Before we get into that, let's first answer the basic question: What is a budget anyway?
As a business leader or owner, you've probably heard a lot of talk about finances and budgets and blah blah blah. You've been managing for awhile without a budget and things have gone alright, right?
Maybe. The answer to that is maybe. Maybe things are going alright, but maybe they aren't. Can you really say for sure? Do you have the numbers to back that up?
That's a main reason why having budgets is so important. They can be an excellent tool for getting a pulse on your organization's financial situation.
But let's not get ahead of ourselves.
Before we get into that, let's first answer the basic question: What is a budget anyway?
In general, a budget is a listing of all of your expected revenues and expenses over a given period of time. For example, if you, personally, make $4,000 per month in wages and pay $1,000 per month in rent, you know you should budget about $48,000 in revenue and $12,000 in expenses for the year. So your net income is budgeted at $36,000. Not too shabby.
And wouldn't it be great if it were that simple? But of course you have to eat, so you budget for food costs. And you have to include cell phone service, and you're also out of shampoo, so you add those to your budget.. And then you remember that your grandmother still gives you $25 every year for your birthday. Should you add that to your budget, too?
It starts to get complicated very quickly, and that's jut for your own personal finances. Imagine how much more complicated it can get when you're building a budget for an organization.
This isn't meant to scare you. A budget can be very complex, but it doesn't always have to be. Maybe instead of building a budget for an entire organization, you just need to have a budget for a small dinner you're throwing for your biggest supporters. Or perhaps you need an annual budget for your marketing department only.
A budget can be as big or as small as you need it to be to start. If you decide to start small, you can -- there are no rules here! BUT we do recommend that you set a goal to eventually build your budgets at an org-wide level, because it can help you immensely.
Why should you build a budget? We've laid out this handy article to give you 5 simple reasons:
Photo by Olu Eletu
Where does most of your revenue come from? And what do you spend the most on?
You can make some educated guesses, but building a budget can help you answer both of these questions with more certainty. For one, the first step of creating a budget involves looking at what happened last year (and the year(s) before that). Your accounting system can give you some historical reports, and when you're actually building the budget yourself, you become much more familiar with what each of those lines entail.
It's especially helpful to separate your organizational budget into small budgets, such as profit centers, programs, departments, or specific events. This will give you a much clearer indication of which of your activities are making money and which are losing money.
Once it's all laid out in front of you, you'll start seeing patterns emerge, which leads us to reason #2:
Photo by Kyle Glenn
In addition to seeing patterns, budgets help you critically analyze the decisions you've made so far -- which will allow you to make better decisions in the future. For example, are there areas you've been inadvertently prioritizing?
As you scrutinize your expenses, you may find yourself saying, "Why have we been spending so much money on office supplies?" or "I didn't realize 25% of our budget was going to Advertising and Marketing." Creating a budget allows you to make needed adjustments for the coming year (and also maybe get a better handle of your internal policies and practices).
On the revenue side, you may notice your holiday card sales have done surprisingly well, and maybe it's time to think about putting more resources toward that program and ramping it up a bit. Or maybe an area of revenue you thought was the most significant to your organization really doesn't bring in that much more money than other area. This can make you rethink your entire strategy.
Budgets also give you a heads up in terms of where you have some flexibility. You want to be sure you have some backup plans in place in case, for example, you first quarter revenue is slightly lower than you planned. You know you've budgeted an extra $1,000 in software upgrades that can wait until next year, which will help you make up for that unexpected dip in sales or donations.
Photo by Carlos Muza
After you have a budget in place, you'll want to check in throughout the year to see how you're measuring up. After all, what sense does it make to create a budget that you never look at again?
Most accounting programs have a Budget-to-Actuals report (sometimes called a Budget Variance report) built in as a standard. This report allows you to go in and check -- at any time -- how your organization is actually doing compared with how you thought it'd be doing.
We recommend reviewing the report at least four times per year, at the end of each quarter, for example; although, you may want to consider reviewing it at the end of each month to keep a closer eye on things. This will help you not only see large (and perhaps unexpected) variations from your initial expectations, but it will also help you catch errors that might have been made. ("Did we really spend $500 last month on parking?? ...Or maybe something was miscoded.") Either way, significant deviations should be very clear and obvious in the report.
