Every year, you undertake what always seems like the daunting task of preparing your organization’s budget for the next year. You start by reviewing in detail, the past few months and the prior year’s activity so that you can create your wish list for the upcoming year. For you, this part of the process is cumbersome and is easily one of the most painful periods during the fiscal year. So what if we told you that it doesn’t have to be that way? With proper planning and use of technology, the pain of budgeting will be a thing of the past.
First, budgeting should always begin with a proper plan and timeline. Without a proper plan, you may be left unorganized, which could lead to inaccurate or omitted results. Every year you know you are going to prepare a budget, so take some time to determine when you are going to need your budget finalized, how you are going to get there, and by what process you are going to use. You will want to factor into your timeline the process required for your board to approve your budget as well. Once you have an end date, it will be easier to work backwards to create a timeline.
Your timeline should include checkpoints to make sure you are progressing toward your goal. You do not want to have just a start and finish date. Rather, you will want to have periodic check in points to make sure the process is moving along and to measure if milestones are being achieved. It’s also a good idea to factor in a small buffer. A buffer is needed because you do not want to have the timeline so tight that you have no room for a proper review, or worse yet, have unexpected situations that arises that could hinder your ability to complete the budget. Be sure to include time to allow staff to summarize details into something presentable to senior management and your board. This part of the process can be time consuming. Consequently, you will want to be sure to plan accordingly. This is also where using technology would be helpful. You don’t want to manually summarize everything because it can lead to errors and is time consuming. The entire process can last from 60 to 90 days from the start of the budgeting task to presentation of a draft to your board. The length of time will depend on the amount of programs and activities your organization has and the amount of time needed to estimate the cost, especially if there are new programs and activities.
During the planning phase, you should determine how you are going to populate your budget information. This is when you will determine what you are going to provide to your staff as a baseline to gather the information needed for each budget goal. A template is recommended. Templates are useful because most of the time they can be created by your accounting system report writer and can be exported to a spreadsheet. This is a common method used by many nonprofits for budgeting since the templates exist in the software they already own. However, the downside with this method is that it can be time consuming and inefficient. Oftentimes, you will have to create formulas and links in the templates which can sometimes lead to issues with formula errors.
Another method is to use customized budgeting software. Budgeting software is efficient because it allows you to take advantage of technology tools to manage your budgeting process in a way that creates improved communication and accuracy. A few drawbacks to this would be the potential cost of the software and how well it will integrate with your current accounting system.
Full Circle Budget, could also be another solution, as it is a hybrid version of the two other options. Full Circle Budget is an add-on program that utilizes the templates you already have but makes it efficient to get the data into your system without sacrificing accuracy or communication.
If you are going to purchase a customized budgeting software, or use templates that you already have, be sure you factor into your timeline any necessary training time for you and your staff.
We suggest that you plan to have a budget kickoff meeting with the staff that will be preparing your budget. This is necessary because it gives them a chance to ask initial questions and understand the timeline set for each department. This is also a great time to review new templates and provide your staff with any initial training that may be needed.
So now that the planning phase is over, your timeline is finished, and the official budgeting process has begun, what’s next? The next phase is to actually start entering budget information into the templates you created or into the budgeting software you are using. During this phase, staff will be entering numbers that support the goals of the programs and activities which include entering a narrative to support the assumptions made. Entering assumptions made about the goals and activities to support the budgeted numbers will help during the review and approval process by senior management and your board. It is important that you have a proper template that incorporates a note or explanation area to support all assumptions made.
Someone in your Accounting/Finance Department should handle the initial review of your budget which would include comparing current year activity to your new budget, comparing previous years to current projections, and making sure that what you are budgeting is reasonable for the programs and activities you need for the upcoming year. This process should weed out any obvious mistakes or errors. It may also involve going back to department heads to verify what they are requesting. If proper details were provided on their templates, it should make it easier to support the assumptions behind how and why they came up with their numbers.
Once all of the review processes are over internally, the budget will be presented to your board. The board will approve it or they may have more changes for management to make. Either way, this is the home stretch! The budgeting season is over and you have made it through another year. Thus with proper planning and effective use of technology, the budgeting process will be much less daunting for everyone next year.
Miles Workman serves as a controller in the Firm’s Outsourced Services department and can be reached at mworkman@tatetryon.com.
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