TABLE OF CONTENTS
- Budget Management
- How Can Budget Managers Track and Monitor their Respective 2021 Budgets?
- Revenue Philanthropy
- Program Service Revenue (Earned Income)
- Expenses - Staff Costs
- Discretionary Expenses
- Shared Direct Costs
- Indirect and General Operating Support Expenses Allocated
- Fundraising Budgets
- Where Can I Learn More About Best Practices?
- Article Feedback
This article was last updated August 2021.
In 2021 B Lab transitioned from a divisional budget structure based to a matrixed budget structure in which Functional Teams (i.e. Marketing & Communications) support Program areas (i.e. Narrative Shift) designed to deliver on our Theory of Change and Global Objectives.
What are the benefits of having both program and team budgets? While many are familiar with team budgets that are developed and managed by functional team leads (eg. Department Heads), it’s important for nonprofits to understand the true cost of programs in order to make strategic decisions about the value and priority of that program and its related service offerings. Understanding where the funding gaps are and allocating the available subsidy is one of a nonprofit’s most important financial decisions and should be made intentionally based on strategy and impact (this function is currently performed by the Finance & Resource Allocation circle).
For more information, see the presentation on why program budgeting is important and how the 2021 program budget was developed. The Budget Training Q&A Session for Program & Functional Team Leads is another good resource. A Finance Team update (Fact Sheet) was shared with managers in August, 2021.
Please keep in mind that this article is not exhaustive; the POps team is happy to answer questions and provide support to teams for any information not covered by this article. Please reach out to us with any questions by opening a new ticket.
“A key component of financial sustainability is the commitment of board and staff to financial management that includes timely review of financial reports and advance planning. One way that the board and staff plan for income and expenses in the future is by creating a budget... A budget is a guide that can help a nonprofit plan for the future as well as assess its current financial health.” Budgeting for Nonprofits | National Council of Nonprofits.
Each Program and Team has a budget lead with budget management accountabilities.
How Can Budget Managers Track and Monitor their Respective 2021 Budgets?
Monthly Budget v Actuals (BvA) with discretionary transaction detail are shared with budget managers approximately 15 days after the financial close of each month. It is critical for budget managers to review all discretionary transactions (i.e. consultants) as soon as possible and communicate if there are transactions you do not recognize or are coded to the wrong category (i.e. advertising v. consultant), and require reclassification. Please send Natalie Faulds an email with a copy to David Betz for reclassification requests. Bill coding instructions can be found on Freshdesk How to Submit a Bill for Payment. Please ensure to submit all bills and expense reimbursement receipts prior to the 10th of each month for the prior period. This allows for timely and complete financial reporting.
Grant budgeting is maintained outside of financial systems in 2021 due to system constraints. Therefore, in order for budget managers to understand their available grant balances please review your 2021 detailed program budgets maintained in google sheets which were shared with budget managers in Q1. These google sheets are working documents and can be revised and commented in on an ongoing basis. Any updates to discretionary other than personnel costs (OTPC) should be noted either as a comment or an additional tab in order to preserve the original budget. If you have any questions regarding available grant balances, activity, or how to interpret the grant google sheets, please contact Bridget Donlan through a Freshdesk ticket.
BvAs for “Rolling Forecast” purposes will be distributed semiannually and will include a template and instructions for reforecasting revenue streams and discretionary expense budget.
Salary and benefits are approximately 60% of B Lab’s expense budget, and forecasting of expenses is performed by the Finance team in collaboration with People & Culture. In order to incorporate the most recent departures, new hires, backfilling (replacement) and compensation into staffing forecasting, please ensure P&C’s staffing dashboard is up-to-date with your hiring needs.
How are contributions allocated?
- Contributions are either categorized as unrestricted or “released from restrictions.” Contributions which are designated as restricted based on time or purpose by the donor are “released” and available for use, once a restriction is satisfied either by the passage of time or fulfilment of purpose. During month-end financial close funds are transferred from restricted to “released from restrictions, and classified under both functional team and programs to which the funds were released.
Where can I see the grant details funding my team/program?
- Refer to 1.b. Above
How does new and additional philanthropic funding impact my budget?
- Ideally and in most cases, donor contributions received during the budget year support and underwrite existing budgeted work streams and activities that are already planned as part of delivering our Global and Enabling objectives.
- Occasionally B Lab receives grants to cover new additional activities that were not previously planned or budgeted for. The revenue and expenses for activities not included in the original budget that are now being funded by new philanthropy will need to be added to your program budget. Please set up a meeting with Bridget Donlan to collaboratively update the program budget sheets.
- It is important for budget leads to be involved in the fundraising proposal process to support alignment on funding for existing activities and thoughtful planning for funding that will support new activities in or future years, as early as possible In order to support this alignment, the Strategic Growth team is collaborating on fundraising narratives with program & functional team leads.
Program Service Revenue (Earned Income)
How are program service revenues allocated?
Program Service revenue is allocated to the Programs and teams the service being provided is supporting.
How are Program Service Revenues forecasted?
Program budget managers are accountable for forecasting their respective program revenues. They can collaborate with Timothy Bantola on performing sensitivity analysis.
Expenses - Staff Costs
What budget costs are included under Staffing?
Salaries both domestic and “hosted”, benefits (medical, dental, 403b, life insurance, etc), and payroll taxes are all included under staffing costs. Functional team leads have visibility into their respective staff members salaries. A compensation transparency policy is being developed regarding the visibility of staff.
How are staff costs allocated?