And remember, revising your budget is ok! Let's say you originally budgeted $75 per month for internet fees, but then you receive a notice saying your bill has increased to $80 per month (not terribly far-fetched with most providers)?
You can -- and should -- adjust your budget as you learn new information. For example, to make up for that unexpected increase in internet fees, you might decide to decrease your budget somewhere else. That's a perfectly ok thing to do!
(Some advice: It might be good to make an additional copy of the budget as you make revisions. We've always found it to be incredibly useful to have a record of the original, unchanged budget as a reference. And if your organization is required to get budgets approved, such as with nonprofits, it'll be even more important to keep the original.)
Photo by Fabian Blank
Your budget will never be perfect. Your revenues and expenses will rarely end up being exactly what you thought. Things will always come up, and situations will always be unexpected. Because that's life.
What you can do is have contingency plans in place. As you build your budget, add some cushion in there -- think about what could happen, and adjust a bit to account for it. Some organizations even elect to add an expense line named "Contingency," and they'll dump an extra few thousand dollars in there. It's similar to a rainy day fund where you're planning for the just-in-case.
Hopefully, you never have to touch that line. But if the cost of your workers' comp insurance skyrockets without warning, or if some viral video causes a negative PR backlash and your revenues plummet, having some padding in your budget can help keep you afloat.
Photo by Patrick Perkins
Having a budget in place will be critical as you think about your organization's growth, strategy, and long-term planning. It gives you a starting point against which to set your goals and targets and can help you measure how you're doing in reaching those goals.
Maybe you're thinking about upgrading your equipment. Maybe it's about time to expand your organization and add another location. Or perhaps you plan on having a big campaign to celebrate your organization's ten year anniversary. No matter what your short- and long-term plans are, a budget can help you remember to set aside funds for specific purchases like these and others that may not occur year to year.
Finally, budgets allow you to manage proactively, giving you the tools to be in more control of your revenues and expenses and avoid having to figure out how to respond to issues on the fly. And ahhh, that would be nice.
Organizational, departmental, and event-specific budgets are an incredibly useful tool that we encourage you to utilize. They allow you to make better decisions, be proactive in your financial management, and prepare and plan for the future. And although they seem big and scary at first, once you get in there, you'll realize they're not so bad. And you might even enjoy the control and flexibility they give you in managing your business, making your life just a little bit easier. And who doesn't want that?
Once you've made having a budget a critical part of your organization, then you can better answer the question implied at the beginning of this article: How are things going in your organization?
(aka "8 Easy Ways to Stay Sane")
This is our three-part series on why it’s important to make certain kinds of investments. As many in the finance world can tell you, an investment is not an expense. Rather, it’s an upfront payment of cash or other resources that can potentially create more value for you. Today we’re working on Part III of the series: The Importance of Investment in Yourself.
As business owners, managers, and executives of organizations working to do social good, we may all be familiar with pushing ourselves just a little further than we probably should. We want to answer just one more email, work for just one more hour, serve just one more client. Our primary focus is often taking care of our organization, our customers and clients, our employees and making sure that we’re moving towards growth and impact. Unfortunately, that usually doesn’t leave much time for ourselves.
We are prone to stretch ourselves too thin in order to serve our clients and deliver projects, while also trying to manage our business, motivate our staff, and develop new business. This is especially true in nonprofits and social enterprises. It requires a delicate balance of managing relationships, putting out fires, and portraying confidence, passion, and determination. It’s exhausting. And it can also be dangerous to our mental health.
Tips and Strategies to Maintaining Sanity
Whether it’s a full gym workout or a quick walk around the block, exercise has been proven to relieve stress. When we’re busy, stopping everything may be the last thing you actually want to do, but a little activity will cause those endorphins to kick in, leaving you more energized and more motivated when you get back to your desk.
And try not to get caught up in “I must work out for an hour every single day” because, as busy as you might be, it can actually just lead to more stress (and more disappointment if you find yourself not able to commit).
2. Go Outside
Studies have shown that being outside in nature may be vital for mental health. So head outside. Take a breath of clean, fresh air. Refocus your mind.
