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i chose this topic budgeting for non-profit organizations because i'm very passionate that successful organization whether it be a non-profit or a for-profit entity has a good budgeting process in place and the budget is not only the financial information it should incorporate operational and it should also serve as something a lot of people don't think about is a financial control mechanism for the organization i bring this up i see many of our clients on this call and i know you have budgets but i have run into organizations in my career that don't did not have budgets and that's in the for-profit and not-for-profit sector and whenever i run an organization that doesn't have a budget particularly if i'm sitting on the board of one i have a very uneasy feeling the budget at least gives me an idea where we're headed for the year it allows you to be proactive that if you do the budget and things aren't looking good at the end of the year and you're not where you want to be financially it gives you that time to either raise more revenue make expense cuts talk to banks about getting short-term financing to get over those bumps but if you don't have one it's all reactionary you're looking at your checkbook uh you're trying to figure out if we can make the payroll next week and and that's not the place you want to be in you want to be looking at that ahead of time and getting that in place at the beginning of the year and the budgeting is is the way to do that so like i said i'm i'm very passionate about organizations having budgets i just background i'm a member of the firm i joined in 1990 i've worked long enough now that i have people uh working for me who weren't born when i started working which means i'm getting old i co-lead the sdks non-profit practice work with a lot of health care entities and on the weekends i like to typically shoot sporting clays but i do sheets i do shoot skeet and trap too i find that's entertaining to me than trying to chase a white ball around a golf course and i usually hit things usually homes on the golf course but uh this way at least i'm shooting i'm hitting things i'm supposed to hit so but i think before we get started it's interesting to start out all the excuses i've heard over the year uh the first one came from a very successful for-profit entrepreneur that his budget was ahead he did not need to have it written down now i i would say probably if he had a budget in his head he had started a process but if you don't have it written down and communicated you're not going to be as successful as you could be because in that organization he had several vps other you know controllers and and if they didn't know where he was going i'm not sure he was successful as he could have been in the end if they would have known what his plans were uh that the next one is was my dad's favorite in running his farm why do we need a budget we have no idea how the next year or month will be so we could not possibly pure budget so my dad used that all his life and i asked him what's your budget for your farm however he did say in the 1950s he had a budget but apparently in 1966 there was a drought and they didn't hit their budgets they said we can't rely on these anymore so he stopped uh the other one i've heard different businesses say we we have no debt or need for loans any people care about a budget is the bank and that is a true statement probably but if you're going to run into financial difficulties during the year it's probably good to have that understanding with the bank before you get in that trouble versus when you get into it because if you're going to need money uh banks tend to loan the people who don't need money but if you need money they tend to be much more particular who they loan to so you should try and get that information in place ahead of time the other one it takes too much time and resources neither of which we have my argument would be if you don't take the time now or spend a little resources it's going to be a new point because you're not going to be around to have time or resources and the other one is budgeting is only for big organizations the the issue here is defining big which tends to be relative if i'm a hundred million dollar company does that mean i'm big i might not think so but somebody who's only a millionaire might think i should have a budget because i am big so it it's too vega term big is relative to who you are there so these are the excuses uh let's move on from excuses and get into having a budget here for the organization to watch we worry about it it's a short-term financial plan to achieve your program results and as i said it's one of the fundamental operational financial planning and control tools an organization can have and i i believe all the well-run organizations i deal with that have been successful have a good budgeting process in place and it allows them to be proactive and come come away with changes that are coming up for the year i also think i believe in this too failing to budget or prepare for next year is just preparing to fail you're not taking time to properly plan out where you're going to be and what you need to do it's a short-term road map definitely just it is a short-term road map it's one year with pace technology change i think i think short term is getting shorter and shorter but you know typically the budget will be one year and it should really align with your strategic plan you don't want to get a budget or programs in place it's not in line with your strategic plan so i always look at it too as a good time pull out your strategic plan reboot see where you're at on that put the budget together in line with that and and reboot the organization so that you're back online with that and trying to achieve your goals also it allows you to determine if financial resources allow a program initiative to be accomplished so with the program people involved allows you to see if you continue to do that program or if there's some changes you may need to make in your