Name: Building a Culture of Effective Budgeting Practice
Uploaded: 2026-10-06T18:30:55.648Z
Duration: 59 min 40 s
Description: Building a Culture of Effective Budgeting Practice

Transcript for "Building a Culture of Effective Budgeting Practice": Hi, everyone, and welcome. My name is Caroline, and I'll be kicking things off today. Thank you for joining us for a financial resilience framework for nonprofit leaders. Here's our agenda for today. I will cover some housekeeping and CPE things, and then we'll hand it over to Mike and Paul for their presentation. Let's quickly cover just a few housekeeping details. On the right hand side of your screen, you'll see the control panel with chat, docs, polls, and q and a. These are your tools to interact with us throughout the webinar. In the docs tab, you can download today's webinar, and we'll send you an email of today's webinar recording after the session. For polls, all poll questions will appear in the polls tab, which pops up in the control panel during the presentation, and each poll will stay open for a few minutes so you have time to respond. If you are looking to earn CPE credit, responding to polls is required. The polls tab will disappear once the polls close. For chat and q and a, feel free to chat with us and other attendees during the webinar. If you have questions, submit them in the q and a box in your control panel, and we'll answer as many as we can during the session and at the end. And then for streaming issues, if you experience any streaming problems, try refreshing your browser, and this usually resolves the issue quickly. And then just to go over if you are a current customer and have a question about your software, we recommend using the chat or calling the support number provided here. Again, going over CPE credit is available for this session. You must answer all three full questions to receive CPE credit, and certificates will be sent out within two weeks of the webinar over email. If you have any questions or issues, please reply to the email or contact here. Awesome. And with that, let's get started. I'm excited to hand things over to Mike and Paul. Perfect. Thank you, Caroline. We're looking forward to today's session. Paul, I'll just kick off real quick. I'm coming to you from, Washington DC area is my home front, with fiscal strategies for nonprofits and sustainability education for nonprofits. I've spent my career in public accounting mostly and now on the consulting side working between the CFO, chief financial officer, and CSO, chief strategy officer with nonprofit organizations and NGOs, working with, on sustainability and short and intermediate financial planning. Divide by time now, roughly into thirds. A third working with... Directly with clients. A third doing classes like this. My home base for that is Georgetown University here in DC. And, Paul, I know you do this too. It's free. My wife and I, we try to allocate about third of our time to be active volunteers working with different nonprofit organizations and sitting on boards wherever we can. Yeah. Absolutely. And good good morning or good afternoon, depending on where you're tuning in from today. My name is Paul Preziati, and I'm a partner with Johnson Lambert. A little bit about our firm, we're a national CPA firm that provides audit, tax, consulting, outsourced accounting, and other services to nonprofits, employee benefit plans, and insurance companies. And myself, I primarily work in our nonprofit and employee benefit plan industries. Aside from my day job, echo Mike's comments, I I think serving on nonprofit boards is a valuable exercise. I really enjoy doing it, and I've grown personally and professionally from all that activity there. So without further ado, let's get into today's topic, budgeting. Yep. This isn't an easy one, Mike. No. This one here, Paul, we've got a number of sessions, and I have to honestly say, and I think you and I were talking about this last week. Each one of these has really impacted the way we've worked with nonprofits through the budgeting process. And it... And it's really different because, you know, budgets exist everywhere. Right, Paul? But we have to balance this in this cultural world that you and I talk about is, you know, it's... We have to... We're there for a public good, and we're working with volunteers. And this board... We gotta remind ourselves that these board members are volunteers and such. And so, Paul, I think these three things, when we're we're working with our limited, you know, financial resources, how do you balance, Paul, in a capacity, right, and sustainability and continuity? To me, there are three key factors. Yeah. And capacity is always gonna be an issue with nonprofit organizations too, just the nature of the turnover, nature of mission and operations. And and then you add on it too, a lot of the folks that are making the budgetary decisions don't necessarily have a financial background, so this isn't an easy exercise to guide. And when we come back to this, Paul, later on especially, a lot of times we hear capacity, we think about funding. Right? But we also have the ability for us to operate, you know, staffing. Do we have the right people and skills? And sustainability and continuity are two different things. Sustainability is can we sustain the organization? And then continuity to me is more on the mission. Sustainability is more on the financial side, but there's lots of different ways to interpret it. So I always like to put the two together and such. And, you know, culture within organizations. And how do you match budget to culture, Paul? And for me, the way I know budgeting is a culture and organization when it's in the conversations all the time. It's not a once a year drill around budget preparation time, and we gotta