Budgeting – Beck & Company

Mythbusters for Nonprofit Budgets and Policies

Does a nonprofit’s budget have to break even?

Board members and staff who are new to the charitable nonprofit context may wonder, “Does a nonprofit’s budget have to break-even?” “Can there be a profit?”

In this article, Nonprofit Budgets Have to Balance: False! (Blue Avocado) covers all things budget, including: surplus budgets, break-even budgets, deficit budgets, and the misconception that a nonprofit’s budget has to balance at the end of the year.

Find out how easy it can be to set up your budget while increasing the value delivered by your accounting functions. Schedule a free consultation with the accounting experts when you contact Beck & Company CPAS online, or call us directly at (703) 834-0776.

Among the many nonprofit budget best practices discussed in trade magazines and industry circles, budgeting is often relegated to the back pages or as an afterthought. Sound budgeting is the fuel that runs the nonprofit engine, ensuring that every program has enough support to run for the year and that funds are allocated fairly throughout the organization. It’s an important aspect of the annual accounting cycle and an activity that touches on every department within a nonprofit organization.

How your nonprofit derives its annual budget and how frequently it checks and updates it is a good gauge of its financial health. A healthy organization tackles the budgeting process early in the cycle, leaving adequate time for zero-based or increase-based budgeting. It also sets aside regular periods to examine and adjust existing budgets. Let’s look at nonprofit best practices in budgeting and how you can apply these best practices to your organization.

Budgets as Guides

Budgets are guides that help your organization plan for the future and determine its present course of action. They should be thought of as guidelines for spending and saving rather than rigid, fixed numbers to reach.

Budgets are also external-facing documents for many nonprofits. Department leaders and staff refer to them to establish programs and monitor costs, but they may also be shared with the Board of Directors, donors, and members to establish how funds are being spent and to develop a sense of transparency about activities, expenditures, and how donations are used.

Cash vs. Accrual Method

Another aspect of nonprofit best practices is deciding which accounting method a nonprofit will follow: cash or accrual basis. Cash basis records transactions as cash is received or spent. The accrual basis means recording revenues when they are earned and expenses when they are accrued. Either method is fine, if kept consistently. Smaller nonprofits often choose cash-based accounting methods and budgeting, while nonprofits receiving multi-year funding may find accrual methods work best.

Budget Checklist

As you begin your annual budget cycle, the following checklist of nonprofit best practices for budgeting may be helpful.

Set and follow a timeline: To complete your annual budget in a timely manner, it’s important to create a reasonable timeline with deadlines, milestones, and checkpoints for your staff. Make sure you allow adequate time for budget reviews and feedback.
Agree on goals: Plans for each department, which include stated goals and how they relate to the nonprofit mission, should be included in the budgets. Gain agreement on which programs and activities will proceed before you start the budgeting process.
Review current year budgets and actuals: Check your current budget and actual against the budget. This will help you set the new budget.
Assign roles and responsibilities: Each group should determine who will build the budget, who will review, and how the money will be allocated. The accounting department should also establish procedures for budget review and approval.
Draft income and expense budgets: Build out your drafts and share them for feedback.
Review process and approval: Leave plenty of time to share the drafts with the appropriate organizational leaders for review and approval.
Document approved budgets: Document the approved final budgets. Implement the final versions and assign people to monitor them.

Free Resources

Did you know that the National Council of Nonprofits has an abundance of articles, white papers, checklists, and a downloadable guide to assist with nonprofit budgeting? Take a look at their complete list on the National Council of Nonprofits website.

Beck & Company

Beck & Company is a certified public accounting firm serving the greater Washington D.C. area and the Eastern seaboard. We offer consulting services, auditing, and software selection to help nonprofits with their accounting needs. Contact us today for more information or assistance.

Keeping the Cash Flowing and Other Nonprofit Woes

Living hand-to-mouth, or living one step ahead of the bill collector, is something most college kids are chided about when they graduate and take their first job on the corporate ladder. Yet many nonprofits are living “hand to mouth” or waiting for the next fundraising event or donation campaign to make up for significant shortfalls in their cash flow.

