Organizational Development: Using Trends to Build Budgets

Posted by Matthew Thomas

As I mentioned in a previous article, it is important to build budgets based on trends that last longer than just one fiscal year. As I mentioned there, using 3- to 5-year trends for both income and expenses will help create reasonable estimates for the next fiscal year. Using these trends disciplines an organization not to over- or under-state any new initiatives that may begin in the upcoming fiscal year.

Financial Management: Using Trend DataWhen examining trends, it is important to look at the various sectors (or streams) of income, as well as the sectors of expenses: staff, facilities, programs/product lines, etc. Each of these may be moving in different directions, but this gets muddy when only looking at the macro trends of the bottom line. It is likely that each one of these pieces will have a trend distinct from the others – which, when combined, will provide the information necessary for strong budgeting.

Standard business spreadsheet software (I am most familiar with the Microsoft suite) has the capacity to create statistically-accurate trends from raw numbers. It is then possible to use these trend lines to forecast how those trends play out over the period of time the budget addresses. Organizations are often surprised where a slow, but steady increase or decrease takes them in a relatively short period of time. A trend-based budget is a great starting point for planning: whether winding down old initiatives, services, or products, or starting something entirely new.

Design Group International provides budget creation support as one of the financial roles we have mapped out for organizations of various sizes. Have you gotten your financial role map yet?

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Topics: Matthew Thomas, Design Group International, organizational development, nonprofit financial management, stewardism, budgeting

Organizational Development: Beware the Micro-Trends

Posted by Matthew Thomas

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Beware the Micro-Trends

Many organizations use the early fall to begin their budget process for the next year, with fiscal new beginnings in January. One of the biggest challenges to healthy budgeting is often built in to the way most organizations (and their accounting software) report the amounts in each line item on the budget.

matthew thomas, budgeting micro-trendsMost accounting software will compare this year to the previous year, natively. The problem is that most organizations need to look at longer-term trends. What is more useful is a rolling 12-month actual line item measurement. Comparing this number to previous years removes seasonal cycles of income and expenses.

Beyond the rolling 12-month line item measurement, most organizations should look at 3, 5, 7 and/or 10 year trends in both revenue and expenses. Even if a single year looks really good or really bad in that time frame, it is more likely that the overall trend will continue unless significant changes occur in the organization’s purpose, approach, products or services.

Therefore, it is good to be wary of micro-trends: the bumps, whether up or down, in a particular budget item, in a given 8-, 9-, or 12-month period. If examinations of the trends show a radical shift in a particular line, dig a little deeper: and it may still be best to take the low estimate of income and the high estimate of expenses until the overall trends adjust.

-Matthew Thomas

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Topics: Design Group International, organizational development, nonprofit financial management, stewardism

Clarity for Restricted Funds

Posted by Matthew Thomas

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Clarity for Restricted Funds

“We’re not sure if we can use that money for that.” This is a very common phrase spoken by non-profit and faith-based sector constituents, staff and board members. Many times, money is donated to organizations to support their purpose that ends up unused. Why? Often, it is because the restrictions on its use are unclear.

In order to keep from feeling this pinch, here are a few things to keep in mind:donor clarity, matthew thomas

  • Get it in writing. Preferably from the donor. Board minutes are the next best thing.
  • Review restrictions annually at budget time to make sure the funds are being used to their maximum reasonable potential.
  • Create a gift receipt and use policy. Inform donors on how you handle restricted funds. Clarity goes both ways.
  • Make sure that new board members fully understand the restrictions as written, not as legends have developed around them. Much of the lack of clarity comes from how boards have handled funds over time, rather from the restrictions themselves. (“Those are untouchable!” or “I believe the Donor would have us do only this.”)

This will help you maintain clarity for funds under your care.

-Matthew Thomas

Matthew Thomas, Design Group International

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Topics: Matthew Thomas, Design Group International, organizational development, nonprofit financial management, clarity for restricted funds, Clarity of Restricted Funds, Clarified use of Restricted Funds, donor clarity, stewardism