work at that. Yeah. And we don't mean to add work to your already busy workload, but a budget isn't something, as Mike said, that you should be touching once a year. It should be something that's continually assessed because as Mike always says, how long do you... Is the budget good for, Mike? I'm at three seconds right now. My standard's three and a half seconds. I've been as low as two and a half, but that was back in co... COVID time. But I think we're in this interactive time, and we're gonna come back to that, Paul. It's so good that you brought that up, that we're... You know, we don't know where we're gonna be tomorrow half the time on a lot of issues and things. And so we're gonna we're gonna go through five sections here, and you're gonna see that ownership is is a key, theme that we're gonna keep coming back to. Here are the five sections. Paul, just real quick. We're gonna start out with, you know, hitting the pause button. I like to talk about a lot of times to say, you know, just step back and assess the budgeting processes and when you can do that, not... To me, Paul, my most important one is the rolling projections, and how that interacts with budgets because it takes a static document, which is a budget, and converts it into an interactive process that... Because the projections, we can constantly be rolling out. And then we'll go back and look at funding. Okay? Of course. It's an issue. And the flip side of the funding on that capacity issue is we wanna take a look at budgeting for salaries from a capacity perspective, not just the dollars. And then we're gonna finish up with, you know, the importance of decentralizing budget processes and conversations and trying to have a little trick at the end, which is our pre month end closing meeting. So that's where we're gonna go with things. And I'll, just. add to that we want this session to be interactive. So if you have questions as we're going through, please don't hesitate to use the q and a function as we'll be monitoring that. Yep. Perfect. And we're gonna hit each of these sections about ten minutes, so we'll be moving pretty quickly. Paul, I am always surprised how many organizations don't have this. And it doesn't have to be really formal where you hit the pause button and say, hey. Let's look at our budgeting systems and practices, not the budget, but how we do this, how we interact with it. And like a lot of things on a risk assessment, it's just that recognition to stop and look. And so we... Paul and I wanna highlight that for you here. And there's three important questions that come up. I just wanna get these up on the screen, Paul. And there are no particular order, but, you know, are users, right, getting the information they need out of these reports? And then you'll see here's the ownership. And are they... And is everybody from an awareness perspective using this information to drive actions, planning? And my favorite one, Paul, is interact... You know, interactions, conversations back and forth. Yeah. And it's a useful conversation to have too with the mindset that very rarely does the budgeting process go exactly as you planned it. If you've ever had that happened, more power to you. I haven't seen it yet in my twenty plus, years in this career working with nonprofits and serving on nonprofit boards. Now when's the good time to do the annual assessment of it? This is a good topic for discussion. I I know we say almost any time will work here, but my personal opinion, I prefer to do it right after the budgeting process is is complete. And why is that? Because it's fresh in your mind. You're gonna have memories of what went well, what didn't go well. Whereas if you wait six months from now, I can only speak from my perspective, I'm not gonna remember what happened. Where do you come out on that, Mike? Yeah. First and foremost, Paul, I'm gonna hit you with my checklist question. You know, I believe in the checklist, and there's so many different ways to do this. And it needs to be a checklist item, number one. And then, of course, then we gotta sign a date to it, and such. And so, Paul, like you, I think when we're done the process, it's a great time. Board's approved it before we, you know, put that thing away till next year because we only prepare a budget once a year. It's a great time to document. The only thing is sometimes I fall back to the other one. For some organizations where one year looks so different from another year that maybe it's better to do that assessment before we start the next cycle. So it's really... It... To me, Paul, the answer for me is whatever works for you that you can consistently do it year over year. And I think you hit the, you know, on the head. I would do it the way you said. Agreed. But most importantly, make sure it's an item in your checklist. Because if it's not, then I can guarantee you it's not gonna get done. Exactly. So let's go through the three questions quickly here a little bit. And this is one that I think we have to stop, Paul. I don't think it's a bunch of work, but it's more like opening our eyes. Are the systems we're using, are they easy for the nonfinancial manager, not the finance people, to comprehend? And are they inherently useful? And if you can't trick check those two boxes... And, Paul, you know, there's not too many things, but... And when it comes to budgeting for me, simpler is better. Because simpler means more people are gonna connect to it. If more people connect to it, they're gonna use it. And so... And this is, I think, you know, keeping the eyes open, Paul, on this is, my way... Thing that I'm trying to do is seeing if they're interacting with it. Okay? And if they're using that interaction to drive questions and, you know, come to us in the finance department. But I think it's