Budgets

Every Organization Needs a Budget

No matter how small your museum is, the budget is your blueprint for daily operations.  If you have a paid or designated volunteer director, he or she should work with the Finance Committee of the board of trustees to prepare the budget. The entire board approves the annual budget as part of its oversight of the organization.  Many of the resources below apply to all kinds of nonprofit organizations — and they also apply to your museum.

Defining Your Fiscal Year

The fiscal year of an organization is set in the by-laws and it serves as the time frame in which all of the organization’s financial transactions occur. Typically lasting 12 months, the fiscal year need not align with the calendar year. Instead, the dates that your organization selects should take into account three things: 1) dates of the museum’s programs, including moments of high traffic and low traffic with visitation; 2) the fiscal year of the primary funding source for your organization; and 3) opportunities for fiscal review, typically during low traffic times in your calendar. For example, if your organization experiences the highest traffic during the spring and summer, performing a fiscal review during the fall or winter makes the most sense.  A fiscal calendar such as this one could be October 1 to September 30th.  If your museum receives its operating budget from your county, you may want to use their fiscal year even if you are not a government unit.

Nonprofits are lucky to be able to select their own fiscal year end.  Here are some tips on how to make this decision from the American Institute of Certified Public Accountants.

Preparing and Finalizing the Budget

After establishing the dates for your fiscal year, preparing the budget is the next step.  Begin by reviewing budgets from previous years to see where and when the money was spent. Think about what your past year’s activities looked like and create a set of priorities for what you want to do in the coming year.  Your budget should reflect your mission statement and strategic plan; these documents state your organization’s priorities for the next few years and can serve as a guideline for apportioning money.

Next, determine when and from where the money to fund these projects is coming. When is the planned income expected to arrive? Will there be fluctuations in the amount given from previous years that need to be taken into account? If you have earned income from sources such as admissions fees, a museum store, or membership fees, what were the numbers from previous years? Establishing anticipated income before writing the formal budget can help you determine what your fundraising needs will be for the year.

Be aware that some non-profits use a short-term credit line  to even out the money flow over the fiscal year.  Advice on using loans can be found in this article from Nonprofit Quarterly.

The first step is creating an operating budget.  Budget for your income first.  How much money do you have on hand and how can you expect? Estimate the cost to operate your organization for the upcoming year, including staff salaries and benefits, utilities and routine maintenance and repair, and any programs that are offered every year.

How much will it cost to operate your educational programs for the year? What about any events that you planned? After laying out the cost of each initiative and the income that you already know will be coming in, you can allocate the resources necessary to operate your institution for the upcoming year.

Finally, it is the duty of the board of trustees to review and approve the final budget. It is crucial to keep in mind here that, as the oversight for the organization, it is also the duty of the board to ensure that any fundraising needs are met.

More resources for preparing your own budget:

The National Council of Nonprofits has published online a clear, well-written  comprehensive guide for nonprofit budgeting. 

The George Washington Society of Certified Public Accountants Educational Foundation offers a detailed and useful set of resources on its web page Nonprofit Accounting Basics.

Managing the Budget: Internal Controls and Deficits

After the board of trustees reviews and approves the budget, either the executive director of the organization or, in all volunteer organizations, the president of the board, monitors how money is spent day-by-day.  All organizations need policies guiding expenditures, such as the requirement that all reimbursement requests must have receipts.  Further, all organizations need a set of routines that are called internal controls.  These include up-to-date financial reports for every board meeting.

Routine communication between the board, executive director, and staff is necessary to regularly compare how the proposed fiscal plan for the year aligned with the actual practices of your organization. But what if you have an unplanned shortfall?  MissionBox, a knowledge-sharing network for non-profits, offers these insights on  dealing with an unplanned deficit.