Alice in Budgetland? Journeying Down the Financial Rabbit Hole of What-Ifs

Curiouser and curiouser? When you’re managing your organization’s finances, you need to journey down the rabbit hole of ‘what-ifs’ and be prepared for every scenario. Planning for the possibilities prepares your organization for the unexpected, and if the hypothetical becomes a reality, you’ll already know what to do. Your organization needs to plan for multiple what-if scenarios to prepare your organization for what’s ahead. 

Here are six everyday scenarios your organization can plan starting today to execute tomorrow:

1. What if we need a better understanding of how to build the budget? 

Building a budget can be a daunting task. It may even seem impossible if you don’t have direction, but it can be accomplished with collaboration and precision. Build your budget by starting with your current budget as an outline. Bring in other departments at the beginning of the budget process, and then get into the financial details.  

Your budget should start with projected expenses and associated costs. Create an itemized list of expenses your organization would need to achieve every line item. Your budget team should then identify and estimate any upcoming large capital expenditures, and you should include a line item that plans for potential external factors and areas of risk.  

After creating a preliminary budget, you should plan time to review and refine your budget, seeking approval from internal stakeholders before presenting the budget to your board. If the budget is approved, you should then distribute the budget internally.

2. What if we don’t have a proper budget review process? 

Reviewing your budget is crucial to ensure your expenses are on track. You and your executive team should start the mid-year review process today if you’re in the second quarter of your fiscal year. You can determine what adjustments to make using first-half actuals. If any adjustments are needed, you should obtain the necessary approval from your board.  

The review process is more robust if you’re readying to close the books. Ideally, you should start the process at the end of the third quarter or the beginning of the fourth quarter. You want to ensure you have enough time to review your fiscal year’s performance and determine actionable insights to inform your future budget.   

3. What if there are significant variances between the budget and actuals?

Variances should raise a red flag. If spending and actuals differ, you should conduct another budgetary review as well as a look-back analysis. You must get to the root of the problem. For example, your organization could’ve under-budgeted for some programs, or possibly you capitalized on a new financial opportunity. The look-back analysis will show how every department in your organization fared and single out what was behind the variance. After identifying the issue, you can plan for it in future budgets. 

4. What if we get audited and aren’t prepared?

Don’t be afraid! Audits are something all organizations go through, and you can be prepared.  The National Council of Nonprofits, created a list of some of the most common items auditor’s review. Having these items together before you get audited will make the audit smoother. Some of things you’ll need are:    

• • Journals that detail transactions/affected accounts 
  • Ledgers for the current fiscal year 
  • Bank statements and canceled checks 
  • Payroll records and tax returns showing withholding for employees 
  • IRS Form 1099s 
  • Tax returns (990, 990-T) 
  • Invoice and paid bills (receipts) 
  • Receipts for credit card transactions 

5. What if we don’t have a strategic year-end strategy?

Set one today. To understand your direction and be intentional, your organization needs to develop and follow a strategic plan. It should steer every decision you make and is essential for budgeting and other fiscal decisions. An excellent place to start is by developing a solid strategy that aligns your budget with goals and milestones. By setting goals, you can determine what success and key performance indicators look like to your organization and develop strategies to diversify your organization’s growth. Embrace transparency when developing this and use an accounting solution that’ll scale as your organization grows. Once you’ve met internally, reach out to your board for final approval of your organization’s strategic mission.  We’ve prepared a helpful guide to make closing your EOY books easier. 

6. What if we’re dealing with staffing challenges?

  The Great Resignation has impacted every industry and vertical. More and more candidates are looking for hybrid work and higher salaries, and the nonprofit sector is facing unprecedented hiring challenges. However, there are options for your organization to come out on top. Consider implementing a low-cost recruitment program to attract new talent. When it comes to talent retention, consider adopting a more flexible workplace arrangement and investing in professional development opportunities. Update your job descriptions so new and existing employees understand your expectations. Support your current employees with training to show them you’re invested in their success. You could even consider conducting a salary review to ensure that what you’re offering is competitive.  

Read our Year-End Strategy Guide for Nonprofit Fund Accounting to learn more about how to position your organization for sustainability and growth in 2022.