even better, Paul. I think we have a win when a nonfinancial manager gets the standard report each month, and they they look at that and don't go running to finance. So you go and talk to a colleague about it who's in a different program out of care. It starts a conversation. So we're just looking... That interaction's key. Yeah. And what's critical is getting to know that nonfinancial manager because everyone learns and interacts in a in a different way. And without that knowledge of of how they interact and how they interpret information, you're not gonna be able to get them the most effective tools they need to make this a successful budgeting process. For some people, it could be financial statements. It could be straight financial information. But, Mike, it doesn't have to be. We don't have to be married to giving giving individuals financial statements. In in my mind, it's whatever is gonna get us to the most accurate budgetary result and is going to allow us to to track, projections from a rolling basis. And from these interactions, Paul, you learn about the so called psychological barriers to why people aren't opening these reports, why they're not interacting with them. And usually, it's just a little pivoting, and I use what you... Paul, I use what you do. And it creates a little bit of work, but sometimes not everybody gets the same report or the same format and and such. And I think the systems and things can be designed in a way that you can you can customize your ports. And if you get people a little more comfortable, they're going to use the reports more. It comes down to that. We gotta get over these psychological barriers and and sit with them and and walk them through. The next one, Paul, is ownership. I just wanna spend a couple seconds here on this, but I think in oftentimes, whether we mean to or not, we take ownership away through our words, not the systems, through our words, how we refer to the budget. And so these individuals for me... And, you know, budgeting is a circle to me. We're always on it. We're preparing the budget. We're monitoring, preparing next year's budget. But I think what we really have to have here is is that in the preparation process that we decentralize that, we're gonna talk about that more at the end. And that... I think ownership comes there with that. They build... They're involved with building their own budget. And then on the ongoing basis, the... You know, how are we doing the performance, and we're gonna get the projections here real soon. Are they owning, you know, each of these processes that they're heavily involved? Yeah. And, again, the key point to ownership here is how do you do this? How do you foster ownership? I have a couple of thoughts. Number one, it comes back again to communication. I sound like a broken record. But figuring out how you can interact with these programmatic folks and and get feedback, hear their feedback. For some folks, that's gonna be picking up the phone, getting on a video call. For some groups, it's going to be doing a standing group meeting. For others, maybe it's a chat, maybe it's a text. Again, you're not gonna know the right answer to that unless you're interacting with these folks. And, Paul, I think you marry what you just said with this. I, as a CFO or a finance person, I try not to lead with the. numbers. And you see here in the middle of the slide, it's marrying programmatic results with financial results. And so often, we slip to the dollars. Right, Paul? And if you could sit there and it's like, how's the program doing? You know? We're... You know, is engagement up? You know, whatever, you know, whatever metrics you're looking at and try to go to nonfinancial metrics and then come in with the dollar metrics layer on. And it... I think it just shows empathy, Paul. Can we use that word? I mean, this is hard to run these programs, manage these grants, pull off these events. Would you agree with that? Yeah. Absolutely. And we have one pretty interesting question in here, and it mentioned, Mike, you... That finance teams can unintentionally take ownership away from managers. 100%. Could you provide language about what would encourage ownership? I'll give one non language example. Not everyone's gonna like this, but I'm just gonna say it. Put some sort of goal in their annual evaluation about it. Now it doesn't have to be success. I I would probably encourage maybe not doing that. I would say successful interaction, suggesting new budgetary goals, suggesting a new way to look at a metric, suggesting new, you know, data points, and we'll get a little more into that later. But, Mike, what do you think about that one? Agree with you on that. And this happened sorta early on in my career. It was best comp... One of the best compliments I ever got when they said, oh, I like dealing with Mike in the finance department because they listen to me. This is from program managers. So what I'm saying, Paul, is we have to listen to them. And I learned this in a speaking class a long time ago, you know, or communications class. Like, you could show you're listening by repeating back what they're saying to to you and then go to the numbers. So I think it's that back to here on this slide. It's just that balancing act that these program... I mean, we're a nonprofit. We're compromised. If we could make a billion dollars, we'd be a for profit. Right? We're a constant compromise doing the best programs we can with limited resources. And if you can listen to these project managers and they compliment you and say, oh, finance department listened to me. So then C and T, confident trust goes up. So listen. Take that time to... You know, and get, you know, get in with these users of the reports. So we're gonna wrap this section up here, Paul, real quick. But