programs or what you're offering there now putting together the budget here there's a multi-step process here and the first process should be here to get my little thing off the screen uh what is it would be assemble a team now obviously upper management cfo and ceo they would be involved because in the end they're responsible for driving the process making sure that the budget gets accomplished and and presented to the board for uh presentation now small organizations it may all it may be okay to have them providing direct input into how many program staff you're going to need a program supplies you're going to need because it may be they're providing the some of the program activities themselves but as you become a larger organization i'm thinking in this case a healthcare entity or hospital has several levels of management between them and the front-line workers the ability to put in what's needed to do the job is is not there so what does that mean one it means you should bring in program staff to the organization to have them involved i mean they're the front line people there and it may be program directors dealing with the staff in this case but they know what the human resource needs they know what the supply needs are for the organization and they can put in input whether or not they need to expand the program if the program is not doing as well if they need to cut staff they would be some key people in that i think obviously people think the accounting staff would be involved and that's true they bring the historical information that can go into the financial reporting process and they're also going to be the ones at the end who's probably going to have to put it into your your budgeting system to produce your budget to actual reports so they're a key player in that as well also i would recommend having your human resources staff involved if you're going to be expanding your programs they're the ones that can give you insight in they'll have to know to hire people they're also the ones that give you insight into compensation trends should we be raising salaries for the staff we currently have how much what's our benefit package compared to our competitors and i actually think more now than ever in the uh hiring process and trying to hire people our organization probably like many viewers is struggling to find a good talent out there or even available talent that just doesn't seem to be hiring out there to hire uh those people are are very important now to help make decisions on setting compensation and benefits and if you're a larger non-profit and fortunate to have a development staff because i do realize many of our smaller mid-size non-profits don't have a development personal staff the ceo typically performs two roles in getting development as well but the development staff can let you know if there can be contributions obtained for the program that you're offering or new programs that you want to offer they can also let you know if there are some donors like an organization where significant donors have passed away and they don't think those contributions are coming in so that there can help determine on your revenue budget or if certain programs aren't going to be funded due to those loss of contributors or loss of granters that might be involved the first step is really to assemble unique you need to be on the team and what needs to and what their roles are going to be make sure they're assigned and said cfo ceo can drive it and they can assign the roles but it takes a lot of other people inputting into this to get a good budget uh next one uh is establish a timeline and when you're setting a timeline it when you look at to say gee it looks like we're going backwards and that's true i always recommend if you're going to budget you actually want to be looking at when you want to do the board approval of the budget and the rule of thumb what i would say is should be happening and it should be approved before the new fiscal year begins so you start with that board date you want to approve it at work backwards maybe some organizations they're right to the board some have a finance committee some might have a separate budget committee which goes to the finance committee which goes to the board so you got to take all those steps into consideration the other item too that tends to chew up time is is once you get it put together the discussion of the assumptions i've seen budgets that were went right through with the assumptions they seemed good i seen others that had to go back and and be revised some of them at the last minute because things have changed or somebody brought up a good point in the discussion here so make sure you leave plenty of time in the budgeting process here to allow for those discussions to take place to get it approved before the fiscal year starts uh one thing there is six months before the year end may not uh may not be too early to start just giving example the one board i'm on it's a membership organization and we typically put out new membership rates uh four months prior to the start of the next fiscal year so we're actually starting almost seven or eight months before the next year to try and come up with a rate for what the memberships are going to be and look at pricing of other venues that we have so it really can be driven not necessarily be driven by your programs which is where you're getting your revenue from too that might drive this earlier my case it drives it significantly earlier than a lot of the organizations i deal with and deal with them provide services too okay one of the other things is now that you've got your team together you've got your uh you've got your timeline set up determine your organization's goals you know it's very important to make sure that as i mentioned earlier these goals correspond with what maybe your strategic plan would be or what the mission of the organization should be i've seen times where the goals the programs go a whole different tangent and you look at the strategic plan you look at what's going on it's like well