What is a Budget? A Budget is a “realistic” plan expressed in dollar amounts that acts as a road map to carry out the Chapter’s objectives, strategies, and assumptions. Preparing a budget is a responsibility of the Treasurer 15

Why Prepare a Budget? to help you identify all expenses of the Chapter (program, operational, fixed, discretionary) to see how much money you need to meet all of your expenses – to make the budget balance to show what your cash flow (timing) situation will look like 16

What Time Period Does the Budget Cover? The Budget is prepared for the next year and can be detailed by quarter and/or month. The Budget is a guide. It cannot be so rigid that it prevents timely action when needed. In rare circumstances it might be revised, but only when the environment has radically changed. 17

What are the Budget Planning Steps? DO NOT PLUNGE INTO THE BUDGET PROCESS – ENGAGE IN A STRATEGIC PLANNING BUDGETING PROCESS 1.Know your Chapter’s goals and objectives Talk to your President, Program Chairs and Fundraising Chairs Ask them for a projection for next year 18

Budget Planning Steps – con’t 2. Get Executive Board and member buy-in encourage timeliness, completeness, and accuracy 3. De-centralize the budget process every member/committee who has responsibility should be involved in its creation understanding the rational fore their budget enables them to “own” it 19

Budget Planning Steps – Gather Info 4. Gather information Prepare a request that contains 2 years worth of information and year to date numbers Ask them for a budget request and an explanation Give them a deadline that is at least a week before you are meeting 20

Now that you have gathered information- Create a Budget 1.Calculate the Chapter’s Income – general (donations, memorials, dues), fundraising activities/events, grants, investments (interest, dividends) 2.Create a list of necessary expenses – these are the bills that you must pay each month. For example: rent, insurance, utilities 3.Create a list of discretionary expenses 21

Steps to Create a Budget – con’t 4. Add the fixed and discretionary expenses 5. Compare the total expenses to total income If expenditures exceed income, you will need to make some changes. If income exceeds expenditures – Congratulations! Budget your savings. 6. Cut discretionary expenses – these should be the first and the easiest to cut. 7. Trim the fixed expenses - fixed costs are harder to cut. 22

Steps to Create a Budget – con’t 8. Set savings priorities – once income is higher than expenses, decide what goals you want to save for. Divide your savings into different accounts dedicated to each goal. To sustain your Chapter, you need to build reserves – best practice is to include planning for an annual surplus, even if it is a minimal amount. 23

Food for Thought on Budgets The Finance Committee should provide guidelines on how changes to the budget are made and approved how expenditures that exceed budgeted amounts are approved Monthly/quarterly review actual versus budget reports and cash flow projections Build a flex budget policy – if the Chapter reaches certain financial goals during the year, it can do more! 24

Cash Flow Considerations Goal – Not to run out of cash Manage it with care and attention Know the Chapter’s Checkbook Balance now Don’t manage from the bank balance 25

Financial Reporting Financial Statements are reports that show how income and expenses have affected the Chapter as a whole provide a snapshot of the current financial standing of the Chapter 26

Types of Financial Statements The three basic, essential financial statements are: Balance Sheet Summarizes the assets, liabilities, and net worth of the Chapter on a particular date Income Statement (Budget Variance Report) Shows the profit and loss for the Chapter over a specific period of time, typically monthly, quarterly, or annually Cash Flow Statement An accounting statement that forcasts cash receipts and disbursements for a specified period 27

Board Reporting Are you reporting reliable, accurate financial information to the Board? Timing of Reports Types of Reports – see examples 28 A SS ET S LIA BIL ITIE S Cu rre nt As se ts Cu rre nt Li ab ilit ies CashCash $ 2,100 $ 2,100 N o te s P a y a bl e $ 5,000 $ 5,000 P et ty C a s h A c o u n ts P a y a bl e 35,900 35,900 T e m p o r a r y In v e st m e n ts 10,000 10,000 W a g e s P a y a bl e 8,500 8,500 A c o u n ts R e c ei v a bl e - n et 40,500 40,500 In te r e st P a y a bl e 2,900 2,900 In v e n t o r y 31,000 31,000 T a x e s P a y a bl e 6,100 6,100 S u p pl ie s 3,800 3,800 W a rr a n ty Li a bi lit y 1,100 1,100 P r e p ai d In s u r a n c e 1,500 1,500 UnearnedRevenuesUnearnedRevenues 1,500 1,500 TotalCurrentAssetsTotalCurrentAssets 89,000 89,000 TotalCurrentLiabilitiesTotalCurrentLiabilities 61,000 61,000 - In ve st m en ts 36,000 36,000 Lo ng - ter m Li ab ilit ies N o te s P a y a bl e 20,000 20,000 Pro per ty, Pla nt & Eq uip me nt B o n d s P a y a bl e 400, ,000 LandLand 5,500 5,500 TotalLong-term LiabilitiesTotalLong-term Liabilities 420, ,000 L a n d I m p r o v e m e n ts L a n d I m p r o v e m e n ts 6,500 6,500 B ui ld in g s 180, ,000 E q ui p m e n t 201, ,000 To tal Li ab ilit ies 481, ,000 L e s s: A c c u m D e p r e ci at io n A c u m D e p r e ci at io n (56,000) (56,000) Prop,Plant& Equip -netProp,Plant& Equip -net 337, ,000 - Inta ngi ble Ass ets ST O C K H OL D E R S' E Q UI TY Go od wil l CommonStockCommonStock 110, ,000 Tr ad e Na m es R et ai n e d E a r ni n g s 229, ,000 T ot al In ta n gi bl e A s s et s L e s s: T r e a s u r y S t o c kT r e a s u r y S t o c k (50,000) (50,000) TotalStockholders'EquityTotalStockholders'Equity 289, ,000 Oth er Ass ets - To tal As se ts $770,000 $770,000 To tal Li ab. & St oc kh ol de rs' Eq uit y $770,000 $770,000

Session 3 Watch for the invite next week. If you are interested in a make up call for Session 1 please let us know. 29