I think this is an important point. When we get the question free, is it, three? Is it driving results? This is where the budgets drive conversations. Questions one and two are individual. Right? But question three is now we got the group working together on the budget unit, and we're using this. A budget is a projection. You know? It's just a projection that we asked the board to approve as a budget. We all worked on that. Now a member budget's good for three and a half seconds. Right? We're constantly reassessing. Reassessing comes out on a month over month basis. Reports come out, compare the budget, what's... Update our projections, and then what do we do? Okay? And we're looking at that. And and that that engine is revving here. So I always like to say this awareness, it's a driving and, you know, results. You could see that through the conversations. One or two are individual based. Number three is is a group based. Okay. So, and, you know, last thing, just remember, why do we have budgets? It's to marry this limited resources that we have to changing conditions and fulfilling our programs and mission and and making sure that everybody, you know, through a budget conversation is involved with that. Okay, Paul. So that brings us to our first polling question. Alright. We've got our first question here. Does your organization perform regular annual assessments of your budget building process? Yes. Every year, sometimes, but not annually, no, or I'm not sure in it. And if you wanna go ahead and respond in in, the polls, I'll monitor that. Mike, where do you think we're gonna end up here? I'm really interested in this today because I think this has changed over time. And I think we could even add the word formal versus informal, but I bet you it's less than 50% that people are doing... Going through a... Especially a formal process to assess their budgeting systems. And they might do it, like, on a once every five year basis because they're changing, you know, physical systems or or something. What do you thought, Paul? What do you think it's gonna be? I like your 50% number. I'll stick with that one. And and we'll just give everyone a couple of more seconds here. Again, please remember to respond in order to get CPE credit. Okay. I'm. gonna go ahead and share the results. And here we can see, Mike, we weren't we weren't wrong here. We got a. 46%. I love it. Yep. And I... Good stuff. In in some of this, you know, just one more second, Paul, here. It can be informal. As as leaders in finance, we can do this informally, but I I really advocate for putting it on a checklist to go through a formal process. It's not hours and hours that we ask the question, what's working, what's not. And I think you're gonna see this in each of these takeaways. These are things that Paul and I use every day and have a real impact on the organization, and it's usually just an investment of awareness and a little bit of time. Okay. Paul, this is my favorite section. You know me and my rolling projections. Okay? And, what I'd like to point out here is it's a culture of projections. Okay? It's constantly... Things are evolving all the time here. And I like to think of it this way, Paul. You know, what is a budget? A budget is a... What I would call a super projection. Right? We spend a lot of time projecting for the next year, and we ask the board to approve it as a budget. Okay? And and we all know that projections are constantly moving. And so... And for something to become a culture, it has to be thought about, acted upon, and ingrained in the organization on an everyday basis. And most people do not put the word budget with culture or budget with everyday. So I think that's the core theme for for us. Would you agree with that? I would. And it's not something that's gonna happen overnight. It... It's a it's a process. Right? But there are some good steps you can put into place to start to develop this culture, to start to develop the information sharing, to start to develop budget managers and project managers coming to finance and going to other project managers and thinking about how we project this information and how we track it. And the keyword here is interaction. And this is gonna be a month over month basis. Obviously, we're doing it, and projections should not be a lot of work. And we're... Paul and I wanna talk to you about a few keys around how to do that. But let's go through a couple of things here. There's three drivers. We we designed the system again. We keep coming back to the same things for the nonfinancial managers. Okay? It's number one. Number two, that these nonfinancial managers are involved in the rolling projections. They start with them just like we wanna start with preparing next year's budget. The the process of doing projections starts with them. Okay? And that will get us to with the ownership and and the sharing of information back and forth. So, Paul, a couple of things on each one of these that we wanna highlight. Okay? Number three. It comes through... And I think this came through that question earlier. How do you do this? And it's it's a little bit of body language. It's a little bit of respect. It's a little bit of starting a a conversation before a financial report comes out to get their input. But, Paul, I don't know if this is the right spot, but projections sometimes overwhelm people. And I do... I base I like to base projections on what I call key assumptions, and I keep them to three or five. I don't care how big or small the organization is because those three or five issues will drive most of what an organization's dealing with. And the biggest one, of course, is always around funding. So it's... You know, two or three out of those three to five will be in funding. I've reserved one for labor because