it's not even close here so i would recommend that you do that uh also look at your financial goals maybe the goals organization is perhaps maybe to fund appreciation or set aside excess monies for capital goods it's a time that should be taken into consideration there and you know keep in mind your budget your budget i believe should be what the organization needs to what the organization needs to run its business for the next year and should be in a format that individuals can understand it so it may be you don't have highly sophisticated financial people on your board it may be best just to do a basic cash basis budget for them to see where things are put lines in for monthly deposits to capital reserve accounts as an expense which there is on the more sophisticated know that really isn't an expense item but it helps them understand people who aren't financially as a as to a stu to see that there is money being put aside and help them understand that concept as well because really the the budgets would not be audited by your outside auditors people like me it's really to run your organization and it should be in a format to help the goals be accomplished and the organization be managed efficiently and as i mentioned just make sure the strategic plans and strategic goals here for the organization align with each other okay next one here is develop a graph budget here and determine income based on expecting projected activities and fundraising when you're developing your budget the toughest item which you're going to have to estimate in my opinion is the revenue uh if you have it could be if you were in a a fee for service setting such as a hospital or you know for or a nursing facility or some other entity providing services you paid fee for services you're really probably going to start with last year look at how many uh services you provide you know your rate reimbursement for that service and trying hate to say yes or come up with a good idea what's going to happen in the next year and and if you're a situation like particularly in the healthcare industry whereas the reimbursement is regulated you could have a really good plan coming into the year six months through the year have a regulation change and end up with less money i mean that's just how it goes but in the control aspect of the budget you know why that occurred they changed the regulations so so so many things can impact a budget particularly the revenue through the years that that you you may not be able to anticipate so that's going to be your toughest thing to really uh really budget for if you have it where you know you've got study revenue experience maybe you've already got the grants lined up for next year and you don't do anything beyond those grants you can be your feel pretty comfortable you'll get the grant money meaning that people are paying them to you are solving and they will come through with their payments keep that in mind if you're receiving grants particularly from a foundation and they promised you money if something happens with their resources are tapped for something else you mean that money or you may not get it at all if something happens catastrophically we go out of business there is some risk in getting grants uh there as well but if you know for sure that you're going to get it that you could probably get pretty close done in revenue but most available where your human resources are salaried employees their costs are going to be pretty predictable from uh one year to the next if you know if you're given just a straight code increase to everybody uh typically you could come up with if if you're fortunate to know what your health insurance increases are going to be or what you're providing uh you can get those pretty close and from what i've seen in my career is if the the sec people tend to get very close on on the expenses but the revenues can be off uh but that's probably going to be easiest particularly if you have a lot of fixed expenses in the organization here and when you're developing the budget just make sure that you're writing down what all your assumptions are going to be and putting those in writing because if you take that budget that you have and you bring it to a group of people to discuss if you don't have your assumptions written down you may think you'll remember them but trust me you will not uh it's going to be a very long meeting i also haven't written down and allows people to challenge those assumptions it may be that the assumptions are wrong and that's fine i i've seen situations where draft budgets have going to meetings that i've been involved with and the assumption the challenges make sense and the budget ends up having to be redone and that's perfectly fine it's it's the idea to try and get it as close as possible to what you think the end result is going to be and if some assumptions are off that's fine that's perfectly fine they need to be adjusted here for the organization here next one is reviewing the draft budget here for the organization and here this is typically where the time comes in as far as meetings involved with working with your board members your committees that you're going going in front of uh the ones i've been involved typically have a finance committee finance committee would discuss the budget uh with the management if we feel good with the budget that would go typically in front of the board and then the board uh they would uh either approve it or not approve it some will approve it because it's already been vetted by a a budget uh there is times we've made tweaks and stuff on the golds and the budgets that we've put out there but most cases it will go through but the important thing is making sure that draft budget is reviewed before it actually goes final for the ordinance final for the uh final to the final for the next year also approving the budget process here is presented to the boards have the board approve it at this time and then the final step implement the budget entering into accounting system there again it comes back to the accounting