Many individuals use the mid-year to begin analyzing progress made towards their annual goals. This can include asking questions like “am I on pace to read the number of books I planned for the year,” “have I gone on or planned my annual vacation,” “have I saved the amount I said I would for my rainy-day fund?” For nonprofit accountants that are on a calendar fiscal year, July is the middle of the budget year making it time for a mid-year assessment of the organizational budget.
Abila has recently provided resources, webinars, whitepapers and blog posts to Abila MIP Fund Accounting™ users which supports that mid-year budget checkup. This checkup applies to all organizations, nonprofits especially. Below is a quick summary of the items to include in your mid-year budget checkup that we wanted to share with our nonprofit partners.
Here are some questions you should be asking to assess your organization’s progress towards budget goals.
- Has your organization hit its revenue forecast or have you fallen short?
- Are expenses consistent with what you anticipated?
- Have you received more grant funding than you originally budgeted, increasing revenue and associated expenses with delivering the expanded programming?
- Are you on target for hitting the second half of the year forecasts?
We work with several of our nonprofit accounting services clients to create on-going, rolling forecasts for both revenue and expenses. This informs management and the board on the progress towards reaching the budgeted targets and plans for the remainder of the year.
Many of our nonprofit partners struggle with the decision to prepare a budget amendment or continue providing variance reports to management and the Board based on the original budget. Most times our advice is to leave the budget as originally prepared and to provide variance reporting.
Remember, a budget is a tool, an important tool, to help an organization plan and forecast based on the strategies and programs of the organization. To continue monitoring the budget based on what is known at the time is a valid reporting tool. This tool provides valuable insight for management and the Board to better understand the performance of the organization. Of course, if there were a fundamental change, such as an unplanned program gain or loss, then revising the budget would be appropriate.
Is there a time that an organization should consider “re-budgeting?” We would advise yes, when the organization has experienced a shift in the nonprofit’s mission, programming or strategy. Is there a percentage or dollar threshold that would necessitate a change? Our answer is usually no, but it is dependent on the organization, management, the Board, and past practice of the organization. Developing the original budget is a comprehensive process and if the organization has experienced significant shifts in direction, the “re-budget” should receive as much attention to developing as the original budget. Does the nonprofit have the resources and personnel capacity to invest in the process a second time during the year?
While the middle of the year is a great point in time to analyze the organization’s progress to budget, we would emphasize the questions posed above should be reviewed every month by management. This is a great practice which will become routine in a matter of months.