that's... Affects capacity. You know, what's going on with our labor? We have open positions, and we understaff, overstaff, you know, type of thing. So, so... Oh, they're not overwhelming. So we get creative input. They're in those... Just on those two or three metrics. We're not looking for, you know, $5 adjustments or, you know, small things. Just two or three or four key assumptions. Yeah. And where I come out on that is simple is always better. Right? You wanna make sure you're able to explain the projection to someone who doesn't have a background in it. And if you get overly complex, if you get five pages of data, I I get the sense you might not make it there. But the other one I wanna point out too that's important in anything is respect for creative input. And when you're gonna foster this sort of environment where you're gathering feedback from project managers, again, many of whom won't have a financial background, you're not gonna... That doesn't mean you're gonna accept all their ideas. You're not. There are gonna be some that you're gonna reject or say, hey. This doesn't make sense now. Now what's important when that happens is making sure you give them feedback on the why. Right, Mike? Because. otherwise, we might discourage. them from sharing future ideas. And if you go to b here, we highlighted that in green for you. It's that balancing act. Don't start with the numbers. They're working so hard on a large event or driving donations or, you know, grants or whatever they're doing and try to figure out what their story is in that area. And they might be having positive results. Let's say registrations are up, but costs are out of control, right, on an event. It's it's this balancing act, but I think try to try to sit in their position, see what they're trying to struggle with, and say, hey. It's great that registrations are up. This has happened. You know, we got hit by inflation this year or something. And so I I think it it really comes out. Ken came back to that one where that person came to me and said, you know, I think Mike Mike and the finance department here really listens to us. And that's where you get their their confidence in. And if you can, not can't. That's wrong, Paul. I think you start with these nonfinancial managers generating the projections, and that's where it becomes a culture. Once you get them comfortable on these three to five key assumptions to project forward. Okay? And the best part of that is you're getting them to look forward, not just look backwards. And so many times, you know, we... Financial reports come out, We look at the results. We spend all our times... You know, I like to reverse that seventy thirty. You know, we spend 70% of our time looking back and 30% looking forward. I'd rather spend 30% analyzing what's happened and 70% now, what are we gonna do? Because, Paul, I think you have a better chance of getting hit by lightning than every line item in a budget will be on budget by the end of the year. It's, like, mathematically impossible, And boards approve these things. They know we gotta move the chess pieces around the chessboard. Yeah. And the other side of it too is same as last year, otherwise known as Sallie. I know a lot of you know what that acronym means. That's almost never gonna apply to nonprofit organizations. Right? When our audit teams come back to me and say, hey. Nothing changed this year. My first question is, really, not a single thing has changed in in this world with economic conditions? I I don't know if I can sign off on that one. But, again, it's going back to encouraging those nonfinancial managers to think about that, think about the factors in their programs to help get to the right answer. And, Mike, we had an interesting question here that relates to this. And it says, when assessing the budgeting process each year, what indicators do you look for to tell whether it's actually helping managers make better decisions and use limited resources more effectively. That's a that's a great question, and there's no perfect answer. But I think as you you see engagement going up in com... In the discussions back and forth, and that is regularly showing up in in in staff meetings and in, you know, virtual hallway meetings and discussions. And we're looking for... And it goes with this last comment on number two here on the slide that you'll see that, that information is shared. If it becomes a culture, Paul, it's not just shared when the financial reports come out. It's shared in between financial reports because they're thinking ahead. And that... And you're gonna see here, we wanna encourage that information to get to the finance department that something's changed. It doesn't always just change on the last day of the month. Right, Paul? You know, things are constantly changing, and they can use the project, you know, the projection process. And, again, that's what makes it a culture because it's it's happening every day. Yeah. I agree. Engagement is the key factor I'd look to because the the financial metrics aren't always gonna be the determinant. Right? Like, a budget manager making a decision could result in more expenses being paid. But, Mike, for some organizations, that could be a better outcome if if we're if we're furthering our mission or or getting more resources to our members. You won't know that without the context. Yeah. And it's, Paul, you and I sometimes sound negative because we're dealing with, you know, the downsides. Right? We're trying to avoid the downside. You know? And it's, you know, performance is going in the wrong direction. But oftentimes, sharing of information early helps you to jump on opportunities faster, right, and and not wait. And, you know, time, you cannot turn the clock back. And you see here in this process that these