TIPS ON BUDGETING FOR YOUR NONPROFIT

Presented by Alex Acree

MEET ALEX ACREE

WELCOME!

• Alex, an Aplos veteran, has spent the last 6 years creating countless resources, videos, and aiding our nonprofit and church users in managing their accounting. He started as our Head of Customer Support and is now running our Services department, which takes care of managing the books for organizations as well as setting up accounts for new users.

NONPROFITS AND CHURCHES ALIKE CREATE BUDGETS FOR A VARIETY OF REASONS…

• The bank might require a budget prior to lending money (external)

• Your board of directors may require a budget to ensure you are spending money in alignment with your purpose (internal)

• You may want a budget to make sure you will have the resources needed to accomplish your purpose (both)

TODAY WE ARE GOING TO…

• Walk through what a budget is.

• Work through how to begin developing a budget for your organization.

• Show some tips and tricks for creating a meaningful budget.

• Discuss how to update a budget as circumstances change during the year (rolling forecast)

• Cover how to report on variances to a budget.

ACCOUNTABILITY RATHER THAN PROFITABILITY

Nonprofits and churches handle their money using fund accounting, which has a focus on accountability rather than profitability.

•In line with this, the budgeting practices within an organization mainly focus on the stewardship of resources, rather than profit margins, but both are important.

•Think of having a specific purpose for every dollar you receive… the more details you can build into your budget, the more helpful your budget will be.

COMMON TERMS IN BUDGETING• Annual Budget - typically refers to a 12 month period of coving the “fiscal year” of an organization

that is presented to a bank of board of directors. Think “set-it and forget it.” The budget doesn’t change during the year, but you typically do need to answer questions through the year as to why actual results are different than budgeted.

• Rolling forecast - typically a monthly budget that is updated at a recurring periodic interval. At Aplos, we have a rolling forecast that is updated after the close of every month. Part of our closing process is to update the lapsed months with actuals, compare the actuals with the budgeted numbers, and then update the future forecasted numbers with more accurate estimates based on everything that has happened to date. This is the most operationally helpful budget as it stays up-to-date throughout the year.

• Zero-based budgeting - this is a budgeting methodology where you start with no spending and have to justify every dollar spent to include it in a budget. It is often more helpful with specific categories of expenses than using it for the entire budget (external marketing is an area where zero based budgeting makes a lot of sense.)

• Variance Analysis or Budget to Actual - a comparison of the actual results during a period of time compared to the budgeted results with explanations of significant differences. This is a very helpful use for budgets as it can help you understand what are the drivers of a financial condition for your church or nonprofit. This reporting can also help in catching fraud as material differences will be investigated as a part of this process.

SPECIAL NOTEFor the purposes of this webinar we are going to focus on creating a monthly budget with the related impact to cash flow and balance sheet.

Funds will mostly be ignored in this discussion for the sake of time, but if you multiple funds that you need to budget for, think of each fund as a miniature version of this same process (i.e. if your church or non-profit has 3 funds, you will essentially create 3 separate budgets and aggregate the 3 for the master budget).

WHAT IS IMPORTANT TO HAVE WHEN PREPARING A BUDGET?

• Detail = be a hoarder

• Collaboration = involve who’s involved

• Financial Data = get all relevant reports…

WHAT FINANCIAL DATA?1. Balance sheet for the most recently reconciled month

2. Income statement by month for the current fiscal year, through the most recently reconciled month

3. Income statement by month for at least 1 prior FY, if possible

• If not possible, judgements with be more difficult due to the lack of comparability. • You can include more than 1 year, 2 is a good amount if possible • Balance Sheet for the most recent reconciled month.

4. Balance sheet as of the end of each previous FY being compared (if possible)

5. Any updated income/expense categories you want to use in the coming fiscal year

6. Any considerations to factor in to the budget… • Grant Guidelines • Board goals/designations

• Cash flow needs • Obligations

EXCEL IS GOING TO BE YOUR BEST FRIEND…

• Export everything and start combining in excel

• If you’re not comfortable with excel, now is a great time to learn.

• I will do my best to explain things as we go, but it is very likely we’ll cover things over your level of excel usage.

• It’s also very possible you’re a lot better than me in excel… don’t rub it in.

TIME FOR EXCEL…

REPORTING ON THE BUDGET YOU’VE CREATED

1. Enter the new budget in to your accounting software (make sure to account for month variability)

2. Aplos allows for income/expenses to be entered (can also budget into further detail by fund or tag)

3. Good practice to review budget reports on a monthly basis

TYPES OF BUDGET REPORTS

• Year-to-date

• Current month vs. Last Month

• Current month vs. Last Year

• Can also run comparative to last FY period if possible/applicable

WHAT TO LOOK FOR

• Meeting income/expense goals?

• Meeting cash flow projections?

• Over/under on either?

• Variance accurate/reasonable?

• Do budget totals need to be adjusted to reflect anything?

TODAY WE…

RECAP• Walked through what a budget is.

• Worked through how to begin developing a budget for your organization.

• Showed some tips and tricks for creating a meaningful budget.

• Showed how to update a budget as circumstances change during the year. (rolling forecast)

• Showed how to report on variances to budget.

SHAMELESS PLUG• Mentioned Aplos Throughout

• Majority of good budget development happens outside of your financial system

• Aplos can help track fund and tag budgets, which will help your organization keep accountable and healthy in any area needed.

QUESTIONS?