Finance – Budgets and Dashboards

Presented By: Janet Gibbs

President & CEO

Mission Accomplished

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Session Focus

• Best practices for better budgets

– for organizations and programs/projects

• In this session, participants will learn:

– How to create budgets that capture the real costs of programs

– How to use dashboards to track progress

– How to talk with funders about budgets

What is a Budget?

• An estimate, often itemized, of expected income and expense for a given period in the future.

• A plan of operations based on such an estimate.

• A benchmark against which to measure performance

• The total sum of money set aside or needed for a purpose: the construction budget.

Purpose of the Budget?

• Fiscal roadmap

• Fiscal control

• Align with plans or Align with past?

• Balance revenues and expenses

• Save for future plans

– Debt repayment, construction project, endowment

A Budget is: An itemized estimate of expected income and expense for a given period

• Typically begins with a high level estimate of each revenue line item – Program fees, state support, gifts and grants,

auxiliary income, investment income

– Targeted organization-wide input

• Expense budget is an organization-wide PROCESS

• Report actuals against the plan

A Budget is: A plan of operations

• Certain programs and service levels are assumed in the budget

• Programs/services provided regardless (almost) of actual revenue and expense

– Auxiliary operations

– Membership activities

• Report budget variances along with program/service levels

A Budget is: A benchmark against which to measure performance

• Budget is set and never changes, even if revenues and expenses change

• If actual revenues or expenses differ, that’s OK

• Report variances and explanations – Budget was not correct

– More/less revenue due to?

– Expenses over/under due to?

A Budget is: The total sum of money set aside

or needed for a purpose

• Budget of $10 million to upgrade student

activity center

• Line item detail required

• Control project through expense budget

• Hands-on progress monitoring required

Your Role in Budgeting

• It depends!

• Does budgeting report to CEO, COO, CFO?

• How involved is the Board, leadership team, staff, members?

– Don’t forget funders, government, clients,

community

Your Role in Budgeting

• Since CFO must manage and report on the budget, the CFO must fully understand it and the goals it is expected to achieve

• What is your/CFO role in controlling the budget?

• What is your/CFO role in setting funding priorities for programs and administration?

A Variety of Budget Processes

• Incremental

• Zero-based

• Planning, Programming, and Budgeting Systems (PPBS)

• Performance based

• Formula budgeting

• Responsibility center (RCB)

• Initiative-based

Can the Budget Process Drive Change?

• In spite of the various means, change is difficult

• Most all budgets are truly incremental in spite of the road taken

• Is this good or bad?

Why Incremental Budgeting?

• Why, in spite of dozens of strategic plans and budgeting processes, do we most often end up with incremental budgeting?

– A little addition here, a little reduction there

“Fixed” Budget Roadblock

• 70%+ of all operating budgets consist of “fixed” costs – Salary and benefits

– Debt service

– Rent/lease agreements

• “Tenured” staff – Founder

– Former superstar

– Untouchables

Service Level Roadblock

• Most budget reductions come from non-program, central support functions

• Service levels naturally change

• How long can you do more with less?

• Who wants a colleague to lose their job?

Incremental Revenue Roadblock

• Revenue increases go primarily to support cost increases in personnel, operations

– Usually for programs

– Indirect costs are limited and don’t cover overhead

• Little left over for new initiatives

From Planning to Budgeting

• How do we implement all of the great new initiatives in an incremental financial world?

• Where does the money come from?

• Everything we do looks like it fits into the plan

Planning Drives the Budget

• Or does it?

• Once there is a plan, the budget should be easy, right?

• How to implement the plan’s priorities

– Fully fund 1 or 2 at a time?

– A little bit of everything each year?

– What about multi-year commitments?

For real change to occur, there needs to be a burning platform.

Otherwise, what’s the hurry?

There’s nothing like a good financial crisis to stimulate change

How to Change Resource Allocations and Program/Service Support

• Gain buy-in up front

– we want to implement this plan, don’t we?

• Focus everyone on the long-term goals

• Don’t reinvent the plan!

• Involve all levels of the organizational community

How to Change Resource Allocations and Program/Service Support

• Have a plan

• Decide to use it and develop budget process that supports inclusion of plan attributes

• Create incentives for change

• Think long term

• Show the possibilities

• Be tough!

How is the Budget Built?

• Guidelines?

• Inflation factors?

• Cuts needed?

• Revenue growth?

• Compensation increases?

• Use of reserves or budget carry-forwards?

How is the Budget Built?