If that just described your nonprofit, it’s time to take action. Just like newly-minted college graduates can only live on Ramen noodles and a weekly paycheck for so long, you’ve got to put aside a nest egg to carry your organization through the lean times.

No matter how good you’re doing now, lean times will come. They may come because of lowered donations or not winning a grant, or they may come simply because your constituents’ needs burgeon beyond what your current operating budget can sustain. That’s when having money set aside can be a lifesaver.

Five Tips for Corralling Your Cash Flow

If it’s time to corral your cash flow, these five tips can help you regain control and manage it more effectively against the proverbial rainy day.

Balance sheet management: A strong equity-to-debt ratio ensures that you’ve got enough cash on hand to safeguard your organization during lean times. If the ratio favors debt to equity, work on bringing it back into balance or slightly tipped to the equity side of the equation.
Avoid unnecessary debt: Debt, such as credit card debt or loans, can be used strategically to offset larger purchases. But don’t get into the habit of taking on large debts while waiting for more money to come in. That grant you’ve “always” gotten may not be awarded to you this year, or a charity fundraiser could be cancelled due to a snowstorm or hurricane. Smart use of debt may mean funding a large purchase with a loan or a no-interest credit card payment, for example, that lets you pay the principle off without interest or penalty.
Consider leasing major equipment: If your nonprofit regularly buys vehicles for its use, consider leasing them. The cost of the lease can be written off and you won’t have expensive payments to make to own something that depreciates in value. Other equipment such as office furniture, copiers and computers can also be leased.
Embrace the cloud: Cloud-based software can save an organization a great deal of money, which puts cash back into the cash flow. Cloud software uses rented or shared server space with other companies. You can renew licenses on a monthly or annual basis, and you don’t need to invest in costly upgrades or updates. The information saved to the cloud is also accessible for others in your organization via a web-based interface making it easier to share. It saves you money while enhancing productivity, two great strategies for improving cash flow.
Avoid taking on new projects until you’re sure you can afford them: That’s easier said than done for many nonprofits. The need is great, and the resources to serve that need may be small. But if you take on too many new projects too soon, without capital undergirding those projects, you could be headed for trouble. Instead, set aside money for specific capital campaigns such as building funds or new projects so that the money is earmarked for the intended purpose without taking it from the general cash flow.

Talk to your accountant or a business consultant such as Beck & Company about other strategies to improve your nonprofit’s cash flow. You can’t always rely on this week’s income to pay next week’s debts. Some weeks your donations will be up, some weeks they will be down. But with the right cash management strategy, you can be assured you’ll always have enough on hand to pay the most important bills first.

Beck & Company Certified Public Accountants and Business Advisors

At Beck & Company, we know that earning a margin means achieving your mission. Managing your money so that you can continue to do the work of your nonprofit is our primary concern. We work with nonprofits to help them with their accounting and business planning needs. Contact us today for more information, or call us at 703-834-0776.

How Often Can I Revise My Nonprofit Budget?

A budget is a financial plan and should be a simple tool which helps you detail unique categories of income and expenses necessary to your nonprofit. Typically a business will create an annual budget, however, it is also necessary to regularly evaluate the budget in turn providing the freedom to make necessary adjustments. Having a budget revision process will help you cut down on unnecessary spending, redirect funds and create space for unplanned expenses.

Looking back and looking ahead

Taking account of the current budget and comparing its allocation against actual spending is a great first step in the revision process. You will begin to see patterns in your monthly assessments. Certain areas that consistently fall short and others that show a surplus are ripe for revision. With this information you are then able to reallocate funds from surplus line items to the line items showing a consistent deficit. The most efficient and effective budget revision process include multiple people within the staff. Department heads and team leads will need to be invited into the budget revision process. They should be speaking into their departments spending habits and revenues in order to maximize bottom line potential for the overall organization.

Short-term Projects

There are other great reasons to make monthly budget revisions. For instance, a short term project develops and is estimated to take 2-3 years to complete. This new venture will require regular budget checks to account for unplanned expenses and delays. Once the project is complete you may be able to slide right back into a fixed budget. Additionally should you introduce a new product or service your budget would require regular revisions until you uncover actual numbers to substantiate the new endeavor.