If you're thinking, "I live in a very urban area with almost no access to nature," remember that there are some great public parks in most cities. And depending on where you live, even someone's backyard can do the trick.
Meeting up with friends is another easy way to take care of ourselves. Along with family, your friends are in the unique position to be your biggest supporters while also giving you some brutally honest feedback. They’ll help you love, laugh, and unwind and can also help you work through problems, re-focus, and stay on track. If you don’t feel like you have the time to hang out regularly with your friends, a good strategy can be to put it on your to-do list or your calendar. Try committing to just once a month at first. Then try twice a month. But truly commit to it. Make it just as important as a meeting with a client or your accountant. Prioritizing it in this way can help ensure that it gets done.
Work from home (or with very little social interaction)? Consider renting a coworking space or frequenting coffee shops with other work-from-homers. You don’t have to go there all of the time, but changing it up every now and then can really make you happier and healthier.
Want even more socialization? Try creating new reasons to go out and meet people. Join a book club. Take a class that really interests you. Go on a group walking tour of your neighborhood. There are so many ways to hang out with other people in a fun and friendly environment. You just have to go out and do it.
For those of you in geographic areas with limited groups, tours, and friends, many of these can be found online. Because, technology.
(As a bonus, making new connections and building stronger relationships not only helps you emotionally, but it helps professionally as well. Isn’t that a basic principle of networking?)
4. Eat & Sleep Well
The body and mind are connected. By taking care of your body, you can help take care of your mind.
For example, research shows that our mental well-being is influenced by what we eat. Nutritious eating can lead to reduced mental health problems and an overall balanced mood. A balanced diet of carbohydrates, proteins, fats, and vitamins can offer us more energy and a healthier mind.
A coffee and donut for breakfast may provide you with an initial burst of energy, but (as many of us have experienced) it won’t last and will eventually cause your mind to get cloudy and tired. No time to cook? You can still get a grab-and-go breakfast from your favorite cafe. Just maybe try to be more conscious about the food choices you make.
Sleep is also critical for a healthy mind. It’s recommended to regularly get 6-9 hours of sleep each day. Fewer hours or irregular sleep patterns can make you more prone to exhaustion, anxiety, decreased concentration, and depression. If you’ve ever had to pull an all-nighter in school, you know how difficult it can be to function the next day. Imagine trying to run or manage a business where the stakes are higher.
One of the best things you can do for yourself in this area is to set boundaries. Set a time that you can commit to going to bed each night (that means turn off the computer and put the phone away) and have an alarm set for the same time each morning.
(Eating and sleeping habits can be the most difficult for people to change. Remember, you don’t have to change your entire lifestyle all at once. Making little changes step-by-step can increase your mental well-being dramatically.)
5. Do Nothing (no, really)
I mean it. Do nothing.
If you’re like most, you may be constantly running from one project to another, from one meeting to another, from one task to another. This type of behavior will absolutely run us ragged and is plain just unhealthy. So take some time out and do nothing. Take a break. Slow down. Force yourself to be inactive. Heck, even try meditating. Whatever you can do to turn your brain off and relax.
Just ten minutes of doing nothing every day can significantly improve your health AND (bonus!) your productivity. Yes, it can be difficult to shut down like this, but think of it this way: In the span of an entire day, ten minutes is really almost nothing.
6. Learn & Grow
Professional development is the acceptance that we are not perfect, that we can grow, and that there is always more to learn. If you’re thinking, “I really don’t have time to take any classes or to attend any more seminars,” realize that there are many other ways to develop yourself that don’t take any more of your time.
For example, you can listen to motivational, inspiring, or educational podcasts on your way to the office or a meeting. You can play a TED Talk in the background while you perform tedious, everyday tasks (or while you're getting ready in the morning). And if you’re a goal-setter, you can include learning as part of your normal goals.
7. Give Back
An often-overlooked way of taking care of yourself is to give back. It may seem counterintuitive, but giving time, energy, and support to others really does increase our mental well-being. The National Health Service reminds us that acts of giving -- of ANY size -- can stimulate the reward areas of our brains. It’s one of those conundrums where we want to help others, and helping others makes us feel good, so helping others is both selfless and selfish.