conversations are started in the finance department through the reporting of the budgets and through making this a culture, it's not the driver anymore. It's... These reports are are are getting cross communications as you'll see in here, you know, just even at, you know, coffee hours and and committee meetings and such. And, Paul, I wanna save two seconds here. I think you do share projections outside the internal that you could share it at a finance committee. You can share it at an event planning meeting. You can share it at a fundraising, you know, committee meeting and such. And you just, you know, you qualify things, a little bit. But I think people appreciate that that you're bold enough to share your projection as they go forward. And, Paul, at the very bottom, just to wrap up this section here is I think that your projections actually become the icing on the cake. It's that interaction that the the thinking forward looking, you know, this... Something changed this week that wasn't here last week that happens to be in the middle of a month can start a conversation because people are still thinking how's this gonna affect the projections. Okay. For sure. We got. the, We've got our next. polling quest... We've got our next polling question. Do you use rolling monthly projections at your organization? And, again, you wanna go to the polls tab to respond here. We've got yes consistently, yes occasionally, no. We're planning to implement them or I'm not sure. So Paul, I'm gonna go positive for a minute. You ready? I think we've gone through over the last five years so many disruptions that from five, six years ago, Boeing projections are becoming more the norm, and I think we're way north of 50% on this one. Okay? But I think there's always better ways to do it. And back like we always do budgets is to make sure that the ownership is there, the interaction. That is... It's it's decentralized. Well, I cheated and I looked at the results, so I'm gonna abstain from responding because I'm an honorable accountant. We'll give everyone just another minute here to respond. We did have one question, Mike, that, that gets at this. Any suggestions on convincing a nonprofit client that they do not need to keep updating their budget throughout the year? Where I'd see your that is is, yeah, you don't need to update your budget. The budget's done. And as Mike said, it's it's gonna be off three seconds in. But what you do need to keep updating is the projections because how else are you gonna make financial decisions moving forward without projecting where you're gonna end up at? Yeah. It's a great question. Two things. Number one, the budget's like a yardstick. There's 36 inches in the yardstick. We don't change that. Right? Number two, the projections become your flexible budgets in disguise that you're looking at you every... At least once a month, we're updating these projections and that... And we're really managing to the flexible budget, but we keep the board approved budget, you know, out there and everybody's vision. So, Paul, you're... I'm getting nervous. What's the number? Am I right or am I wrong this time? Oh, look at that. You are you. are not... Well, I guess if you add up all the yeses, you're close. Yeah. Yes consistently. Yes occasionally. I would say the no is a a little higher than I'd like. here. And, That's you. know, yeah, the context I'd I'd give on that too, Mike, is the projections enable dynamic and conversations at at a finance committee, an audit committee, or or board level who are... Depending on your organization, whoever's making those decisions. Whereas if you just present the financial statement results to me, I could have done that on my own. You know? That's not where value is added. Where value is added to saying, look. Here's where we ended up at. Here's where we think we're going to be based on this projection. What are your thoughts on on this approach and our approach to changing economic and dynamic? The value projection can get people my mind. through... Exactly. And you can get people moving through the projections. I don't do this too often, but I've used shock value. Like, there's a trend going on. Board's not paying attention, staff. And I'll just roll the projection. I'll roll the projection out aggressive on the trend and say, hey. Look. If we don't change, this is what it's gonna look like at the end of the year. And people go, oh, it's not gonna be that bad, but you started the conversation. And to me, that's the whole point. Okay. We're gonna pick up speed here a little bit, Paul. We're gonna talk about funding first approach when we start the annual budget preparation process. And, you know, the key variable is always funding. I'm gonna make a quick statement. You know, budgeting is never easy. Right, Paul? But if I could tell you what your funding would be for the next five years to the penny, Budgeting would be much easier. You know, but expense... Preparing the expense side, expenditures is hard. But we're trying to figure out how to spend money to a constantly moving target. Right? And so. at least here, we we we advocate for taking a quick look on the front end to assess it. And I think there's an art and science here. The science will be the analysis, the numbers, what have we done. Okay? And the art is bringing in your intuition looking forward. And Paul and I have a little bit different way to look at this, and don't do it the way we did it. But it's it's prior to... Giving a priority and and adding a scale. And, Paul, I'm just gonna pop this this up. Before we show you the scale, there's two things. It's a funding risk. It could be a funding opportunity, but, usually, we're trying to look at, you know, where are we where is... Are we inelastic? You know, where is our funding