Budgeting

It is best to start the budgeting process about 9 months before the fiscal year starts. If your organization operates on a calendar year, the draft budget should be developed in March. For fiscal year budgets starting on July 1, October is the time to draft the budget.

There are good reasons to draft the budget 9 months before it is adopted.

Looking 21 months into the future helps everyone look at the big picture and the mission

Looking into the future causes people to be optimistic and hopeful rather than focused on the reasons why things might be difficult

The future causes us to focus on solutions rather than limitations (revenue rather than cost cutting)

It is unnecessary to have a perfectly balanced budget so the trauma and drama are avoided

The budgeting process becomes an exercise in preparing for a better year

Let us assume the draft budget with the mission-driven changes indicates that an additional $100,000 of income will be required. Discovering the need two months before the budget is due creates a very difficult problem. In many organizations, it means the mission-driven spending will be abandon. However, when there is nine months before the adoption of the budget it is possible to change processes, encourage more clients to enroll (if there is a fee based or tuition system), modify the donor relations system, and investigate and apply for more grants.

As time passes, it will be possible to determine how well the revenue generation process is working. With good success, it is possible to confidently adopt the budget. Otherwise, it is possible to scale back the investment in the mission. Scaling back is better than abandoning. Even limited success is a step up.

Why wait three months before starting on the next budget? Primarily because it is provides early confirmation that the current budget is realistic.

Next Step:

Warn the board that budgeting will start earlier than usual and why

Create a draft budget with an emphasis on growing the mission but without working out all of the details that are usually part of the budgeting process (It is a draft so there is no need for it to be perfect.)

Create a plan to meet the revenue requirements and monitor the expense estimates to ensure they are realistic in the ever-changing world we live in

About three months before the budget is adopted make the final adjustments based upon the success of the plan over the past several months

This process offers many benefits besides being mission driven. Because it is a refining process spread over several months, there are fewer heated budget discussions (none hopefully). The success of the plan makes it easier for everyone to face the next year with hope and optimism. The growth in the mission increases sustainability and the organization's reputation.

Perhaps one of the best benefits is that the board focuses on the future and is less tempted to micromanage the operations. The shorter the time allowed to create the budget the more there is a focus on controlling costs. The cost control process invites micromanaging because everyone who voted for the budget feels honor bound to make sure the promises are kept. Does anyone or the mission benefit from micromanaging?

When will your budgeting process start?