee, a committee delegated by the board, or the full board. Adoption of a budget by the full board should make it unwavering policy. Like most governments, budgets are frequently revised to reflect changes in revenues and expenses. Board members will frequently receive monthly or annual budget reports detailing year-to-date revenues and expenses, budget variances, and key changes in programs or policies that affect the operating budget.

Budget Balance, in Theory and Practice

By definition, state and local government budgets must balance. But perhaps surprisingly, there's no uniform definition of "balanced budget". A budget can be balanced by several different definitions. Each state and locality is subject to a different mix of state and local laws that define balance. Some of the most common definitions are based on different ideas about solvency. For instance:

Cash solvency. The budget is balanced if short-term assets cover short-term liabilities. In other words, does this government have the resources on hand to cover its short-term liabilities as those liabilities come due?
Budgetary solvency. The budget is balanced if budgeted revenues are greater than budgeted expenditures. For some governments this means budgeted revenues must equal or exceed budgeted revenues when the budget is passed. This is also known as balance "at adoption". For others, it means budgeted revenues and expenditures must equal actual revenues and expenditures, also known as balance "at conclusion". In some governments budgeted revenues and expenditures must equal or exceed actual revenues and expenditures at periodic intervals throughout the fiscal year. Some balanced budget laws require these definitions be applied to just the general fund, where others apply them to all governmental funds or total government revenues and spending.
Long-run solvency. The budget is balanced if total long-term assets cover total long-term liabilities. This definition is based on accrual accounting. It's designed to ensure that the government does not incur a structural deficit.
Service-level solvency. Some local governments take a longer view of solvency, defining balance as when revenue-generation capacity covers expected future service obligations.