Australian organisations have faced overwhelming changes to their normal operating conditions due to COVID-19. Brendan Lucas recently presented a webinar focused on the budgeting strategies and tools that will best equip managers preparing for an unpredictable financial future. This article highlights key elements for consideration, and we have also provided links to our free budget template.
Plan for change
Working backwards from the final approval date, set a timeline for your budget. Allow time to gather information, cross check it and involve all contributors in the process.
Prior year results are always instructive when preparing a budget. However, the important difference in the current financial environment is that those results won’t provide a simple guide for the following year’s results. The world has changed.
Be prepared for situations where you need to reforecast and reset your goals.
Successful strategies for drafting your budget
We recommend several strategies when drafting the budget for a small to medium NFP, or for any small to medium business:
• Tell the story: Provide a summary in narrative form. Not every stakeholder is finance-savvy, and many will glaze over when they see spreadsheets. Document a story that sets the scene. Include key information and cover assumptions that will help answer questions. A story gives everyone, not just the accountants, a chance to understand the organisation’s financial position.
• Develop a 3-way budget: More sophisticated and instructive than a 1-way budget, a 3-way budget details the income and expenditure, cashflow and balance sheet. Do this properly and do it early so you have enough time to plan and ensure enough money is in the bank.
• Align your budget measurement period: Align the budget with major payments, such as fortnightly wage payments, and also with board meetings.
• Select budget software that is easy to share: Different software options offer different advantages in terms of costs, time and amount of learning required. There are low-cost or free options that enable the budget to be shared, such as Hopscotch Accounting’s Excel’s Budget Template. Good budget software means you don’t have to start from scratch and it will hopefully prompt you with some usable ideas.
• Utilise a framework that is flexible: Flexibility is especially important in the COVID-19 environment, which has introduced many more variables to budgets. Data Tables, as on the Hopscotch Accounting Excel template, have excellent potential as they allow for variables. This framework enables you to budget for different scenarios – such as a delay in a project start date, pricing changes or a halt in services due to COVID-19 restrictions.
Consult
Consultation and collaboration are critical when budgeting. They lead to ownership and validation. You want buy-in from across your organisation if you are to set goals and hold people accountable. Updating stakeholders as events and priorities change is a key part of budgeting. You can also flag future concerns and potential risk areas.
Examine your ‘what-ifs’
A ‘What-if’ analysis is vital in the COVID-19 environment as so much is unknown, and there is so much unpredictability. This analysis allows you to dream of potential windfalls, like new contracts and exceeding donation targets. It also allows you to stress-test the budget for negative outcomes such as a delay in reopening, expense increases or a loss of volunteers. What is your margin for error? This is where data tables can be used to provide calculations for different scenarios.
Focus on the BIG numbers. Don’t focus on every number. Look at your big-ticket items – if something changes what will have the biggest impact on your organisation?
Gain the approval of decision makers
The more informed your budget is, the easier it is to gain approval. Tell the true story. Remember: “It’s okay to deliver bad news, but the earlier the better”. It gives decision makers more time to do something about it. Your role is to provide budget realities, not to make everything okay.
Monitor and reforecast regularly
Budgets usually need adjustment but with COVID-19 impacts creating so much uncertainty it is far more likely that you will need to measure actual versus budget in greater detail to assist with reforecasting.
Analyse monthly results to understand what is going on in your organisation.
It is okay to get it wrong and learn from it, but only if you investigate with curiosity.
Reflect
Before you start to monitor the year’s results, do take some time to reflect on budget processes that you could improve. Record processes in case you aren’t in the role next year and document what you’ve learnt to upgrade them for the good of the organisation.
The key message for coping with FY21 is: “Don’t set and forget your budget”. Kick-start that budget process for your NFP by downloading our free budget template or by calling us today.
