MANAGING YOUR EO BUDGET BEFORE IT MANAGES YOU Brian Yacker, JD/CPA Stacey Bergman, CPA August 18, 2015
1. WHAT IS A BUDGET? DEFINITION Strategic organizational plan Based on facts, events in progress & actions planned COLLABORATIVE EFFORTS ACROSS MULTIPLE LEVELS Accounting/Finance Programs/Operations Development NOT A FORECAST A forecast can only predict, NOT Plan Multiple hypothetical forecasts are usually reviewed before a budget is developed STATED IN MONETARY UNITS NECESSARY FOR PLANNING AND CONTROLLING Part of internal control framework YH ADVISORS, THE EXEMPT ORG EXPERTS MANAGING YOUR EO BUDGET 2
IMPORTANCE OF A BUDGET CREATES FINANCIAL ROADMAP COMMUNICATES PRIORITIES REQUESTED BY FUNDERS/GRANTORS STRATEGY REQUIRES FUNDING USED TO HOLD VARIOUS LEVELS OF OPERATIONS ACCOUNTABLE & CONTROL SPENDING INTERNAL CONTROLS: WHEN REVIEWED AND CHALLENGED ON A REGULAR BASIS, ACTS AS A HIGH LEVEL MITIGATING CONTROL AGAINST FRAUDULENT FINANCIAL REPORTING MARKETING TOOL YH ADVISORS, THE EXEMPT ORG EXPERTS MANAGING YOUR EO BUDGET 3
TRADITIONAL BUDGETING PROCESS EITHER: q q Top-Down Planning Accounting/Finance handle most of the process OR Bottom-Up Planning Accounting/Finance only compile data provided by operations/development VERY MANUAL PROCESS INFREQUENT FORECASTING TARGETS QUICKLY BECOME OBSOLETE AND ARE NOT REDEFINED LONG BUDGET CYCLES LACK OF STANDARDIZED TEMPLATES EFFECTIVENESS OF BUDGETING PROCESS AND BUDGET AS A TOOL IS LIMITED YH ADVISORS, THE EXEMPT ORG EXPERTS MANAGING YOUR EO BUDGET 4
NEW WAY OF THINKING STRATEGY What industry are we in? How will we compete Which choices will make us successful in the long run? PLANNING How will we align our resources with our strategy? How will we measure our progress? BUDGETING How will we ensure accountability? How do we encourage behaviors needed to execute the strategy? FORECASTING How will we adjust to reflect changing conditions? YH ADVISORS, THE EXEMPT ORG EXPERTS MANAGING YOUR EO BUDGET 5
NEW WAY OF THINKING STRATEGY Clear programmatic mission and goals are the foundation of an exempt organization Leads to effective planning and budgeting choices Don t let the budgeting process manage you and consume more value than they create EO strategy and goals should be communicated throughout the organization Constantly align the budgeting process and the strategy of the EO CONSIDERATIONS Competitors Funding/grantors Programmatic goals Capital budgets Create or increase operating reserve Deficit reduction PPE (fixed asset) additions Leasehold improvements Funding for new operations or programs YH ADVISORS, THE EXEMPT ORG EXPERTS MANAGING YOUR EO BUDGET 6
NEW WAY OF THINKING PLANNING AND BUDGETING Creating value and buy-in Employees (or volunteers) with the freedom to operate independently within the EO strategic framework become more vested in their budgets Leads to greater ability to hold them accountable as well Break down components of the organization and evaluate for: Volatility, variability and complexity Understand components of the organization and what teams need to do in order to help make their area more efficient and effective in order to grow What reporting framework will be necessary in order to tabulate and compare results? Financial system add-in versus Excel YH ADVISORS, THE EXEMPT ORG EXPERTS MANAGING YOUR EO BUDGET 7
NEW WAY OF THINKING Forecasting Timely and meaningful information is a necessity at all levels of the exempt organization Frequency of timely and the frequency of forecasting/re-forecasting should reflect the nature of your organization Business decisions should be made based on reliable and valuable data Review COA/class structure on a regular basis Ensure internal control framework currently in place supports reliable data Forecasting and program-based planning will allow your EO to be more flexible during trying times YH ADVISORS, THE EXEMPT ORG EXPERTS MANAGING YOUR EO BUDGET 8
CREATING AN EFFECTIVE BUDGETING PROCESS Phase 1: Assessment & Planning Phase 2: Design & Implementation Phase 3: Optimization & Support YH ADVISORS, THE EXEMPT ORG EXPERTS MANAGING YOUR EO BUDGET 9
PHASE 1: ASSESSMENT & PLANNING Understand current state of the organization Short and long term goals Program activities/operational knowledge is a must Define key requirements of current year budget Develop scope for design and implementation of the next steps in the budgeting process How do key requirements tie in to short and long term goals? Determine resources that will complete each component of the budgeting activity outlined in the budgeting project plan Final product of Phase 1: detailed budgeting project plan including key work flow streams, activities, timelines Should ultimately provide a broad vision for the entire team as to the roadmap for the budgeting process YH ADVISORS, THE EXEMPT ORG EXPERTS MANAGING YOUR EO BUDGET 10
PHASE 2: DESIGN AND IMPLEMENTATION Focus on detailed design and implementation of exempt organizational structure, systems, processes and controls Ensure process owners and team members at all levels are involved in the design process to ensure proper adoption of systems and policies Take the roadmap created in the previous phase to the next level by verifying the infrastructure currently in place will support the division and creation of the budget Communication is key! Final product of Phase 2: Necessary infrastructure in place to begin servicing the respective pieces of the organization with regards to the overall budgeting process YH ADVISORS, THE EXEMPT ORG EXPERTS MANAGING YOUR EO BUDGET 11
PHASE 3: OPTIMIZATION & SUPPORT Work with teams at all levels to provide support post implementation of new budgeting policies and procedures Discuss challenges and successes to continually refine the process Make detailed notes as to recommended changes for future years Final product of Phase 3: contemporaneous feedback as to the ease (or lack there of) of the defined budgeting process Typically also includes better use of technology, potential outsourcing and use of supplemental resources YH ADVISORS, THE EXEMPT ORG EXPERTS MANAGING YOUR EO BUDGET 12
