Tools For Nonprofit Treasurers

     Today, I want to share some incredible tools that you can use as a nonprofit treasurer or a board member. I won’t be defining the role of a treasurer in this article, since I already covered that topic in this post. But keep in mind, a treasurer’s role can vary from the type of treasurer who has to do it all when the nonprofit is small to the type of treasure who is just making sure that everything has been done. But today, I want to focus on some of the financial tools that you, as a nonprofit treasurer, can use.

Is Your Budget a Real Time Tool or a Historical Record? 

     One of the very best financial tools that I want to see treasurers and board members use is the budget report. As I’ve shared previously, that report is called a Statement of Activities, and every accounting software that's worth its monthly fee is going to provide you with the opportunity to look at your spending and income numbers, and compare them to what your budget says.

Allocate Your Budget By Month In Your Accounting System

     Budgets are a written plan about how the nonprofit plans to be funded (income) and what the nonprofit will spend to deliver their mission (expenses). Regardless of the size of your nonprofit, I hope you are carefully crafting your budgets each year, projecting your income and expenses, and ultimately producing a budget that is balanced. 

     Once your budget is complete and you’re fully funded, (see my Nonprofit Budget Strategy for more help on this)  it’s so important to make sure that your budget is correctly allocated in your accounting system based on the timing. For example, rather than displaying $120,000 in annual fundraising income as $10,000 per month, allocate that $120,000 of income to the month in which we expect to receive it, such as the month of the big fundraiser event, or the month of December, or whatever reflects reality in your organization.  However your cashflow happens, we want the accounting system to also reflect and anticipate that timing. This turns your budget into a cashflow plan!  That’s why it’s such a powerful and valuable tool for nonprofit treasurers and board members.

Budget to Actual Report: Monthly

     Now, it’s time to generate a report that compares the budget to the actual for the month.Then ask yourself, “Does anything stand out?” Looking specifically at that one month period of time, was income more than what you expected? Was it less than you expected? What was your spending like? What was your payroll cost? Was it in line with what you expected or was it more or less than expected? Essentially, you’re looking for anything that stands out from what you anticipated. 

Budget to Actual Report: Fiscal Year

     Now, let’s zoom out a bit. Let’s take a fiscal year viewpoint of that same budget to actual report. This time, we’re not looking so narrowly at just one month, but a broader view that ultimately accumulates to an annual view. So how does this work? Well, we're comparing the totals of your income and expense based on how far you’ve progressed through the your fiscal year. For example, let’s say your fiscal year is based on the calendar year (for the sake of a simple example) and let's just say it's April. In this example, you’d be 25% through the fiscal year. In other words, you’re  one fourth of the way through the year, aka one quarter. Basically, your budget to actual for the fiscal year to date would be totaling the income and expenses (actual) for January, February, and March, and comparing them to the expected (budget) income and expenses for those same months. Hence we’d be comparing there months of budget income and expenses to three months of actual income and expenses. Then we quantify the difference between budget and actual. 

Here's a numerical example:

     Let’s say you have an income line that shows an actual income of $300,000 but the budget was for $400,000. That’s telling you you’re $100,000 behind budget. But more importantly, that’s a 25% income shortfall! Considering that shortfall as a percentage of total income can help put these numbers into perspective and signal when it’s appropriate to sound the proverbial alarm bells. 

     When you're looking at income and find it's less than what you expected, there's an indicator that we need to figure this out because we can't keep spending at the planned level if the income doesn't match the planned level. So, you would do this and continue all the way through looking at all the income and the expenses so that you're getting a good look at how reality matches up to what you planned. 

     Ultimately the question is, “Do we need to revise the plan?” Do we need to stop spending because we're in a situation where income hasn't been what we thought or we need to adjust spending because we had to spend a lot more money on something than what we had planned? The budget to actual report such a valuable tool because it takes the conversation in the boardroom from a rear view looking question like, “What happened?” to a forward looking one like, “What’s about to happen?”

Here’s another use case for the budget to actual report:  

     Let’s say you’re in the boardroom and you're talking about a new program you'd like to launch and everyone is just saying, “Well, we'll look at it for next fiscal year…” But, maybe the current year reports show Income over budget and spending under budget! Well, in this case, we’ve got capacity now! Let's talk about launching sooner and running a pilot test on something new that we want to try!

     These are all ways to use budget analysis as a tool that equips you to be a contributing member on the board. Your budget is not just a historical record to be filed. Used correctly, it empowers board members with a truly forward looking and future oriented direction for their nonprofit organizations.

     This is the second installment in my “Tools for Treasurers” series. You can find the first part of the series here . To have the next post in this series sent straight to your inbox, subscribe to my blog here. If you’d like more personalized help with your specific nonprofit situation, you can book a strategic consult with me. I look forward to serving you!