New Year; New Budget
New Year; New Budget
Maintaining Control Over the Organization’s Finances
It’s January. Your new calendar is in place. There is a renewed sense of energy among the team. A fresh start for your business awaits. Your organization has its yearly goals (or you are in the process of developing them), and it appears to be full speed ahead. Yet, as always, with wide open space in front of us, there’s only one way to effectively move forward – stop and develop a well-thought-out plan. And, in this case, a major part of that plan is the annual budget.
An annual budget provides benefits that reach far beyond year end. Budgets clarify your goals, provide an accurate picture of what you can afford (and what you can’t), increase creativity (by helping you think outside of the box when it comes to funding sources), help you to avoid surprises, and fulfill some stringent requirements (budgets are needed for funding and become the basis for quarterly financial statements).
Accurate, up-to-date annual budgets not only help organizations maintain control over their finances throughout the year, but also demonstrate to funders exactly how their money is being utilized. They provide an opportunity to view any gaps in funding and what is needed to close those gaps. They also decrease the likelihood of overspending by keeping you and other stakeholders accountable.
While one organization’s budget may be different than another’s, there are common factors included in them all – what we like to call the “budget basics.” Below are some of those basics, along with tips on how to make the best projections:
- Projected Income.
- Tip 1: Income should be broken down by source. For example, sales of goods or services, subscriptions, grants, contracts, yearly dues or fees (for memberships), rental income (if you have rental property), investment income, and funding from investors.
- Tip 2: Start with last year’s figures as a baseline and estimate conservatively. You never want to be overly optimistic when it comes to income. That means staying on the lower end when you make your projections.
- Tip 3: Look at who has regularly funded the organization in the past. Have they already promised anything for this year? Is it time to ask?
- Tip 4: Analyze whether your funder has restricted the use of funds for a specific activity or item. Build this into the budget to ensure that you adhere to your funder’s restrictions.
- Projected Expenses.
- Tip 1: Categorize expenses. Look at payroll, rent, consulting service fees, office expenses, transportation, travel, and anything else on which you expect to spend money.
- Tip 2: Once again, you should start with last year’s numbers and make conservative projections from there. But instead of staying on the low end, with expenses, you always want to estimate on the high end.
- Comparison of Projected Income to Expenses.
- If they are approximately equal, your budget is balanced.
- Tip: Use the money as you have planned, and do not deviate.
- If projected expenses are significantly less than projected income, you have a budget surplus.
- Tip: Consider strategies to expand or invest money.
- If projected expenses are significantly more than projected income, you have a budget deficit.
- Tip: Look for funding sources or find areas to cut expenses.
While your budget will always begin with estimates, it’s imperative to make real-time adjustments as the year progresses. These adjustments should be made monthly to keep the budget as accurate as possible. In fact, by the time you are in the fourth quarter, your adjusted estimates should be very close to your actuals. Additionally, and with particular importance this year, is paying attention to what’s outside of the numbers. With the economy and employment in a state of constant flux, you should anticipate changes in leadership, staffing shortages, product delays, and increasing prices, and their impacts on the budget.
Set yourself up for success in 2022 with an accurate, up-to-date annual budget that you can rely on to get from January to December. After all, it’s difficult to reach any destination without a map.
Barker Associates has extensive experience as an outsourced CFO. If you need assistance with your budget, or have any other questions, please click here to schedule a 30-minute consultation at a rate of $100.