Financial Health: 10 Characteristics of Healthy Budgets

Posted by Matthew Thomas

matthew-thomas-2As the year draws to a close, many enterprises have finalized their budgets for the next calendar year. In our work, we see a lot of different types of budgeting styles and processes. Organizations that are serious about their financial health create sound budgets. We find that sound budgets tend to have the following characteristics:

1. They are based in reasonably-expected revenues generated from the actual revenues of the past 3-5 years;

2. They have reasonable margin of revenue over expenses to handle any variations in either that may come their way;

3. They have reasonable provision for reserves that help them manage long-term goals, maintenance and opportunity; (My colleague David Van Winkle's Ministry Financing Group, a Preferred provider through Design Group International, has a great tool for measuring whether an organization or individual has adequate reserves to meet its goals.)

4. They have a good sense of the overall volatility and seasonality of their revenues and expenses and plan cash flow accordingly

5. They have a basic contingency plan for what will happen if the actual revenues and expenses diverge significantly from the plan, either up or down;

Ten_Characteristics_of_Sound_Budgets6. They account for as much of the part of the enterprise's economy for which the organization is responsible and as much of that economy as can be reasonably measured and acertained; 

7. They priortize financially the enterprise's stated priorities and goals and can present proposed financial activities narratively in light of theose priorities and goals;

8. They are fully articulated from the broadest, simplest versions presented at the highest levels down to the specific accounting line items representing specific transactions - in other words, even though different people or groups see different levels of detail (or even different amounts of the whole picture), everything connects between the most general and the most specific all the way through the system;

9. They lean in to the future rather than merely repeating the past; 

10. They have room for review and adjustment at regular intervals to maintain a reasonable plan period - in other words, if the budget is for a 12-month period, then, for instance, that budget can be revised and adjusted on a quarterly basis so that there is always a plan for 9 - 12 months out ahead. 

These are just 10 of the possible characteristics of healthy budgets. What would you add?



Financial Snapshot

A Financial Snapshot looks at your basic financial statements and gives you a picture of how healthy your organization's finances are at the moment. Get yours today!

Get your Financial Snapshot!

Read More ›

Topics: budget, Margin, Financial Planning, confusing income with the budget, Financial Health

Non-Profit Governance: Your Non-Profit Can Make A Profit

Posted by Matthew Thomas

... as long as the profits do not inure to the benefit of any private shareholder or individual.

This is a great confusion among non-profits and churches. Charities are so accustomed to being cash-strapped and short on funds that it has become normative for them to operate at deficits or at break-even levels.

Actually, your non-profit or church can collect more in revenues than it expends in any given accounting period. (That, by the way, is the definition of "profit.")

The trick is that it cannot use that profit to benefit private individuals.

In reality, healthy, growing organizations regularly bring in more money than they expend. They build a base of assets (real property, moveable property, cash and other investments), with which they can further leverage activities that fulfill their mission and promote their cause.

Moreover, fiscally healthy organizations that have a view toward the long term will work hard to maintain a surplus in their budgets so that they have funds available for more than just this fiscal year or budget cycle. They then have the capacity to meet challenges, obstacles and opportunities with more grace than the more paycheck-to-paycheck type of management.

Steward leaders make every effort to make sure their organization can fulfill its mission over the period of time required to bring that mission to completion. For many organizations, this means building revenues and accrued assets over time so as to leverage those assets and revenues for long-term impact.

Design Group International offers objective financial health assessments to organizations looking to establish sound fiscal footing and steward their resources faithfully. Click the link below to start yours today!

Read More ›

Topics: Matthew Thomas, Design Group International, Non-Profit Governance, Fiscal Health, Financial Planning, Financial Reporting