It’s almost the end of the year and while some people are picking out their outfits to ring in the New Year, the nonprofit financial management team is working hard to keep their heads above water while completing their year-end tasks and procedures.
If you are treading water and want your own personal flotation device, consider the second annual edition of Abila’s Year-End Survival Guide. This handy guide can provide you and your nonprofit financial management teams with the tools you need to navigate the (sometimes) turbulent waters of fiscal year-end.
Here are some best practices to think about as you develop your budget for 2017:
Any accountant will tell you that the budget is the foundation of all things financial. A well-built budget allows you to establish benchmarks, determine priorities, gauge financial health, and monitor and measure mission delivery. These best practices will help get your 2017 budget off to a great start.
Start with last year’s budget – Review and analyze the previous year’s actuals versus projections; review transactions, expenses, revenue, and fixed costs. Eliminate any anomalies from the year before, for example a one-time gift or expense.
Plan meetings with all of the departments – Bring together key contributors, establish expense expectations, identify relevant funding sources, and lay out your budget timeline.
Start building your budget – Unlike in the for-profit world, where budgets are driven by profitability, nonprofits need to start their budget development by projecting expenses. Look at your coming year’s strategic goals. Are you launching any new programs, expanding your geographic or demographic reach?
Identify and justify any anticipated large capital expenditures – Have you outgrown your off-the-shelf accounting software, for example, and need a more powerful true fund accounting system? Do you need new software to help you comply with impending ACA regulations? Has your donor base grown to the point where you need a more sophisticated donor management system? If your systems aren’t keeping pace with your mission, it’s time to budget for technology.
Consider external factors – What is the overall economic forecast? Are your major donors having a good year or a bad year, financially? Are economic conditions improving or deteriorating for the population(s) you serve?
Look for areas of risk – For example, identify any potential liquidity risk, asset exposure risk, legal/ liability risk, and professional liability risk based on your organization, how you operate, and what “vertical” you’re in. Establish reserves to cover these potential risks, if necessary.
Align budget line items with accounting line items – The structure of your operating budget should match your chart of accounts to ensure effective comparisons between projections and actuals. Misalignment of budget and accounting items create extra work for staff members who have to translate between the two and can compromise the integrity of your financial reports.
Allow time for refinements – You started by identifying expenses associated with your mission- driven goals. Then you projected revenue. It’s likely you have a gap between the funding you need for maximum programmatic impact and what you have coming in the door.
Seek budget approval – First review your draft budget with internal stakeholders/contributors for feedback and buy-in. When you achieve internal approval, it’s time to present it to the board.
Take next steps – Distribute your final, approved budget internally, and update your accounting software so you can start monitoring, tracking, and reporting to your various constituents.
RBP Methods Can Help You Survive Year-End
Now that you have some tips to keep your nonprofit financial management team above water it may be time to check out some new accounting software for nonprofits. Whether you’re interested in AccuFund Nonprofit Accounting Suite , Abila MIP Fund Accounting or other accounting software, we offer information, training and support to help you manage your nonprofit accounting needs. Please contact us today for more information.