The annual budget exercise is the life blood of association sustainability. A good budget is creative, intelligent and practical. It’s the numerical picture of where we’re going and how we’re going to get there. It shows how we’re going to use the money we bring in the door to serve our members. If we create an excellent budget and follow it, line by line, will be both sustainable and successful.
Here are some common, but bad practices, and some best practices:
Common bad practices
Revenue projections: Revenue projections are a “plug” figure
- The revenue projections are not thoughtfully prepared. A revenue number is simply inserted to match our planned expenditures. When revenue projections are not met, they’re discounted as “out of our control”!
- Performance expectations: As long as we meet the bottom line target at the end of the year we’ve done our job. Individual line items are not respected.
- The CFO or Treasurer prepares the budget based on last year’s numbers. The management team is not engaged in the process.
- Revenue Diversification: If member dues/fees revenue is greater than 50% of the total, we’re vulnerable. Member dues should be important enough to keep us focused on why we exist but not so high that we’re forced to reduce member services during a decline – just when our members need us most. Revenue diversification should be an important objective.
- Thoughtful Planning: Every line item in the budget should match our strategic objectives for that area. What do we need to invest in? How can we increase efficiency to reduce costs? Where do we need to focus our revenue sources?
- Meaningful tracking: Track budget/actual monthly to keep on top of activity. Saving money on one item is not an excuse to over spend on another expense item. Revenue windfalls are not an excuse to fall short of other revenue projections.
- Team engagement: The whole management team should be engaged in the budget process and line managers should have accountability for their sector of the budget.
If you’ve never done a really thoughtful, meaningful, budget, the first time will be time consuming and may be a little painful – particularly if you’re one of those smart people who hates numbers. But it will get easier each year – and you’ll see the results. If you would like help and support to get there ask us about our Leadership Support Program.