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BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

October 16, 2024

LAST UPDATED: 8/22/2022

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Today’s Session

INTRODUCTION TO PLANNING & TRUE COST

Welcome & Review
Introduction to Financial Planning
Budgeting Expenses
Budgeting Revenue
Business Model & Mission Matrix
Wrap-Up

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

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Meeting Norms: Participate Authentically

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

Respect each other - judge ideas, not people

Be patient with tech

Be present & engaged

Expect active participation

Avoid multi-tasking

Expect confidentiality

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Introductions

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

Name, Organization & Role

Are You a Planner?

In your personal life, are you the one making dinner plans weeks in advance, or do you feel more comfortable when you can make decisions in the moment?

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Financially Resilient Organizations...

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

Stay focused on the long-term	Continually assess and respond to current needs	Understand and are able to tell their financial story

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BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

Financial Resilience

Resources

Practices

Values

Equity & Inclusion�Mission-Focused�Continuously Improving�Data-Driven

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BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

Financial Resilience

Practices

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Financial Planning

Inclusive and team-based
Continuous and iterative
Allows for recalibration and course correction
Focused on the future but responsive to the present

Building organizational resilience
Supporting diversity, equity & inclusion

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

Process:

A process to define how an organization’s strategy will be funded.

Guiding principles include:

Finance + Equity

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FINANCIAL PLANNING�A Budget Is…

An OUTCOME of the financial planning process

An ACTION PLAN stated in Dollar Terms

An EXPRESSION of an Organization’s Values

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

Finance + Equity

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Types of Budgets

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

Operating Budget

Cash Budget

Capital Budget

Program Budget

Grant Budget

Strategic Budget

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Budget Development: A Five Step Process�

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

1. Assemble a Budgeting Team

2. Create a Budget Calendar

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Budget Development: A Five Step Process�

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

1. Assemble a Budgeting Team

2. Create a Budget Calendar

3. Prepare for Budget Process

Set Financial Goals

Forecast Current Year Results

Gather Data and Build Budget Template

Conduct Team Kickoff Meeting

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Budget Development: A Five Step Process�

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

1. Assemble a Budgeting Team

2. Create a Budget Calendar

3. Prepare for Budget Process

4. Build the Budget

Budget Expenses

Forecast Cash Flow

Budget Revenue

Secure Board Approval

Plan Alternate Scenarios

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Budget Development: A Five Step Process�

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

1. Assemble a Budgeting Team

2. Create a Budget Calendar

3. Prepare for Budget Process

4. Build the Budget

5. Monitor the Budget

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Breakout Activity

With your group review the case study in your participant manual and respond to the prompts provided
We will ask for participants to give a recap

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

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BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

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Break

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

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BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

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Budgeting Concepts: Expense Categories

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

NATURAL EXPENSES

Expenses classified by the nature of the expense such as salaries, rent, utilities, supplies, etc.

Expenses classified by the type of activity for which the expense was incurred: programmatic, management and general, or fundraising.

FUNCTIONAL EXPENSES

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Sample Operating Budget

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

NATURAL

EXPENSES

FUNCTIONAL EXPENSES

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Budgeting Concepts: Expense Categories

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

SPECIFIC EXPENSES

Expenses that can be specifically assigned to one or more program(s) or function(s), based on time or money spent directly on each program or function.

Salaries for program personnel
Salaries for fiscal staff
Fundraising expenses

Expenses that are shared among some or all programs and functions. These expenses must be allocated among functional areas on the basis of an appropriate methodology.

Rent and utilities in a common space
Office supplies
Depreciation

SHARED EXPENSES

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Sample Operating Budget

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

SPECIFIC EXPENSES

SHARED EXPENSES

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Expense Categories

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

Specific Management & General and Fundraising Expenses

Specific Program Expenses

Shared Expenses

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Budget Expenses

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

Type 1: SPECIFIC PROGRAM

EXPENSES

Type 2: SHARED EXPENSES

Type 3: SPECIFIC M&G/FUNDRAISING EXPENSES

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Cost Allocation Methods��

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

By Staff (FTE)

By Space Usage

By Participants

Management & General

Fundraising

Program A

Program B

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Translating Expense Categories

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

Specific Management & General and Fundraising Expenses

How funders see our costs:

How we see our costs:

Direct Expenses

Indirect Expenses

Specific Program Expenses

Shared Expenses

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Budget Expenses

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

Type 1: SPECIFIC PROGRAM

EXPENSES

Type 2: SHARED EXPENSES

OVERHEAD EXPENSES

Costs funded by

program grant(s)

Costs funded by indirect rate from program grant(s) or unrestricted revenue

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Overhead vs Indirect Cost

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

Management & General + Fundraising

Total Program Expense

INDIRECT COST RATE

Management & General + Fundraising

Total Organizational Expense

OVERHEAD RATE

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LUNCH

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

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Revenue Sources

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

Individual Contributions

Foundations

Corporations

Government

Earned Revenue

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Revenue Discussion

Review your assigned revenue source and discuss the pros and cons of this type of revenue
Reflect on both the opportunities and challenges organizations may face in accessing this source

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

With your group:

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Revenue Planning

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

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Funding True Cost

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

Surplus/Deficit

By Program

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Evaluating Funding Opportunities

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

Tool: Funding Opportunity Assessment

www.strongnonprofits.org

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Video: “Everyone Deserves a Fair Slice”�

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

�Video by Human Services Council of NY

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Group Discussion

What were your overall impressions?
What did you notice about the different customers visiting the pizza shop?
How does that mirror your experience with funders?

