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.