One of the benefits of the budget revision process is to create space for one-time events that have affected the budget. A set-back, delay or unexpected cost could throw an entire year’s budget off if adjustments are not made.

The Goal Is Zero

The ultimate goal of a zero based budget is to ensure that your income and expenses equal zero at month’s end. Should you cover all of your expenditures and still have income left over at the end of the month your budget process is not done. Allocate those additional funds somewhere, tell it where to go. Skipping this step compromises your chance to make that variance work for you.

Utilizing this strategy within your budget planning process can help you get out of debt, increase annual bottom line revenue, and/or invest back into your company so that your overall potential and effectiveness is maximized.

Keep it up

It is a smart move to continually look at the budget and the budgeting revision process. This isn’t a one-time project. With each change in process or budget be sure to evaluate the effectiveness of the revisions and efficiency of the process. Ultimately you want to increase profits while maintaining the excellent standards and quality your customers have come to know and love about your organization.

At Beck & Company, Certified Public Accountants and Business Advisors, we want to help you. We are an accounting and consulting firm delivering specialized expertise, creative thinking, and unsurpassed service to ensure that our clients’ financial endeavors flourish. Ultimately we want to see your nonprofit reach its goals and we would love to help you. Contact us to learn more.

Best Practices For Planning Your Nonprofit Budget – part 2

Having a budget is essential for any company or individual who desires to have better control over their finances. The process by which that budget is developed is also important. Last week we looked a few overarching components that are essential to have in place before you begin the budgeting process. This week we will take a deeper look into key documentation and steps needed to complete the budget process.

Keep in mind that your organization’s mission and vision should drive the budgeting decisions along with fiscal accountability. A great budgeting process will include the input of those ultimately responsible for executing the company’s mission in conjunction with the finance team and senior staff. Identifying fixed costs and known revenue along with incorporating a plan for the year’s initiatives will be the primary data used to get started.

Follow these steps to develop a good budgeting process:

Document the process.

Put your budget process in writing. Doing this creates a measurable tool to reference as you go along. Having steps and checklists will keep the team accountable and productive throughout the planning. Additionally as the process evolves and changes from year to year, be sure to maintain current notes for reference in future planning seasons.

Identify stakeholders and assign the planning committee.

The finance team and senior staff will naturally play a significant role in developing the budget, but additional staff members whose responsibility is to be accountable to the budget should also play a role. Inviting the team to weigh-in builds buy-in and allows relevant feedback which could prove invaluable to creating an accurate budget. At minimum be sure to include a time period where other staff members are asked to review and speak into the budget in the draft stages.

Get out the calendar.

The early bird gets the worm – this is true in establishing the budget as well. Having a budget approved less than 30 days before the beginning of the fiscal year could severely compromise the success of the year’s goals. At the very least aim for budget approval 60 days before the new fiscal year begins and if possible complete it even earlier. Consider your natural rhythms and take advantage of non-peak seasons to work on it when staff and volunteers have ample time to focus on the numbers.

Assign tasks and a timeline.

As you are building the budget process define tasks and assign deadlines. Oftentimes multiple people will have responsibility over a line item – regardless you want to choose one person to be accountable for the task. Having a single person responsible for the task will increase the likeliness of it getting done and on time.

Match the financial statement to the chart of accounts.

Ensure that line items from the financial statements and charts of accounts are the same. This will eliminate guesswork from your administrative staff when matching the budget and actuals. Particularly where expenses are concerned when the financial statement does not have a corresponding line item within the budget it can result in mistakes or overages in line item balances.

Work the plan.

After carefully creating the detailed budget, the next step is to implement the plan. This may sound obvious, but setting clear expectations for how the budget should be executed is as if not more important.

At Beck and Company Certified Public Accountants and Business Advisers our Nonprofit Services team is committed to assist you with your back-office accounting and financial needs so you can focus on your mission. Contact us to learn more about our nonprofit specialists provide professional advice and assistance in a number of areas including business planning and budgeting.

Best Practices For Planning Your Nonprofit Budget – part 1

Top performing nonprofit organizations large and small have one thing in common, they are continually planning for their success. Creating a budget is a huge part of a successful plan, and it’s a tool that aids in the implementation of your organizations mission. When both management and your board of directions have this tool they are able to sufficiently oversee your organization’s financial health.

