Higher Education

Five Tips to Make The Most of Your Annual Planning Process (aka “The Budget”) 

I recently attended a PATH Intl. “Survive and Thrive” presentation. One of the interesting facts presented at the beginning of the workshop was that more than 50% of member centers have budgets less than $140,000 per year, and have been members, on average, for 15 years. At that level of funding, with many years of experience, it may seem like a formal budget process is an unnecessary waste of precious time. After all, you know what it costs to run your facility, and how many services you provide. Why is it necessary to spend the time and effort to write that down – you already know. 

As one who has managed budgets for more than 40 years, from as small as a few thousand dollars to as large as more than one hundred million, I am convinced the only way an organization can stay on track and meet their mission and goals is to stay focused. A good planning process (of which a budget is a big part) can be invaluable toward that end. Every organization experiences the occasional crisis, and when that happens having a written roadmap that identifies your priorities will give you the ability to make proactive decisions based on priorities rather than just a reactive response to the most current crisis. 

We all strive to make our dollars go as far as they possibly can. Here are a few more ideas that might help you get just a little more “bang for the buck” and make all that time you spend developing a formal plan and budget worth the effort. 

1. Identify priorities and set goals before you start your budget process 

It’s important to know exactly where you want to go before you start trying to identify the associated costs, or estimate potential revenues. If you don’t know where you’re going “any old road will get you there.” Ideally you’ll have a set of short term goals – things you want to accomplish over the next 12 to 18 months, and a set of long term goals – things to accomplish over the next three to five years. It really is important to write these down, and to update the list on a regular basis. More on that later……….. 

Most smaller organizations build a budget one year at a time. Once you’ve identified your short term goals, itemize the resources needed to accomplish each item in the time frame established. Associate an estimated cost with each resource, and group into the categories you’ll need to track for financial and legal reporting. Basically you’ve just built the expense side of a budget that’s needed to do everything you want to do in the coming year. Note that continuing operations needs to be included as a goal. Expanding operations should be considered as a separate goal, with separate identifiable costs. Set this part aside for now. 

Next objectively identify and reasonably estimate your various sources of revenue. Do not let the expenses drive your revenue estimates – be realistic. The reason to identify the goals and necessary expenses first is to avoid letting limited resources arbitrarily set your goals for you. Alternatively, you do not want to let the need for resources cause you to overestimate the revenue side of the budget. It is the nature of nonprofit organizations to rely heavily on donations for operational needs. Many things can impact the level of giving in any given period of time. Plan for what you can reasonably expect to happen, but know what you will do if it doesn’t. If you have established a clear set of operational priorities back at Step 1 – you’ll know exactly what your lowest priorities are if you have to adjust midyear. 

Now compare revenues to expenses. If the gap between the resources available and the resources needed happens to be positive that is an amazing opportunity for investment in your organization. Time to review that priority list for the next items to be accomplished. More often, though, the gap reveals that there will not likely be enough revenue to do everything we’d like to do. This is also time to review the priority list to decide what can be deferred, adjusting costs downward until you’ve balanced the bottom line. This is also a good time to mention that nonprofit does not mean “no profit”. Keeping expenses less than revenues is one way to generate funds needed for such things as capital improvements or emergency funds. 

2. Review your budget vs actual regularly – not obsessively 

Whether you contract your accounting activities to an outside entity or do it all yourself, it’s important to routinely review your budget versus actual statements. This is a lot like dieting advice, you shouldn’t step on the scale every day, but you’ve got to do it often enough to know that you’re still on track. Accurate, timely information allows you to make better decisions, whether that’s cutting back in some areas, or additional investment in others. Budget variances are normal, none of us can predict the coming year perfectly, so there will always be variances. Understanding those variances, and knowing when to make corrections to our behavior is the important part. 

3. Before you jump on that “amazing good deal”, review your priorities. 

Everybody loves a good deal, it’s super hard to pass up a real bargain. Especially if you’re on a tight budget and you’ve stumbled across something you normally could never afford. Don’t let your emotions overpower your planning senses. Is this amazing bargain part of your priority list? Does it contribute to the immediate goals you’ve set? If it’s a significant contributor to a longer term goal, what will you have to give up or defer in order to make this a priority now? It’s important to take a step back, and make your decision based on the goals you’ve already set. All that time and effort you’ve invested at Step 1 above will help to keep you on target now. If it’s just not the right time for you to invest in this particular bargain, do a friend a favor and let them know about it. 

4. Get a second opinion (or third, or fourth…………) 

This is where a diverse board, or even just a diverse group of friends and associates, can be an invaluable asset. If you are struggling to figure out what the next best step will be for your program, conflicted over whether to invest in more programming or simply expanding current services, or just uncomfortable whether your estimates are reasonable and goals are achievable – use your lifeline!! Call a friend! Getting more opinions can shed light in areas you haven’t thought of, and expand the creative thinking process. You may not be crazy about all the ideas that come rolling in, however it not only gives you new ideas it also creates opportunities for engagement and support. 

5. Don’t forget to celebrate success 

Last but not least, don’t forget to celebrate the goals you’ve accomplished. It’s easy for those in a leadership role to feel as if all the weight of the world is on their shoulders and theirs alone. There will always be another problem to solve, another goal to achieve. Remember that none of us do this by ourselves. Celebrate successes, even the small ones! We do this in our classes all the time – don’t neglect doing this for your staff and yourself.

 

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