Budgeting For Associations

Is your association’s budget an annual exercise in drudgery? It doesn’t have to be that way if you follow a few commonsense budgeting tips.

Do you spend countless hours preparing a budget knowing this time should have been spent on more productive activities?

Do you feel as if you are being controlled by your association rather than controlling it due to an obsolete budgeting system?

Despite your best efforts, when completed, is your new budget usually a mere restatement of the prior year’s actual activity adjusted for inflation and other factors and divided by 12?

It doesn’t have to be that way if you follow a few commonsense budgeting tips.

Understandable Financial Statements

Your financial statements should be constructed to provide management what it needs to effectively control the association. The statements should compare actual versus budget data for both the current year and the year-to-date. They should be understandable to non-accounting management and easy to interpret. In addition, the statements should be streamlined, relatively brief, and not bogged down with unnecessary detail that will frustrate the reader.

An understandable income statement is a very clear that provides management a good snapshot as to where the association is. An understandable income state is the cornerstone for an effective budget.

Timely Financial Statements

Internal financial statements should prepared and distributed on a monthly basis and within 10 working days after the close of the prior month. When statements are prepared other than monthly and it takes longer than 10 days to distribute them, management cannot take proactive, well-thought-out action to correct problems. Rather, decisions will be based on old data, problems may worsen, and valuable time that could have been used to correct the problem will be lost.

Accurate Data

This tip is obvious, but unless the data you are basing your budget on is accurate and verified by an independent CPA, your budget may be an exercise in futility.

Easy-To-Complete Forms

Don’t frustrate your managers by making the budget overly complex and cumbersome. Make them responsible for budgeting only items under their control and design the forms so that they are easy to complete.

Continuous Budgeting System

This system begins with the distribution of monthly financial statements. These monthly statements should be prepared and distributed within 10 working days after the close of the prior month. Proper timing of these monthly financial statements is essential if management wants to be in a proactive rather that reactive position to correct budgetary problems. The sooner management recognizes that problems exist, the faster corrective plans of action can be implemented.

Once managers receive the monthly financial statements, they have two responsibilities:

• They must analyze and detail the revenue and controllable expenses credited and charged to their departments in the current month while that information; is fresh in their minds and readily available.
• They must report on what went right and what went wrong for the prior month and what they could have done differently if they had been able.

Once these tasks have been completed, managers will budget for the same revenue and expense items that they have just analyzed for the same month of the next year.

This continuous, or rolling, approach to budgeting has two advantages over other budgeting systems:

• It breaks down the time-consuming annual budgeting processes into 12 easily manageable budget increments.
• Its results in a remarkably accurate and detailed budget.

It is important for the chief staff executive to schedule a monthly budget meeting. At this meeting, managers will report on the actual versus budget detail for the prior month and submit the preliminary budgets for the same month next year for consideration by higher management.

The chief staff executive will review and adjust the preliminary monthly budgets submitted by management. Managers then will submit these budgets to the budget coordinator, who updates the master budget. When the time comes for the annual budget to be prepared, the work is virtually complete, because it has been done in 12 manageable monthly increments. One fine-tuning will be necessary to complete the annual budget documents.

The key to the success of this system is the competence of the budget coordinator. This person will typically be responsible for the more technical aspects of the budget, such as accurate depreciation calculations, cash flow projections, inventory valuations, and any other budget responsibility that has not been assigned to other managers.

This system is easy to implement, easy to manage, requires much less staff time, assures true fiscal accountability, predicts cash flow and results in a fare more accurate budget than traditional budgeting approaches.

An Expense Reduction Plan

Financial and budget problems are inevitable, even in the most stable associations. Despite this inevitability, few associations have formal plans about what action they will take when faced with financial problems. If a not-for-profit association has no formal plan of action to offset negative budget variances, management will implement hasty decisions that may cause problems.

The easiest way to implement a plan of action to offset negative budget variances is to have managers complete an expense reduction plan in conjunction with their monthly budget responsibilities. Unfavorable budget variances should be addressed by a plan that will reduce expense rather than rely on an unpredictable increase in revenues.

A Complete Budget Package

Often, associations only think of the operating budget when preparing a budget. A thoroughly prepared budget should include the following:

An operating budget

A capital purchases budget

A cash flow budget

An inventory and acquisition budget

A revenue and expense trend analysis