Having an operating budget approved in advance of the beginning of the fiscal year is a common best practice. Often times, in order to achieve this goal you must begin the process at least three months prior to year-end. In this blog we will address some general tips to help increase the effectiveness of your budgeting process. If you’ve already begun this will be a helpful tool to measure your current progress. For those of you that have yet to get started, now is a great time to begin.

Having a budget that actually works requires a little time and energy devoted to development and implementation and should include the following components:

Clearly defined and itemized objectives:

Most likely you have multiple projects and programs planned throughout the year. Each one should have its own budget and then once those have been completed, they should be compiled to complete the overarching operating budget.

Having defined budgets for each project allows you to see areas that may require additional consideration so that you can fully understand the financial implications of each objective and how it works together with the overall goal of the organization.

Clearly defined time period.

Although your budget will likely cover a one year period or fiscal year it is also helpful to further divide the budget into smaller portions such as months or quarters. In so doing, you will have the ability to be proactive with any variance as the year goes on. If you find yourself overspending in a particular quarter you will have the benefit of making necessary adjustments in the remaining quarters. This also provides you with a great tool to reflect on at years end and use to strategize for the future.

Realistic expectations.

Having a realistic estimate of revenue and expenditures is so important. All too often, expenses are underestimated which leads to overspending and improper allocation of resources. When this happens the budget fails to be a useful tool for your organization. Be sure to use last year’s actual numbers coupled with future predictions. Take the time to truly analyze expenses and income to help you create a budget that is based on realistic expectations rather than assumptions.

In addition it can be helpful to have a plan “B” with your board of directors in the event that something does not go according to plan you know exactly how you will handle it. For example, which initiatives can be bumped to next year or executed using a smaller budget.

Measurable goals.

Create your budget based on the same accounting method with which your books are kept and monitored. Doing so allows you to compare the predicted budget against actual income and expenses as they happen. When variances arrive, which is inevitable you must have the flexibility to make adjustments and address cash shortages and/or inflated expenses. Maintaining your budget this way will allow you to assess and correct your budget as needed, while flexibility will enable you to alter your budget when necessary.

At the end of the day the most important part to planning your budget is to ensure that you were able to move forward the mission of your organization. Keeping these helpful tips in mind as you begin the budget planning process will set your organization up for success.

In our next blog we will get into the budget process in further detail. Here at Beck and Company Certified Public Accountants and Business Advisers we are committed to assist you with your back-office accounting and financial needs so you can focus on your mission. Contact us to learn more about our planning and budgeting services.

Top 8 Reasons To Take Your Nonprofit Budget To The Cloud

Do you pull your hair out at board meetings trying to read the tiny print on an overpopulated excel spreadsheet? Do you dread the line item on the agenda dedicated to budget? You are not alone – many board members find this task frustrating as they try to make sense of poorly managed Quickbooks reports and line items that just don’t always make sense. It can be difficult to even discern if a budgeted line item is actually financially healthy for a nonprofit. These types of budgets fail to be useful as an ongoing solution.

While it may be frustrating it is required by the U.S. government to keep an approved annual budget on file. And, that budget must then be reviewed at monthly board meetings. Although it may feel like the rule exists to frustrate and confuse you it is not. Having a working, well developed and managed budget provides tons of important values to your nonprofit – particularly when the budget process is simple and user friendly.

If you’re like most nonprofits the members of your board are successful and busy people. They believe in your organization and want to contribute their unique skills to help you accomplish your mission. Imagine the possibilities if those same people could review the budget on an ongoing basis online? They could be empowered to…

Analyze predictions and compare them to actual costs.
Show up to meetings with ideas for improvement.
Spend time on the cause at hand rather than trying to decipher code.

Let’s face it – who wants to spend their precious time looking backwards when you can take steps forward? This is all possible with the right tools and using software designed to help you budget with ease is a great place to start.

Although there are many great online budgeting tools available one solution we have found extremely useful for nonprofits is Adaptive Insights. This cloud software makes it easy to move beyond the spreadsheet nightmare without the cost and complexity associated with traditional applications.

