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Tips for preparing not for profit budgets
Is the calendar right? Is it really the end of April? Yes… we are already in the final quarter of FY22, which means you need to be preparing your not for profit budget.
Organisations with a June financial year end should be deep in their planning for FY23. You want to have your budget approved by your Board before you issue your July reports in August… because by then you’ll be busy with year-end… so there’s no time to waste!
The size of your not for profit organisation and the scale of your operations will drive the level of detail required in your budget.
We’ve put together some tips that will help you prepare for the coming year.
Operational plan for activities
Having a clear operational plan for FY23 is the crucial first step in your budget preparation. Once you know the activities you intend to pursue, you can determine how much they will cost and allocate the appropriate budget.
If you have multiple revenue streams with distinct activities, especially where there are acquittal requirements, it is best to budget per activity or cost centre.
A good budget template will help you separate your budget by cost centre and roll up the various parts to create your overall organisational budget.
Salaries and super
Staff payroll usually accounts for around 70-80% of an organisation’s expenditure, so it is a critical component to get right. When you are budgeting for FY23, make sure you capture the anticipated award or other salary increments that may occur during the year.
Budgeting by individual role helps you to understand where variances come from when there are staff turnover and vacancies during the year.
It’s also important to remember that the employer super guarantee increases to 10.5% from 1 July 2022.
Capturing your costs
Once you have budgeted your staffing costs, you should move to fixed expenses. These are the budget items that you are committed to and are unlikely to change. Capturing these costs accurately shouldn’t be too difficult. They include outgoings like your rent, utilities and any other regular services you have contracted.
We also recommend noting down your assumptions! Hopefully you’re building your budget in a spreadsheet so it adds the numbers up for you. (Don’t laugh, we’ve seen an interesting variety of financial documents prepared with manual calculations.)
Your assumptions can be quite helpful – especially if you need to review your budget document in order to understand variances that crop up during the year, or if you want to revise your figures during the budget build or at a mid-year revision if your income position is less positive than anticipated.
When it comes to your variable costs and your ‘nice to haves’, be especially diligent in recording assumptions… because it’s really hard to adjust them if you don’t remember the original thinking. Consider creating a supporting spreadsheet tab that includes your working calculations behind individual items such as memberships, events and sales. That way, all the information you need is in the same file, and you can capture the very granular detail behind your assumptions.
Current financial year
Finally, be guided by the current financial year and where it looks like landing – but also be mindful that we’ve had a couple of unusual years with COVID impacts and FY23 might look quite different.
Some organisations will have lost income due to lockdowns while others may have received additional funding for COVID response activities… either way, make sure you don’t mistakenly carry forward outdated assumptions.
Our team is here to help
As always, our team of highly skilled NFP accounting specialists is available to help you with your not for profit budgeting. We have the skills, systems expertise and financial intelligence to empower your organisation and prepare for the year ahead.
If you’d like to find out more about how we can help you, please contact us today.
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