staff making sure they're involved in the process they know what the budget is and they're able to get it in and also here is one of the most important things of the budget which i think is overlooked one is it gives you a plan and it allows your program people to see if they can perform the programs and if you can provide them but it really is a tool it's it's actually also in a very high level internal control for the organizations if the if i'm sitting on a board and management's telling me that oh we've seen 20 increase in people we're serving this year and but i and 20 increase over the budget of people were serving this year and i'm looking at the budget and revenues down 10 i should be asking the question but what you're telling me doesn't make sense with what i'm seeing compared to budget how can the budget be under budget on revenue if we're over budget on the amount of people we're serving now the health care setting well our reimbursement got cut because of x y and z issues that would be a reasonable explanation but if management can't provide a reasonable explanation that obviously incumbent upon the border finance committee to push that issue to find out what's going on maybe the statement for wrong maybe there's something else going on there but it is a control feature for the organization's board of directors so don't lose sight of that very high level a lot bigger the organizations the harder is going to see um pick up variances because the numbers get so large and a one percent change might be one percent off budget could be a hundred or two hundred thousand dollars small organizations i think the effectiveness is much greater because it's not going to take a lot to show a large variance and at that point somebody should be asking the questions about what's going on here with the organization some other things to consider here when you're developing your budget match your budget lines the organization's chart of accounts so when in the process of doing this uh look at your chart of accounts not only start with that always pull short of accounts uh hopefully i can get a printout showing what the balances were at the end of each month some of the software like quickbooks i mean you can just pull the prior year's actual right into the budget for the next year and use that there as a starting point for your budget i typically would pull that in export it to excel and then at the right side put my assumptions for each line of the chart of accounts but it's important to start with that because when when the accounting staff get it they're gonna they're gonna have to put it into the system they're probably gonna have to put it in by the chart of accounts they're not gonna have the latitude to put in uh something else also one thing to consider what basis up will the budget be developed if you're a gaap basis organization i'm going to say most likely you'll put it in you'll have a gaap basis budget if your cash basis or tax basis organization you'll have it in the tax but the one caveat i want to throw out here is the budget should be in a format that your board could understand it i've seen organizations get into trouble because the board could not understand gap statements the budget was compared to that they were making all kinds of revenue of the health care entity but they weren't receiving any collections in what they were billing so in the healthcare world there's not any billing but it's collecting the organization literally ran out of cash well how can we do it we're making money we're over budget well the problem was the cash wasn't being collected people they were sending out bills the bills were getting rejected they were taking a long time to get the bills resubmitted and it actually ran out of money in the organization uh in that case i you could make an argument it should have been cash-based budget to see if they had the money there in cash flow to cover their operating needs in fact the cfo that came in actually took all the record and put them on cash basis until they got back on a more stable footing because they were literally operating week to week based on cash flow and that's not a situation anybody wants to be in so i would reiterate saying typically you will have it on the basis of accounting for the organization but if your board's having trouble with understanding it having it on a cash or income tax basis something they can understand is much better than having it on something that no one can understand also if you're doing coming up with benefits and stuff for your staff some just simple with them you can use a pool benefit rate you know look at what the rate benefit rate per employee is or cost per employee just multiply that times the number of employees to come up and put that in your budget to try and save time i think the next one we've already talked about be realistic or conservative on your projected revenues most like more likely than that you'll fall it's easier to fall forward on the revenue i found that how the revenue go over budget we all want revenue over budget i've never heard anyone complain about that but when it falls under budget that's when the complaints start but i'd rather go in if i was building a budget with a very conservative budget on and exceed the conservative budget and come up with an aggressive budget and fall short and and then not have the surplus funds we were looking at at the end of the year i i i did not want to be in that situation also if you think there's going to be unexpected cost increase build a line for unexpected demands or cost increases i i'm not an economist but i'm expecting inflation to rise here this might not be a bad idea to put this year to put another line in a budget for unexpected cost increases but that is i don't know but uh this would probably be a year of money we have floating around out there i i know just one organization i'm the treasurer we just got a 15 increase last month in our trash blamed it on tight labor markets cost of fuel supplies for the trucks whatever that is um i mean so that that just