There are multiple benefits we have seen from customers using cloud budgeting software. Below are the top 8 that we wanted to highlight:

Dramatically reduce budgeting and forecasting cycle times-by up to 90%
Simplify and standardize data collection across the organization
Decrease errors and improve accuracy by eliminating broken links and formulas
Deliver more complete and frequent forecasts, including rolling forecasts
Enable timely and thorough what-if analysis
Establish one version of the truth
Make faster, more informed decisions
Enhance collaboration with, and ownership by, department managers

When a person decides to support your business with their hard earned money they most certainly want to know where that money is going. People don’t part with their cash carelessly. Your donors give because they believe in the cause. Being able to show them that their donations served a worthy purpose is essential. When you have a good budgeting tool that is easy to use and organize, finding this information is easy and makes board meetings so much more productive.

We know that implementing new budgeting software can be difficult. At Beck & Company, Certified Public Accountants and Business Advisors, we are an accounting and consulting firm delivering specialized expertise, creative thinking, and unsurpassed service to ensure that our clients’ financial endeavors flourish. We want to see you spend your time where your time is most valuable, working towards the vision and mission of your NPO. Let us help you manage your budgeting process so you don’t have to. If your organization is looking for ways to improve your accounting functions and reduce the time you spend managing your back-office, our nonprofit client accounting services may be the answer. Contact us today for a free consultation and see how we can help you reach your goals.

Achieving Your Small Business Budget Goals- Part 2: Setting Profit Goals

Last week, we took a look at why any small business needs a budget and how to create one. Whether your company has just put a budget in place for the first time or is just in need of an overall budget revamp based on lacking profits, the following guiding questions are for you. They will help you set and achieve those goals so you can get to a place of maintenance and revision for your important financial decisions. Once these goals are set in motion, you can focus on revising and responding to ever-changing financial happenings as they occur with the peace of mind knowing you have a budget and profit goals to keep you on track. Beck and Company Certified Public Accountants and Business Advisors have been helping small business owners just like you with this process for years. We want to help you set and achieve business goals, too. Please contact us for a free accounting consultation.

Now that you have a working budget with clear figures to work with, ask yourself some important questions that will help guide you as you make initial revisions. These will assist you with further decision-making conversations as a team to set goals.

Here are some example questions to get you started:

What is the desired overall profit? What sales will be needed to achieve these desired returns?

After an initial budgetary plan is in place and all of the financial figures are together in one spot, an increase in profit should be the first consideration you make when you think about the prospects for your small business and make tweaks. The first draft of a budget often uncovers problems and suggests choices that will need to be made. Working up additional budgets after the initial one using the answers to your guiding questions will help you determine a workable plan with future goals in sight. Think of it as a map that helps you stay on the right path. To truly achieve profit, be sure this map leads you to returns on your services/products AND a return on your investments while also factoring in expenses and taxes.

What fixed expenses will be necessary to support these sales?

Once you have decided on your targeted profit, you’ll need to make sure it can actually be achieved. To do this, you must project your fixed expenses. Regardless of sales, fixed expenses stay the same. These could include insurance, rent, property tax, wages paid to salaried employees, depreciation of equipment, interest on borrowed money, maintenance costs, and office expenses among other factors.

What variable expenses will be incurred in producing these sales?

Again, profit goals are not realistic without factoring in projected expenses including variable expenses. Unlike fixed expenses, variable expenses do vary with sales. These could include but are not limited to cost of labor, sales commissions, payroll taxes, insurance, advertising, marketing, and delivery expenses.

How do taxes factor into our overall budget?

Keep in mind that taxes have to be included to have a realistic outlook on expenses versus profits. As you set profit goals for upcoming years, keep in mind that the larger your goal means the larger the amount of funds needed to account for taxes. We can help you determine the tax amount to account for regarding taxes.

Now that you have considered all of these questions and the factors that figure into your overall small business budget, determine if you have a workable budget. Your overall expected income will tell you if you are able to achieve your profit goals. This is done by calculating the difference between sales and the total of fixed and variable expenses in addition to taxes. For further assistance with the many components that go into determining a budget that is realistic and allowing you to achieve your profit goals, contact Beck and Company CPAs.