Some obvious ways to give back include volunteering at a school, hospital, or soup kitchen, mentoring youth, and offering your services pro bono. However, giving back can easily be so much more than that. Some other examples include:
8. Say No.
This is the part that most of us struggle with more than anything else.
It’s crucial to understand that YOU CAN SAY NO. You don’t have to agree to everything. It’s ok to take the day off like you planned, and to wait until tomorrow morning to reply to that text, and to say no to working with a client because they’re not quite within your target.
Saying no can be very powerful in both your business and personal lives. But we are so terrified of letting people down, or of seeming selfish that we keep saying yes, yes, yes. We say yes until we’re overwhelmed and burnt out and are of no use to anyone.
Saying "no" is simply a matter of taking care of yourself.
Setting boundaries can provide some easy ways to say no. Try starting with setting working hours (and sticking to them!). Maybe you decide that 7:00p is your cut-off time (which means you stop answering emails, phone calls, and texts). Make sure others know about your new rule -- and be firm when they inevitably try to bend that rule. Eventually, you being unavailbe after 7:00p will be normal, and they will stop expecting a quick reply to their 9:00p message.
Remember, you’re not saying no because you’re selfish and don’t want to help people. You’re saying no because you care about your health, stress levels, and overall well-being. You are not abandoning anyone; you’re just protecting yourself from a potential nervous breakdown, anxiety attack, and/or depression.
Like the saying goes, “You can’t pour from an empty cup” (Tarryne West). In the field of social and environmental change, we want so badly to help everyone all the time. But until we learn to help ourselves first, we will be of no real use to anyone else.
We at Green Owl Consulting are very moved by the impact that nonprofit organizations can accomplish, sometimes with very few resources and very little support. And we strongly believe that in order for organizations to continue their amazing work and fulfill their missions, they must maintain financial sustainability.
To assist nonprofit boards and management staff in this area, we’ve created the following summary of general best practices that can be used as a guide.
Organizations that often struggle to maintain sufficient working capital should aim for at least three months of operating cash and work to slowly move towards six.
Keeping all your eggs in one basket.
There isn't necessarily a perfect mix of income that applies to all nonprofit organizations. However, there should be a focus on developing a healthy balance of multiple sources to minimize risk.
Additionally, if a large portion of the organization’s revenue comes from a single source, the organization should strive to operate as though those funds do not exist in order to reduce its dependence on that source.
It's important to not have too many special events since this may decrease the overall impact of each event. Many successful nonprofits hold two major events per year, each aimed at a different audience:
Some successful nonprofits only hold one special event each year rather than two. Either way, one of the events should be a signature event that people can attribute back to the organization.
Role of the Board of Directors.
(This one is a biggie.)
In addition to oversight, guidance, and governance duties, the Board of Directors of a nonprofit organization has a fiduciary duty to ensure the organization has sufficient resources, income, and cash to accomplish its goals. This is a very important measure of Board effectiveness, capability, and commitment.
This is accomplished by:
Other external engagement.
Marketing and communication efforts are important to obtain a following and ongoing support from the general public. This can be accomplished with newsletters, active social media use, press releases, and more.
An effort should be made to share the organization's mission and activities with others and to get them to excitedly pass on that information to their networks. The goal here is for the organization to remain in the forefront of its supporters' minds.
This type of strategy and action will bring a continual and growing flow of support into the organization.
By using the above information as a guide, nonprofit organizations can begin to develop both immediate and long-term strategies to move towards financial sustainability, successful mission fulfillment, and true societal impact.
This is our three-part series on why it’s important to make certain kinds of investments. As many in the finance world can tell you, an investment is not an expense. Rather, it’s an upfront payment of cash or other resources that can potentially create more value for you. Today we’re working on Part II of the series: The Importance of Investment in Your Organization.
It’s no secret that running a business -- any kind of business -- requires some sort of investment, whether that be time, energy, focus, or money. In particular, running a successful business usually requires a monetary investment. Sure, you can probably still run things without making any sort of huge investment, but you’ll have a very difficult time growing your organization to the next level (whether that means clients served, profit increased, or impact made) without putting some real money into the business. Like they say, “You must spend money to make money.”
