Tips for Building a Budget and Financial Plan

Develop a Budget including a Resource Development Plan 

Financial oversight and resource development (e.g. fundraising, earned income and membership) are critical board and staff responsibilities. The resources needed to carry out the strategic plan must be described in a budget and financial plan - roles and responsibilities for budget and financial plan performance should be very clear.

Separate Earned Income from Development/Fundraising income (and the corresponding responsibilities)

This can be a very powerful step in understanding the dynamics of a mission-based budget and business. Earned income consists of program fees, and other fees paid for services and programming. This is money that comes in the “old fashioned way” and is the primary responsibility of the staff, reflects the value of the programs and services, and is generated through good marketing and other regular business practices. Development/fundraising income comes from three and only three other sources: 1. individual or family donors, 2. business sponsors or donors and 3. public/private grantors. Developing and maintaining these relationships and these funds is typically a major responsibility of the board. (Note: business sponsorships can function more like earned income if the business is primarily motivated by marketing potential and is booking this as a regular business expense, whereas business donations can function more like development/fundraising income where the business is more interested in just supporting the mission and motivated also by a tax deduction for a charitable contribution. It is important to distinguish between the two.)

Establish an Accounting System - and Financial Policies

Responsible stewardship of the organization’s finances requires the establishment of an accounting system that meets both current and anticipated needs. A certified public accountant experienced in nonprofit accounting can be a useful resource. Also all organizations should have adequate and clear financial policies governing all transactions. These policies should be known and understood by board and staff alike.

Track In-Kind Resources and Volunteer Hours

Track and account for all in-kind resources that may include: volunteer time (including board), reduction of fees (such as for hill space), pro bono professional services, pro bono construction or labor, etc. These are real resources that help your organization meet its goals - there should be a tangible value associated with these resources.

Know Your Numbers

Good budgeting and sound financial planning will move you from passive to strategic management of the organization and will assist all involved in communicating the current state and future goals of the organization. 

A working knowledge of your revenue, expenses and profit is important in managing club finances. It is essential for the club leader to have fluency with these numbers in order to make informed decisions. Many of the tips and strategies below will also facilitate a more desirable financial presentation to potential donors or grantors. Keep in mind the following tips to understand and organize your finances.

  • Match your budgets to your chart of accounts
  • Match income lines to directly associated expense lines whenever possible
  • Analyze all expenses as funding opportunities – what are the best opportunities for soliciting funding?
  • Organize your revenue (separate earned from development/fundraising)
  • Organize and control your expenses
  • Control your payroll (and keep compensation, benefits, etc. consistent) 
  • Know your profit contribution
  • Analyze profitability and returns on investments
  • Analyze other financial ratios such as:
    • Cash Ratio
    • Cash Reserve Ratio
    • Current Ratio
    • Asset Ratio
    • Contribution Ratio
    • Debt Ratio
    • Return Ratio
    • Net Surplus
    • Net Operation Ratio
    • Program Expense Ratio (book as much as possible to programs and mission-based services – including portions of administrative compensation)
    • General Operating Expense Ratio (book as little as possible to general operating expenses – including portions of administrative compensation)

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