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

Reflect on pizza shop video:

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True Cost: The National Conversation

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

Pay-What-It-Takes Philanthropy

Real Talk About Real Costs

Finance + Equity

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Breakout Activity: Advocating for Overhead

With your group discuss your assigned scenario – how would you react if you were in this situation?
Consider practicing how you would respond

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

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Advocating for Overhead Activity

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

Your friend posts this on Facebook:

“Check out this list of great organizations to support. They don’t spend any of your donations on overhead. The money all goes directly to people in need.”

You are meeting with a donor who says: “I see that your organization only receives 3 stars on Charity Navigator because your overhead expenses are too high. I want my money to go directly to people in need.”

The program director of your largest program asks: “Why are we expanding our admin department and hiring more finance staff? That just means less money for the kids we serve.”

You are meeting with a funder who will only fund 10% overhead expenses. The program officer says: “We are concerned about the financial sustainability and resilience of your organization.”

SCENARIO 1

SCENARIO 2

SCENARIO 3

SCENARIO 4

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PLANNING�Business Model��

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

BUSINESS

MODEL

Personnel

Goods & Services

Occupancy

Contributions

Government

Earned Revenue

REVENUE

EXPENSE

The rationale of how an organization creates, delivers, and funds its impact.

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Business Model Drivers: Revenue

What organizational characteristics are associated with different revenue types?

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

Delivery of programs and raising of funds are independent and distinct activities Requires robust fundraising function	Delivery of programs and generation of funds are closely tied May require (contributed) subsidies	Revenue tied to delivery of services, but with a third-party payer

Contributed Revenue

Earned Revenue

Government Grants

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Business Model Drivers: Expenses

What are the key “drivers” of costs in your organization’s model?

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

Total personnel costs are typically around 70% of a nonprofit’s expense structure	Occupancy costs tend to be relatively fixed over the medium or even long terms	Professional fees, supplies, materials, travel, food, etc. Generally smaller dollar amounts but greater flexibility

Personnel

Occupancy

Purchased Goods & Services

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Business Model Statement

THEATER: We are a theater company focused on bring new works and new adaptations of traditional works. While ticket sales cover some of our costs, we also rely on individual donors and grants from funders to fill the gap.
ARTS ADVOCACY ORGANIZATION: We provide research, advocacy and training to ensure arts remain vibrant in our community, supported by a few committed individual and foundation donors who helped create and share our vision.
ARTS EDUCATION ORGANIZATION: We serve our community through in-school programs funded by a city contract, and open-enrollment classes supported by an annual fundraising event and business sponsorships.

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

Examples adapted from Jeanne Bell, Jan Masaoka and Steve Zimmerman, Nonprofit Sustainability (Josey Bass, 2010)

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Sustainable Business Model

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

MISSION

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Mission Matrix

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

Adapted from “Double Bottom Line Matrix,” Bell and Schaffer, Financial Leadership for Nonprofit Executives, 2005

MISSION IMPACT

FINANCIAL CONTRIBUTION

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Mission Matrix: Map Analysis

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

Impact = 5 (High)

Impact = 1 (Low)

Surplus

Deficit

FINANCIAL CONTRIBUTION

MISSION IMPACT

Adapted from “Double Bottom Line Matrix,” Bell and Schaffer, Financial Leadership for Nonprofit Executives, 2005

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Resources & Wrap Up

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Financial Management Resources

This library of free tools and resources was created in collaboration with the Wallace Foundation to help organizations become “fiscally fit”.

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

StrongNonprofits.org

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Budget Template

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

strongnonprofits.org

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Evaluating Funding Opportunities

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

Tool: Funding Opportunity Assessment

www.strongnonprofits.org

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Cash Flow Projections

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

Cash Flow Projection Template + Online Tutorial

www.strongnonprofits.org

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Resources: Articles to Read

The Matrix Map: A Powerful Tool for Mission-Focused Nonprofits: nonprofitquarterly.org/the-matrix-map-a-powerful-tool-for-mission-focused-nonprofits/
Develop Strong Fiscal Muscles for High Performance: leapambassadors.org/resources/ambassador-insights/strong-fiscal-muscles/
Cash Flow in the Nonprofit Business Model: A Question of Whats and Whens: nonprofitquarterly.org/cash-flow-nonprofit-business-model-question-whats-whens/

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Resources: True Cost

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

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Resources: True Cost

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

A Step Toward Supporting the True Cost of Nonprofits’ Work

hewlett.org/a-step-toward-supporting-the-true-cost-of-nonprofits-work

Changing How We Support Indirect Costs

macfound.org/press/perspectives/changing-how-we-support-indirect-costs/

Revised Indirect Cost Rate Policy

rwjf.org/content/granteeresources/legal-and-policy/Indirect_Cost_Rate.html

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Evaluation:

BUDGETING & TRUE COST FOR ARTS ORGANIZATIONS

Join the SCAA:

THANK YOU!

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BDO is the brand name for the BDO network and for each of the BDO Member Firms. �BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

www.bdo.com

Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your needs.