Now, we’re not saying you should go nuts with your spending, but you should really take some time to think through what your organization needs most -- especially if you’re working with a limited budget and/or capital. It’s always best to reach out to an expert for guidance and support; but if you can’t afford it, you’ll have to at least be able to invest the time. To help guide you, we’ve compiled a list of a few of the areas where an investment in your organization can go a long way.
Did you know that Millennials are now the largest generation group in the U.S.? And did you know that the vast majority of Millennials will check out your organization or business online before purchasing, donating, or engaging with you in any way? That’s the reality these days. And that’s why it’s absolutely crucial that your organization have some kind of an online presence (and preferably a good one). If your website looks like it was built in the year 2002, most visitors will move on to something else.
Having an effective online presence doesn’t just mean having a good website. You also need to think about SEO, social media, and online review sites (because social proof is incredibly powerful).
Here’s the tricky part: Maintaining an online presence can be a lot of work. Setting up a website can take much of your time and energy, depending on the kind of site you choose to implement. If you have the budget, hiring a web designer to set everything up could be well worth it. But if you can’t afford it, you have a couple of options:
In addition to your website, you should also consider bringing someone on to manage your social media account(s). Sure, you can manage the accounts yourself if you’d like; it isn’t necessarily a difficult thing to do. But it can be incredibly time-consuming. And your time is probably better spent elsewhere. Luckily, there are plenty of college students or recent grads who not only enjoy doing this kind of work, but are really good at it, too.
Managing the Books
(This is an area most people try to avoid.)
Bookkeeping, accounting, finance, and taxes (yes, they’re different) are all functions that many business owners and managers find confusing. But they are also areas in which an investment is crucial. You may think that you don’t need it yet or that you can manage on your own, but that kind of practice can be detrimental to your organization if not managed properly.
Nonprofits and social enterprises are often regulated much more closely than other types of entities, and local and federal laws are constantly changing. But aside from needing to comply with regulations, having sound accounting and finance practices is simply a very powerful tool that business owners and managers can use to make organizational decisions. How do you develop your strategies without having a good grasp of the organization’s finances?
Of course, we aren’t saying that you have to learn how to do it all yourself. You should, though, seriously consider either hiring someone internally to handle it all, or outsource it to a reputable company. Whatever your preference, this is an area that shouldn’t be avoided.
Another critical area that should be taken into account is anything related to the law. The thought of being sued is always creeping around in the back of our minds (since many of us grew up in a litigious society). Deciding whether or not to hire a business lawyer can be a Catch-22 for a lot of people: Having a lawyer on retainer is expensive; fighting a lawsuit because you didn’t retain a lawyer is expensive.
Bringing in legal help early on is a better financial decision in the long run. Although it can still be pricey, it’s much less expensive than hiring someone afterwards to clean up a mess. (Lawsuits, investigations, negotiations, etc can drag on and on, and at an hourly rate, the legal fees can pile up.)
A little tip: You don’t need a lawyer for every little thing. There are plenty of resources available online for the simple stuff. If you want to save some money, you can also consider doing a lot of the prep work first then bringing on a lawyer to consult or offer guidance on what you’ve done. For example, draft up a contract that you need then ask a lawyer to adjust and fine tune where necessary. (It’s always better if you can hire an attorney from the beginning, though. We strongly recommend consulting an attorney regarding all legal matters whenever possible.)
An excellent way of leveraging a small amount of money to save a large amount of time is to invest in productivity apps.
There are also a ton of great tools to help with collaboration, project management, and team organization. Most are pretty similar, but each offers its own unique differences. One will likely fit better with your organization’s culture or your own personal style. Here are six of the most popular ones:
Other Investments to Consider
Copywriting and Content Marketing
Hiring someone with a background in writing can help you avoid any embarrassing typos or misunderstandings. And this will be important for any of your marketing materials, content for your website, or blog posts you choose to send out into the world.
Administrative Assistant and Customer Service
Bringing someone on to handle the day-to-day administrative tasks will simply be necessary if you want your organization to grow. There will come a time to let the tedious tasks go and learn that you can’t do everything yourself forever. Think of the tasks that take up most of your time and the tasks that you enjoy the least. Usually, someone can be brought on to take those from you.