happened so there's a 15 15 increase in one month so um also develop a budget for capital expenditures we talked you know this presentation here mainly focused on operations but having a budget for capital expenditures is very important too i think having those laid out over the years when you're going to pay for me if you're going to buy them if you can buy them straight out of cash grade if you're going to finance them you'll need to know that and how much debt service the surplus of the organization from your operating budget dictate if you can service a debt or if you can buy the asset outright or use your savings and then pay it off over a couple years internally but i also believe you should have a capital expenditure budget time period for when certain items are going to be replaced i also want to point out one thing i say all people think we have to balance the budget we have to put something in an expense no you don't need a balanced budget does not have to come down to zero for the organization i've been on organizations where we've actually budgeted for a loss knowing that in the future though we were going to do some rate increases which are going to counteract that so so having a deficit budget too is not a is not a detriment as long as it's not a repeat so you've got to be looking so we have a deficit this year what are we going to do next year to fix it and is what we're going to do to fix it feasible or not if you have a surplus that's great too that becomes what you're going to use to fund your capital expenditures and growth i would say large organizations should have budgets by departments or program function typically hospitals would have budgets for each of their various departments each of their various service lines uh for them if you're just a one program non-profit might not need to be as important because everybody's got there's just one program you're offering but if you have several programs two or more and the larger you get it it would behoove you very much to take your budgets and break it out by the various departments and this comes back to monitoring a budget monitoring the budget should really occur monthly that's such as monthly comparisons of budget to actual year-to-date comparisons of budget to actual results so you should always be comparing your budgets to your actual and i want to point out that not only have a a yearly budget but you should really take that budget and break it down by a month so on a monthly basis you can see whether you're hitting that budget or not as well as year-to-date hitting the budget a lot of people just do your date where a yearly budget and you don't know oh we're we're at 100 of our revenue beginning of the year well that's that could be that that could be true because you don't get any more revenue the rest of the year but somebody looking at it's going to say oh we have 100 in the first month we're going to have 12 12 times is forever new at the end of the year well that that's not true but if you have a monthly budget you can see so we got all our revenue this month next month oh we don't have any budget that's because we get it all in month one so i think it's really important to do monthly budgets and then do the comparisons with the month month-to-month actual year-to-date to actual for that and that is really critical to allow proper control and oversight of the organization here to occur uh let's go back through here there's something right and missed here you know i guess can't find it so i guess it's not here oh uh when when you're doing your budgeting it's possible you may have and this is a good thing to find this out programs that you're losing money on this is why having program budgets important that you're losing money on other organic programs that are covering that and i've had organizations that have made decisions that they will provide that service at a loss because no one else is in the area but they've also been wise enough to successful ones to say but we're making money in service b and we're going to use that money to cover service c which is our money loser but the community needs it and that's fine but if you're in a situation where your program a and b are just breaking even and c is losing money i've seen this situation where c continues to lose money year after year after year and the organization goes out of business because it drains all the resources you know having a losing program that you budget for is is okay provided you have revenue from other sources to cover it and the board agrees to to that in when you're budgeting but you can't have it one program pull down an entire organization at that point you would need to make change and cut that organization in the case i'm referring to the the client the word management i should say should have started with management could not pull the strings to get rid of the albatross and the albatross on the chip so i'll keep that in mind too and that's why i think one reason having program budgets are important to really see what you're doing with that program it could be that one's making all kinds of money one's losing uh but you don't know that until you actually break it out in detail also when you're doing budgeting it gives you the chance at that time going back to what aaron said to really dive into your cost functions direct cost your indirect cost and if you have your budget between fixed costs and variable costs you can really do a break-even analysis how much how much program service revenue do we really need to break even how much do we need by this program to break even you're as you're putting the budget together you're to have a lot of numbers and a lot of information already pooled at that point um that would be the time to run those calculations one board i won't always like to do that run the calculations and say hey we need to get x amount of people coming to this event in order to break even so just keep those things in mind when you have that out there at this point i'll turn it over if i have any questions or anything came in christina