BUDGETING BEST PRACTICES Frequency Level of Detail Driver Based Budgeting Participation & Collaboration Leverage Technology Process Management YH ADVISORS, THE EXEMPT ORG EXPERTS MANAGING YOUR EO BUDGET 13
FREQUENCY Increasing the frequency of budgeting (and forecasting) cycles will help EO attain greater alignment between organizational strategies and operations of the EO Continually review overall mission, stated short and long term goals as well as programmatic components Throughout the year, management should not only review budget to actual variances, but also discuss them with lower level employees and even volunteers to drive home the purpose of the process and what it means to the health of the exempt organization Actual frequency will vary depending on the nature and activities of the EO as well as other factors, such as: Competition in the specific industry within EO sector Resource availability Grantor/funder requests Program requirements Rolling forecasts acknowledge that an EO functions as an ongoing operation and needs to be managed as such YH ADVISORS, THE EXEMPT ORG EXPERTS MANAGING YOUR EO BUDGET 14
DRIVER-BASED BUDGETING Provides management with the confidence that forecasts and budgets are derived from one common modeling methodology In a budgeting system with ever changing variables, running too many scenarios will leave management uncertain as to the ultimate landing place for specific line items Defining key drivers: Industry specific Peer organizational data Demographics of communities served Limit drivers to only those that are: Crucial to meeting organizational goals Add value to the growth of the organization Directly related to the accuracy of the budget Readily available Measureable Implement drivers that are specific to each major program service activity YH ADVISORS, THE EXEMPT ORG EXPERTS MANAGING YOUR EO BUDGET 15
PARTICIPATION AND COLLABORATION Program/operation teams can produce the best projections of the areas they are responsible for Budget approval process model should consist of: Executives determining overall EO strategy Management implementing the plan Budgeters providing the necessary data Collaborative process offers greater accountability and better execution of overall exempt organization strategy YH ADVISORS, THE EXEMPT ORG EXPERTS MANAGING YOUR EO BUDGET 16
LEVERAGE TECHNOLOGY Excel spreadsheets alone no longer stand up to the challenges of today s fast paced exempt organization world Too manual Too much room for error Often become a jungle Rethink current technology! Does software provider offer addon packages to support budget management and maintenance? The key is to have a solution that supports the EOs current and future requirements Research and invest in a solution that not only automates the budgeting process but also: Provides intelligence and analytical capabilities Delivers a unified solution package for budgeting, forecasting, consolidations and reporting activities Enables agility and scalability YH ADVISORS, THE EXEMPT ORG EXPERTS MANAGING YOUR EO BUDGET 17
PROCESS MANAGEMENT With universal buy-in by all those involved in the process, by adopting best practices addressed above and by adhering to the plan, the budget timeline can take as little as FIVE weeks to complete: Week 1: Set goals and objectives Define EO administrative and operational goals Week 2: Planning and preparation Communicate planning process to organization and accept feedback Week 3: First draft of budget and iterations Week 4: Adjust and finalize budget Incorporate feedback received from first draft of budget Week 5: Finalize budget and communicate to departments YH ADVISORS, THE EXEMPT ORG EXPERTS MANAGING YOUR EO BUDGET 18
BENEFITS OF ADOPTING BEST PRACTICES Ownership and accountability brought back to the budgeting process Control over the information processes Better communication throughout the organization and Board of Directors/Finance Committee Automation and reduction of human error Detailed, advanced analysis in a user friendly end-to-end package Strategy alignment within program service units and EO as a whole YH ADVISORS, THE EXEMPT ORG EXPERTS MANAGING YOUR EO BUDGET 19
HOW TO INVOLVE OTHERS IN THE PROCESS 1. Hold a budget training / process kick-off meeting 2. Create a budget toolkit Typically created by finance team Provides key assumptions and likely trends affecting the environment within which the EO operates Provide written instructions Set timeline with stated dates and deliverables Start with a budget template requiring those outside of finance to fill in the blanks Historical information and year-to-date information should be included Include project costs for which you have received restricted funds Align the look and feel of budget template to the chart of accounts and format of financial statements YH ADVISORS, THE EXEMPT ORG EXPERTS MANAGING YOUR EO BUDGET 20
BUDGETING QUICK TIPS Understand the difference between a cash, accrual and capital budget Practice income-based budgeting Analyze and understand revenue concentrations Confirm relationship of budget to mission and both short and long term strategic goals Include necessary upgrades and maintenance to IT and accounting infrastructure Consider staff development costs Provide narrative notes to explain budget assumptions Pay attention to presentation It is not recommended to create a budget beyond 12 months, with the exception of a major capital campaign Consistently and contemporaneously compare budgets to actual YH ADVISORS, THE EXEMPT ORG EXPERTS MANAGING YOUR EO BUDGET 21
FOR MORE INFORMATION, PLEASE CONTACT: Brian Yacker, Partner 310-982-2803 (direct) 310-266-7196 (cell) byacker@yhadvisors.com YH Advisors, Inc. One Pacific Plaza 7755 Center Avenue, #1225 Huntington Beach, CA 92647 Stacey Bergman, Principal 310-982-2805 (direct) 562-965-2554 (cell) sbergman@yhadvisors.com YH Advisors, Inc. One Pacific Plaza 7755 Center Avenue, #1225 Huntington Beach, CA 92647 22