Coaching and Mentorship
Sometimes, you might get lucky enough to find this for free. But if not, you should consider hiring a professional coach or mentor to help guide you and your team through growth, through change, and through the development of a strategic plan. This can help save a lot of headaches resulting from trying to figure it all out on your own.
Any investment in your organization should be treated as an opportunity to create more value and can save you time, money, and energy if executed properly. We leave you with a caveat: Be careful not to invest in an aspect of your business that is failing and should probably just be eliminated. Sometimes you just have to let go of something that isn’t working. You, your team, and your organization will be better for it.
This is our three-part series on why it’s important to make certain kinds of investments. As many in the finance world can tell you, an investment is not an expense. Rather, it’s an upfront payment of cash or other resources that can potentially create more value for you. We’ll start today with Part I of the series: The Importance of Investment in Your Employees.
It’s commonly known and is generally considered a best practice for organizations to invest in developing their top management and governing board. Makes sense. These are the groups that lead and govern the organization, so they should be at their absolute best.
Groups that are often overlooked, however, are lower- and mid-level employees. They should also be considered an area of investment as they should also be at their best if an organization truly wants to be successful.
How can you invest in your employees?
The best way to invest in your employees is to simply provide opportunities for professional and personal development. Offer training and access to courses where they can hone their current skills and gain new ones. Begin thinking more seriously about instituting succession planning, developing a leadership pipeline, and promoting from within. Find ways to allow employees to participate in cross-departmental training and mentoring. Not only that, but allow them to explore their personal interests as well. Maybe your Janitor loves creative writing. Or maybe your Accounting Manager really enjoys baking. It’s important to recognize that people are more than their jobs.
By finding creative ways to support your staff professionally and personally, you can let your employees know that you value them, and that they aren’t just cogs in the machine. They can see when time and money is being pumped into development programs for leadership and the board, and when they are included with similar opportunities, it can boost morale and can make them feel like they are a valued part of the team. Employees that are recipients of this kind of investment will develop a sense of deep loyalty and commitment to the organization. They will want to be held more accountable for their work and will want to continually do better.
So why are employees overlooked?
Even though an increasing amount of evidence suggests that investing in employees helps ensure an organization’s long-term success, it is still very common for staff to be excluded from such programs. Many leaders state that the cost of such an investment is simply far too high, that cash is a little too tight, that there isn’t any money in the budget for it. But this line of thinking can severely cripple an organization’s ability to operate sustainably and effectively. In fact, it actually costs LESS to invest in your staff over the long term.
Turnover is expensive.
The cost of employee turnover is excruciatingly high. Think about the process of filling a position:
All of this is exceedingly costly. But an investment in your staff, as mentioned before, is not a cost. It will be paid back to you.
Employees will be better trained and will perform better at their jobs.
Not only will they perform their job functions better, but they will feel free to be creative and will begin seeking more innovative ways to solve problems and pursue your organization’s mission. They will be excited about their work and, as a result, will provide a better service to your organization’s customers, clients, and/or program beneficiaries. They will work more effectively AND efficiently, thereby reducing costs and potentially increasing revenues.
Employees will be more engaged and will have higher job satisfaction.
Increased training and development of your employees will allow them to be empowered in their work. This will help single out employees who are excited about their job, who want to be more engaged in your cause, and who want to do more for the organization. It can also help identify employees who want to take on more responsibility and who have the potential to move up the ranks.
You will be better able to attract high-quality talent.
Having an organization with a culture of valuing and developing its team will boost its reputation in your industry and region. Your employees will be proud of where they work, will be less likely to leave, and will burnout much less easily--which, as you may know, is often an issue in nonprofits and other cause-focused organizations. Your organization’s reputation will be able to attract the best and the brightest as they seek work they can enjoy, with a team they can enjoy, and with the freedom and support to pursue their goals.
Investing in your employees is increasingly crucial for the success of any organization. Effectively prioritizing even a little time, money, and other resources into your staff will be paid back over the long term. Implementing a culture of growth and development will allow your organization to be sustainable, to pursue its mission, and to thrive.
Be sure to check out Parts II and III of the Importance of Investment series in the coming weeks: The Importance of Investment in Your Organization, and The Importance of Investment in Yourself.
Brought to you by the Green Owl team. Check back here for posts on industry best practices, advice, and other useful resources.