Each staff member has a home functional team, and are allocated 100% to that team. However, a staff member can deliver across multiple programs, and therefore a percentage of time is allocated to the various programs. Functional team leads should review the staffing % allocation quarterly, and inform David Betz (via freshdesk) of any allocation changes in order to update payroll allocation accordingly.
How do I increase my staffing resource requirements?
A change that increases staffing costs (i.e., adding a new, unbudgeted position) requires approval from the Finance & Resource Allocation Circle. Please submit any staffing increase requests to Olivia through freshdesk.
How does a staff departure impact my budget?
Departures and hiring delays may lead to funds becoming available to repurpose/reprogram to another budget category. If the departure will be backfilled with an employee of similar salary, the savings during the time that position is vacant can be repurposed to fund other expenses, for example consultants. However, please keep in mind that replacing staff with a higher salary (requires approval by the Finance and Resource Allocation circle) or engaging a consultant to fill the interim needs will impact any “savings” to be repurposed. Please inform finance through the program budget google sheets, if a consultant is being hired instead of a staff member, by inserting a comment assigned to Bridget Donlan noting the consultant’s name under the specific grant to be used (if applicable). This will ensure accurate and timely financial reporting to donors. Functional team leads should work with P&C to make a recruitment and onboarding plan for backfilling a vacant position.
What are discretionary expenses?
Discretionary expenses are activities that are spent at the discretion of a budget manager. For example (contractors, implementing partners, travel, subscriptions).
Where can I get further detail on actual expenses for a specific account?
Please submit a Freshdesk ticket detailing which account/ team/ or program to the Finance team, and David Betz will provide transactional details.
What is the process for making budgetary adjustments to discretionary accounts?
Budget owners have the authority to make changes to their budget within certain parameters:
- Program Managers can approve increases under $250k without approval from the Management Circle. An increase over $250k requires Management Circle approval.
- Budget owners can move funds around if they find they have discretionary savings in one area that can be deployed to cover another expense. If changes will affect philanthropically funded deliverables, budget managers must discuss & confirm these changes with Bridget Donlan & Strategic Growth lead links.
- A change that increases staffing costs (i.e., adding a new, unbudgeted position) requires approval from the Finance & Resource Allocation Circle. Please submit any staffing increase requests to Olivia through freshdesk.
However, if the expense is grant funded, please direct your question to Bridget Donlan. Non-financial questions specific to program delivery impacting grant resources should be directed to the Strategic Growth team.
It looks like I will need to overspend in a discretionary category to meet a 2021 objective. Is there a process to communicate this?
Budget managers should first analyze their budget for any existing savings which can be reallocated within their program/team. The repurposed use of savings will be reflected in the semi-annual budget reforecast exercise. If no savings or reallocation is available, anticipated overspending should be communicated to David Betz via a Freshdesk ticket (‘forecasted overspend’ in subject line). Overspends of $250K requires prior approval from the Management Circle (requests/proposals should be submitted to Vale as lead link to the Management Circle).
I anticipate not fully spending a discretionary cost funded by a restricted grant (donor approved budget) What should I do?
Please inform Bridget Donlan (via Freshdesk tix) as soon as possible, so that the budget implications are understood and a spending plan is created to meet the grant requirements.
Shared Direct Costs
What is a shared direct expense?
An expense whose benefit can be specifically identified with more than one funding source or program. For example, rent and occupancy costs, and tech platforms
How are these direct expenses allocated?
At the end of the month we allocate based on the cost base we decided would result in the most equitable distribution of the expense, usually headcount or FTE.
What happens when there is a budget savings?
If there is a budgeted savings for shared direct expenses this gets factored into the year-end forecast and helps strategic decision making on where further infrastructure investments can be made.
What happens if there is an over-expenditure compared to budget?
If there is an over-expenditure related to shared direct costs, Finance & Operations will review ways to reduce costs in other general operating areas.
Indirect and General Operating Support Expenses Allocated
What is an indirect or General Operating Support Expense?
An indirect cost is a shared cost whose benefit is not readily identifiable with a specific program or activity, but is necessary to the general operation of the organization. For example P&C, Finance & Operations, and Strategic Growth expenses
How are these allocated?
See 6b above
Unacceptable Allocation Practices Include:
- Shifting expenditures to other grants in order to meet deficiencies
- Charging expenses that benefit two projects solely to one project because the other project is almost out of funding.
- Purchasing items simply to use a remaining balance
What are Fundraising Budgets?
Fundraising budgets support long term, comprehensive work to meet our Global Objectives. The body of activities may span multiple programs and projects, and in some cases entities (BLG, USC.) Often a funder supports a subset of the overall work. The process is initiated by a SG team who contacts Program lead(s) to co-author a proposal narrative.
How will we work together to build fundraising budgets used for additional philanthropic support?
- Fundraising budgets begin with the SG team contacting Program lead(s) to co-author a proposal narrative that both supports our Global Objectives and addresses the funders priorities.
- Program Leads, in collaboration with the SG team, are best positioned to determine the work and timelines required in the proposal narrative and work plan. Finance (Bridget) is looped in to support scoping of the costs of the work.
- Relevant stakeholders such as team budget leads or executive management should be identified and brought into the process as early as possible.
Where Can I Learn More About Best Practices?
Here are several links created by Propel Nonprofits, an intermediary organization providing capacity-building services to support nonprofits in achieving their mission throughout their organizational life cycle:
- Transforming Nonprofit Business Models
- Cost Allocation Primer Video
- True Program Costs: Program Budget and Allocation Template and Resource
- Restricted Funds Primer Video
- Managing Restricted Funds
You may also find the following glossary of key terms useful.
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