Achieving Your Small Business Budget Goals- Part 1: Budget Creation

As we previously discussed, having an effective and yearlong budget that is consistently being reviewed and updated is essential for your small business. If your business is not at a maintenance stage in budgeting because you lack a budget, the following recommendations will help you get started. They will offer insight into understanding the rationale behind the process/need and will help with initial action steps in creating such documents. Beck and Company Certified Public Accountants and Business Advisors have extensive experience in helping small business owners just like you with these essential tasks. We offer free consultations to help you achieve your financial goals.

Budget: What is it and why do it?

Definition: Before getting started with the action steps, it is important to know why what you are about to do is important. A budget is a tool that helps you deal with the future and turn expectations into reality. It allows you to set goals and list the necessary steps to reach those. It helps you think about what you really want from your business in the future.

Purpose: By planning, your business is in a much better position to act in prevention of possible crises instead of react to actual crises that may have already done damage. Having a detailed plan with listed future receipts and expenditures creates a guiding framework of projected profit and loss. This can then be used after a designated period of time to compare actual results with anticipated goals. The resulting decisions from this data can lead your business to greater success. For example, if some of your expenses were higher than expected, look for ways to cut them. If you’ve fallen short of goals, you will need to look for ways to increase income.

Action Step #1: Start by Creating a Budget

If you have not already done so, starting with the creation of a budget is a vital first action step. Now that you know more about what it is and why your business needs one, working up this document will help you clearly determine whether or not your profit goals are within reach. It should be written down with a focus on determining what is essential and non-essential to your business. Be sure to set realistic parameters.

Not sure where to begin? There are two common methods you can choose from. You can start with a forecast of sales and work down. Conversely, you can start with a forecast of profits and work up. The latter is more common. In this method, you should decide what profit you want to make and then list the expenses that will be incurred to reach that predetermined profit. For more tips and further details from Beck and Company CPAs on this initial process, visit here.

Action Step #2: Determine if Your Present Profit is Sufficient

Before being able to truly use your newly created budget effectively, you have to be sure that your current profit is what it should be. At the end of the year, it should be large enough to make a return on your investment and a return on your own work (pay you a salary). Do you actually make the same, if not more, than you could working for someone else doing the same thing? In addition, does this profit include a return on your investment into the company? That investment includes the money you put into the firm when you started it and the profit of prior years which you left in the firm (otherwise known as retained earnings). Don’t neglect the importance that taxes play into your overall totals so that you truly are making a profit.

Now that you know what you made last year through your newly created budget, you are ready to set goals for the future of your company. Stay tuned next week for a further look at setting and achieving these goals. Need more assistance before moving on to future profit goals? Beck and Company CPAs would be happy to help you. Please contact us.

Effective and Yearlong Small Business Budgeting

By this point in the year, it is likely that your small business budget for the year has been set and is simply filed away for now. Although it is often the case that budgets are not reviewed until the process of creating the one for next year begins, this can cause problems because businesses are not static so their budgets should not be either. Unexpected situations and cash flow issues can derail even the best of well-planned budgets. Instead of thinking about your budget as a task to complete before the start of each year, think of it as an ever-changing and dynamic document that carries serious weight for your business all the time. If your small business is not only in need of more consistent budget revisions but needs a budget overhaul, here are some suggestions for understanding what constitutes an effective business budget.

Do you need assistance in addressing and optimizing your specific business processes including budgeting? Beck and Company Certified Public Accountants and Business Advisors can help through our Client Accounting Services. In addition to the personalized consulting we provide, the following are some recommendations that can keep you on the track financially all year long.

Make Monthly Updates and Changes to your Budget

Are your expenses in line with projections or are there line items that need cut backs to stay on track financially? If you have trouble answering questions like this, it is probable that you need to review the budget more often. A monthly review and update of your budget allows unexpected situations to be resolved in a timely matter and will help you focus on real-time data not projected financials. Through a monthly review, you can make changes to your budget and see the impacts these have on income and profits. These changes can have a positive impact in a timelier manner. Use current business performance and expense information to inform immediate and future planning decisions. This does not mean that an annual budget review isn’t important, but it does mean that these monthly reviews can offer more insight into an annual review.

