What Are the Functions of a Budget Committee?
Budget committees are one of the driving forces behind a business or nonprofit. Without them, the business can easily lose sight of what it can afford, if it can expand, whether or not it needs to pull back and how it is going to stay on a path toward financial success.
Budget committees vary based on the type of organization they’re serving. In a large corporation, the committee usually includes top management like the CFO, or chief financial officer. The CFO typically sits in with the company's board of directors to better understand the company's financial needs and brings back that information to the committee so it can plan for the next fiscal quarter.
In a smaller company or startup, the budget committee might include the CEO or president. A budget committee might not even exist at all and could be the sole job of one person. Regardless, the functions of budget committees tend to stay the same no matter the size of the company.
Some of the functions of a budget committee include taking suggestions from the company, creating a budget manual, identifying and discussing potential issues that affect the budget and creating the budget for each fiscal year.
One of the main functions of a budget committee is to take suggestions from the rest of the company or organization it is servicing. In a small business, it would be answering to the board of directors. In a local government, the budget committee might take cues from the local community or issues discussed at town hall meetings. In a nonprofit, it may answer to fundraiser organizers.
Budget committees are managing other people’s money, so it’s safe to say that one of the most important parts of the job is to actually listen to the people whose money they’re managing and help them achieve their financial goals.
The budget committee works closely with financial analysts to collect data and create and follow the budget manual. A budget manual is an essential part of the functions of budget committees. It’s basically a set of instructions that large organizations use to help them create their budget. It also includes measures they need to follow to keep their budget on track.
For example, say a department has a budget of $500,000 per year that it can spend across salaries, equipment and training. An employee making $50,000 leaves after making $25,000 of her salary for that fiscal year. The department must hire a new person and spend the remaining $25,000 of that salary or risk losing that $50,000 in the budget. Budget funds that are not used are almost always reallocated.
Smaller startups might not have a budget manual and may rely on a sole CFO and outsourced financial advisers to create the budget on their own. The larger an organization, the more complex a budget manual becomes.
One of the most important functions of a budget committee is to identify problems within the budget and discuss potential issues that affect the budget. For example, if one department spent too much money, the budget committee must decide whether or not to reallocate funds from a different department or take the cash out of next year's budget. They’re also responsible for informing departments that they’re running over their budget and suggesting ways they can cut back on spending.
The budget committee creates the budget for each fiscal year. They are tasked with estimating how much money a company can spend and planning out how much each department or office gets. They also have a say in how the money is administered in each department. They can allocate $100,000 toward new equipment or $500,000 toward training. They can even make changes along the way.
For example, say a group of programmers at a startup comes to the budget committee and asks to host an event to attract more female talent to their team. The budget committee can opt to give the programmers the funds, suggest swapping out a company happy hour for the event or deny the event altogether if the funds cannot be obtained.
The budget committee must also make suggestions to managers or the board of directors in the same way a budget committee listens to those same people’s suggestions. After going over the budget manual and creating a budget for the fiscal year, a budget committee has to provide this data along with the reasoning behind the decisions to the board so it can be approved.