• Based upon current year budget?

• Based on prior year(s’) budget(s)?

• Last year’s actuals?

• Average of past x years’ actuals?

• Incentive or new program opportunities?

Who is Ultimately Responsible?

• Budgeting by Committee

• Input from multiple constituencies inside and outside the organization

• Rank the program additions and reductions proposals

• Draw the proverbial “red line”

• What to do with multi-year commitments?

Budget Review Process

• Who is involved?

• What level of detail is reviewed?

– Line item detail

– Comparisons to prior years

• What level of detail is presented to the Board?

• Who reviews central budgets?

Budget Questions

• Should budgets be balanced?

– Conservative or aggressive estimates?

• Should budgets be cash or accrual?

• Should budgets include non-cash expenses like depreciation and accounts payable?

• Budget use of reserves?

• Budget receipt and use of grants, gifts?

Budget Monitoring and Reporting

• Monthly reports of budget versus actual

• Monthly, quarterly or annual budgets?

• Does the budget change during the year?

– If so, know what you are reviewing

– Budget variances are not necessarily bad

• KPI’s?

• Trend analysis is important

Monthly and Annual Financial Reports

• Actuals should be substantially the same – Create and present reconciliation

• Operating versus non-operating – Unrealized investment gains and losses

– Depreciation

– Use of reserves

• Educate the Leadership and the Board

Talking with Funders about Budgets

• Be knowledgeable

• Be honest and transparent

• Know what’s in the budget and what’s not

• Don’t be afraid to discuss importance of funding for infrastructure

• Understand and present impact of donor funds on your success

Tracking Progress through Dashboards

• Dashboard is a visual progress report

• Progress at a glance

• Focus on key performance indicators

• Suggest action required

• Cover the entire organization, not just budgets

Finance Dashboard

Adapted from Blue Avocado (http://www.blueavocado.org) A Nonprofit Dashboard and Signal Light for Boards

Target 6 months ago Now

Days of unrestricted cash on hand 45 days 85 days 18 days

Net surplus or deficit YTD

compared with YTD budget

Within 25k

or better

$42,500

worse than

YTD budget

$28,000

worse that

YTD budget

Government funding YTD Within 3%

5% worse

than budget

3.1% worse

than budget

Days from end of month to

financial reports 15 days 45 days 30 days

Finance

Program and Impact

Target 6 months ago Now

Number of first-time clients

enrolled 360 this year 160 205

Certifications obtained 90% 70% 82%

Paid seats per theatre

performance

90% of

available

seats 75% 85%

Presentations to churches,

companies, neighborhood groups 15 per year 7 YTD 7YTD

Program and Impact

Human Resources

Target 6 months ago Now

Performance evaluations

completed on time 90%

No data

available 82%

Truck accidents per year 0% 3 1

% diverse staff in exempt

positions 55% 20% 32%

Open workers compensation

claims

No more

than 8 15 6

Human Resources

Board of Directors

Target 6 months ago Now

Attendance at Board meetings 75% 75% 85%

CEO performance evaluation

completed 15-Feb

Not

applicable

Completed

February 13

New Board members

4 new

members by

September

30

2 new by

June 30

No change

since June

% of Board members making

personal charitable contribution 100% 35% 65%

Board of Directors

Fundraising

Target 6 months ago Now

New foundations or corporations 10 this year 3 7

New individual donors 9-Apr 11 82

Average gift size $200 $95 $150

% of unrestricted donations 30% 5% 18%

Fundraising

Compliance and Risk Management

Target 6 months ago Now

Form 990 filed on time

By

November

15

Not

applicable

Applied for

extension

Annua safety drill conducted By March 31

Not

applicable

Completed

March 15

Complete review and evaluation

of insurance coverage By June 30

Completed 4

of 7 policies

Completed

and new

policies in

place

Audit grant compliance Quarterly

Completed

25% of

grants

Completed

75% of

grants

Compliance and Risk Management

Dashboards Have Limitations

• May not be helpful on complex matters

– Consider a merger?

– Program evaluation

– Environmental scan

• Color choice is subjective

• Too many line items leads to lack of focus

Dashboard Summary

• Board members can readily focus on matters needing their attention

• Multiple data points is best

– Show trends over time

• Understand what you expect form your Board when Yellow and Red is reflected

Thanks So Much!

• For more information, please contact:

– Janet Gibbs

– President & CEO

– Mission Accomplished

– gibbs.jca@gmail.com

– www.linkedin.com/in/janetgibbs/