Expect the Unexpected- and Respond!

As changes are made within your own company, be in tune to what impacts these have overall. Be prepared to make adjustments especially when unexpected circumstances surface. Just as your company goes through various ebbs and flows, it is important to remember that your clients experience the same. Adjustments made to a client’s budget can impact yours and vice versa. Be prepared for reductions in revenue and reductions in how much a company does business with you. Be strategic in finding new business to make up for these losses while still considering how this could cost you in terms of marketing and hiring costs.

Consider Linking Incentives to Budget Performance

Are you having trouble or do you anticipate having trouble getting everyone on-board with a more active budget? In the process of concentrating on and interacting with the budget more often, consider tying incentives to this new practice. Set parameters when you plan annually for how performance and lowering/maintaining expenses will be tied to profit and how this impacts bonuses.

If these tips leave you with more questions than answers, it may be that you’re not quite in a place as a business to be developing techniques for maintaining and updating a financial plan. You may be more in need of creating a budget or transforming it to truly reach your profit increase goals. If this is you, be sure to stay tuned over the next couple of weeks as we dive in deeper to budgeting, increasing profits, and reaching financial goals for small businesses. In the meantime, contact us here at Beck and Company CPAs for assistance with your overall business process optimization.

Do You Need Help Consolidating Your Business Budgets?

Budgeting is important to the success of your business. Without it, you have no idea of the amount of money coming in or going out of your company. Effective financial management requires you to maintain a budget annually for the entire company. This will help you ensure that you have enough capital to cover upcoming expenses, as well as help you prioritize your business ventures. Budgets are generally prepared on a department level and then consolidated to form the overall company budget. By consolidating budgets on a departmental level, managers can assess how their department is doing both as a whole and individually and also determine whether or not they have exceeded their budgeted amount.

The budget preparation process determines how the budgets within a company can be consolidated. Most companies know how to create a budget; however, many companies have a harder time consolidating budgets so they have a full view of their organization on a departmental level. We’ve created a few tips designed to help you consolidate your budgets and boost your budgeting efforts. Keep the following in mind as you go about consolidating this year’s budgets:

Create a plan for how your company will structure the budgeting process. You can structure it according to departments, locations, products, functions, and customer type. Each department should have their own budget that they can compare to other related units.
Use budgeting software to create and maintain your budget. It doesn’t matter what type of software you use – it can be spreadsheet-based or an off-the-shelf budgeting solution. Many accounting solutions also have a budgeting function to support your budgeting efforts.
Enter each expense into the appropriate line-item category and ensure that line-item categories are consistent across the company. Each department will have its own code in front of the line-item number so you can keep track of your departmental expenses.
Once the budgets for each department have been created, distribute them to their corresponding departments. Include specific instructions for each department on how expenses should be entered. While your accountant or bookkeeper will most likely handle the entries, there may be some confusion on smaller items, such as meal allowances.
Determine a plan for consolidating budgets. This is where you decide which departments, locations, or products will be consolidated and how. For example, let’s say your business owns a number of kiosks in area malls. Rather than maintain a separate budget for each kiosk, you could consolidate the budgets to include all kiosks under each supervisor. This will give you a more complete picture of your business without having to delve into every last detail.
Compare your budget against actual performance. Calculate the difference between your budget and the actual results using both a dollar amount and a percentage amount.
Prepare your consolidated budgeting reports for top executives. Business executives don’t want to see every detail; they want to see the big picture. Most budgeting software solutions can help you create a consolidated budget report. However, if you have trouble creating this automatically, you can create it manually by following these steps:

– Add up all sales.

– Add up all costs of sales.

– Subtract cost of sales from sales – this calculates your gross margin.

– Subtract admin costs from the gross margin – this is your gross profit.

– Subtract depreciation and interest from gross profit – this is your net profit.

Stay tuned for more tips and tricks to help you consolidate your business budget. For more effective business budgeting tips, read past articles on our blog. If you need help creating an effective business budget, contact our certified CPAs and accountants today.