Budgets, Budgets, Budgets

I have spent the last couple of weeks learning about budgeting and trying to figure out the finances at the non-profit where I work. I am sure many of your will find this all a little boring. This is the third round of budgeting I have done since starting work there. The first year, I compiled spreadsheets of the actual experiences for the first 8 months of the year and then extrapolated from there. In that first year it was looking at the funds (limited) against the revenues (many) and trying to make tough decisions. Last year things were much better financially so that made things much easier.

This year we have 3 accountants on our board who, along with me, comprise the finance committee. Most non-profits would be grateful to have one accountant let alone three. One of them in particular has been very helpful with the budgeting process. They have brought so much financial structure, reporting and a real sense of security to our organization, which ultimately, helps us to serve our clients better.

As I approached preparing the budget I did it in my usual way. This year I also had the benefit of a variance analysis report.* By using that report, I can see exactly what has been spent and when. Unlike last year we are not expecting any increases in funding yet facing budget pressures in several areas like rent, increased HST and a need for some increased staffing. Our client caseload has doubled in the last 2 years, so overall service delivery costs have increased.

Instead of budgeting the normal way, one of the accountants asked me to prepare an ‘Expected Value’ budget. In this kind of budget you take a conservative amount and a less conservative amount, determine a weighting (by percentage) and calculate. For example, you have a funding source that has given you $30,000 for the past 3 years. This year, based on your increased client load you are going to ask for $45,000. You decide that you have a 60% chance you are going to receive $30,000 and a 40% chance you will receive $45,000. You then multiply both numbers by their percentage and add the two numbers together. The sum gives you the ‘expected value.’ In this case the expected value would be $36,000. You do the same thing with expenses – especially the ones you can’t predict.

I may be weird but I really enjoyed doing this and learning this new process. I still used many of the same tools I had previously like various reports along with the needs of clients and staff within available funds. I thing this way of budgeting really provides a much more accurate picture of revenues and expenses. It also allows you to try and find a balance with variable revenue sources and expenses.


*A report of expenses vs budgeted amounts.