An annual budget approved by the board is necessary for staff implementation of programs and services and should reflect the goals and objectives of the organization.
The objective of budgeting is to arrive at a knowledge of realistic resources and liabilities, current and expected, and to monitor financial activities during the current year. It is the responsibility of individual board members and the board as a whole to insure that an organization is operating according to sound fiscal principles. Annual budgets and monitoring systems are important components of good fiscal management.
To make worthwhile financial determinations, timely and accurate information is required. Accountants, bookkeepers and other financial professionals should be appropriately used. Regular financial reports should be closely reviewed and monitored by a finance committee. Regular accurate presentations to the board are essential.
The format for the budget should minimally include the following:
While some funding agencies require the nonprofit to provide them with multi-year plans, all arts organizations would find this exercise beneficial, as they move forward and consider options for future activity.
A desirable goal of an arts organization is to establish reserve funds or endowments.
While adequately attending to their own organizational needs and to the needs of their constituencies, some organizations have been able to use donor support to provide themselves with reserve funds or endowments--assuring a more stable financial base for the organization and supporting the organization's future growth.
Expected resources and liabilities can be derived by anticipating the amounts of cash received through contributions, borrowing, or by other means, and expenditures for assets and operating expense. Cash flow budgets (as compared to activities budgets and capital asset budgets) compare cash inflows to cash outflows from all sources. Most organizations consider the need for this type of budget in order to assure that sufficient cash is available at all times to cover expenditures.
Arts organizations should have an annual audit. If an organization's budget is between $25,000 and $75,000, a certified public accountant will perform a review. If an organization's budget is larger than $75,000, it is a certified audit. State law requires that organizations having budgets of $75,000 or more must have a certified public accountant prepare a certified public audit. Even if an organization is not required to have an audit, an accountant should be consulted to determine what requirement or practices are necessary to protect the organization and the public.
EARNED INCOME
Arts organizations benefit by taking a careful look at their earned income potential.
Greatly accelerated competition for donations and funding has forced not-for-profits to look for new ways to generate revenue. Arts organizations are no exception. In developing a strategy for earned income generation, the effective arts organization will consider establishing a revenue base consisting of multiple avenues all leading to the same destination: earned income. The successful arts organization continually must seek unique and innovative ways of earning money. Arts organizations, however, face major challenges in many communities if they want to avoid competing for scarce dollars with their members or others in the community whose support they need and value.
During the planning and budget process, an arts organization should take a careful look at its earning potential. While many programs and services do not lend themselves to the generation of income, it is wise to consider ways to package programs and services that will provide some revenue support, while at the same time serving the organization's mission and constituency. The object is to maximize the potential for earned income inherent in the program and service base of an organization.
UNEARNED INCOME
To achieve a level of unearned income sufficient for their needs, arts organizations must carefully examine their programs and services, in order to communicate to others their need for support.
Program Planning
The planning process is critical to all areas of management, and especially to the area of unearned income. If program planning is sound, it will greatly facilitate fund-raising. Programs and services should first meet the needs of the arts organization, before they are considered from the standpoint of a particular funder's needs and requirements. The best and safest way to fund-raise is to find the right source to support a program that fits well and comfortably within the organization's mission and goals.
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