Budgeting: Non-profit Organization and Best Practice Companies
Budgeting is the systematic method of allocating financial, physical, and human resources to achieve an organization 's strategic goals. Budgets are utilized by for-profit and non-profit organizations to monitor the progress towards the goals, assist in the control of spending, and help predict cash flow for the organization.
The central challenge that budget developers encounter is predicting what the future holds for the internal business and external factors. Reading the future is something that can never be done with perfect precision. The fast pace of technological change, the complexities of global competition and world events make developing effective budgets both more difficult and more important.
Important benefits of improving the budgeting process include better companywide understanding of strategic goals, more coordinated support for those goals, and an improved ability to respond quickly to competition. (Gruner & Jahr, 2003 Inc Magazine).
Anyone familiar with Generally Accepted Accounting Principles (GAAP) and practices will find most accounting for nonprofit activity to be very familiar. There are, however, some significant differences, which include:
« Accounting for Contributions
« Capitalizing and Depreciating Assets
« Use of Cash- and Modified Cash-Basis Accounting
« Functional Expense Classification
The act of budgeting resources to meet or beat the goals of an organization is an art form in any type of business. "All business should prepare budgets," (Hansen and Mowen, p. 282). The advantage to budgeting is that:
1. It forces to plan.
2. It provides information that can be used to improve decision making.
3. It provides a standard for performance evaluation.
4. It improves communication and coordination.
If good budgeting is important for every successful business or organization, can we expect to have industry standard and general practices that are followed in every type of organization? Probable not, but certain standard
The central challenge that budget developers encounter is predicting what the future holds for the internal business and external factors. Reading the future is something that can never be done with perfect precision. The fast pace of technological change, the complexities of global competition and world events make developing effective budgets both more difficult and more important.
Important benefits of improving the budgeting process include better companywide understanding of strategic goals, more coordinated support for those goals, and an improved ability to respond quickly to competition. (Gruner & Jahr, 2003 Inc Magazine).
Anyone familiar with Generally Accepted Accounting Principles (GAAP) and practices will find most accounting for nonprofit activity to be very familiar. There are, however, some significant differences, which include:
« Accounting for Contributions
« Capitalizing and Depreciating Assets
« Use of Cash- and Modified Cash-Basis Accounting
« Functional Expense Classification
The act of budgeting resources to meet or beat the goals of an organization is an art form in any type of business. "All business should prepare budgets," (Hansen and Mowen, p. 282). The advantage to budgeting is that:
1. It forces to plan.
2. It provides information that can be used to improve decision making.
3. It provides a standard for performance evaluation.
4. It improves communication and coordination.
If good budgeting is important for every successful business or organization, can we expect to have industry standard and general practices that are followed in every type of organization? Probable not, but certain standard
References: Bangs Jr, David H and Pellecchia, Michael, August 15, 2000, Action Plan: Forecasting and Cash-Flow Budgeting retrieved from web site http://www.muridae.com/ nporegulation/accounting.html on February 27, 2003. Critical Issues in Financial Accounting Regulation for Nonprofit Organizations, Online Compendium of Federal and State Regulations for U.S. Nonprofit Organizations, retrieved from web site http://www.muridae.com/nporegulation/main.html on February 28, 2003 Gruner + Jahr, January 12, 2000, Best Practices: Developing Budgets, Inc Magazine, USA Publishing. Inc.com, retrieved from web site http://www.inc.com/articles/ finance/fin_manage/budget/16379.html on February 27th, 2003 Hansen & Mowen, Management Accounting, 6th edition, 2003, South Western