changing? Okay. And so we have a couple of, you know, constituent demands, donor satisfaction, funding temperament. And then highlight that word willingness. Okay? And I'm pausing for dramatic effect there, Paul. What I mean by willingness there when I see that is as managers, as people work really hard in these organizations, we can go out and help our constituents to purchase more services, donate more, you know, fundraise. You you know what I mean? It's not always negative. You know? How can we market ourselves? How can we have more penetration in a in a geographic area? How can we add events or work, you know, programs and things? So it's looking at the funding itself and then how can we go, you know, and augment that. And so I think it helps to separate. This is a very basic separation, you know, revenue support and in kind. But any way you could separate it, because I don't think you should be looking at funding overall, Paul. You know what I mean? Just like our total funding's $8,000,000. I think we need to start segmenting that. No. I I think you definitely need to bifurcate it too because... Excuse me. The way you estimate and the way you project these revenue streams are very different by the three types of them as well. It's really good point. You know, we have exchange transactions at the top. We have support, and then we have in kinds, which is like a super support. And, you know, each one of these has a a different narrative. So we're gonna take a look here, at the future. We wanna put up these for you. Paul, it's a little bit of your, like, red light, green light, yellow light, but I I landed on these a while back. With each organization I've ever done this, we come up with different words. But the rock solid are the sources that we are 99% sure they're they're there. Okay? We either have commitments, whatever we got. And if you go to the bottom, these are the things that we're really nervous about. Okay? And... But what we're... What I believe people should focus on, Paul, is the middle bucket, the vulnerable ones. So the things that we know are there is get in the budget. Okay? The things that we have little chance of getting, let's not chase something that's only got 5% chance. Not that we shouldn't. But let's really work on those ones in the middle. And what has, like, slid? What was a funding source, a donor who was in that green rock solid? All of a sudden, they slipped into the vulnerable. That's where you can get them back up into green. Once something gets down into the shaky, the red. You know what I mean, Paul? So I think doing something of this three bucket approach, what you call it is up to you. But notice how the order changes now. Get the rock solid in on the budgeting and, and don't spend time on the shaky rate, but spend all your time trying to move what you think is vulnerable. Where has it been back up into that rock solid area? So it's. just a strategy. Great great... Yeah. Great points. And and I'd add too when we think about the engagement with the committees that you're presenting the budget to, and this depends a little bit about how engaged they are in the process. Every committee is different, all admitted. The vulnerable are where it makes sense to have your discussions on these assumptions. And when you think about topic of dashboards, we'll get to that in a minute. One one thing I found is useful is for some of those vulnerable ones where you're saying, man, I'm I'm struggling with this, and and that's natural. Right? As Mike said, it's not easy. Summarize some of those and put them in a dashboard and have that conversation in the in the meeting. And that way, everyone's in unison on, okay. This is why this risk exists, but we're also owning and understanding what path the organization is taking from a budgetary perspective. Good example of that right now could be Mike. If if anyone on this webinar has government grants with agencies that have been in the news, something that might have been a hundred percent ten years ago might not be a 100% now. Yeah. And it's just like in the news. How does it go from in the news to a journal entry? It it will eventually. So I think Paul's finance, I really think we have to think a little harder about the art versus the science. The science to me is the actual numbers. The art is... It's it's an intuition here. And, and have these conversation... I think it's a risk reward. Those things are in the vulnerable area. We're gonna put some time into them. Can we move them back up to the rock solid? Can we count on them a little better? And and if... And, you know, and sort of, you know, back to the numbers, it's... You know, a lot of times, I think, to be positive here for a minute, recognizing something's gotten a little vulnerable, Paul, just like you described, a little bit of effort, we can move it right back up into the rock solid. But if we ignore it, it will slip. Right? And this is that... That's an intuition. Right? It's not a journal entry. So I I just really love this section here. It's not about the rock solid and the shaky. It's really about managing that middle section before too much time goes. Okay? And we'll we'll move the confidence level on that. So using a funding first approach, I think it's good to get this down. You'll go through and prepare that budget, and then you'll go back and look at that, you know, a funding first analysis that you did, and then you'll finalize that. We always have to take some risk in lining up our revenue and expenses. But I always like to take that quick first look at, you know, this and doing the red light, green light, yellow light, rocks, solids, vulnerable shake, whatever works for you that people can connect. One quick thing. Oh, I know you don't like when I bring this up, but I got this from working with Catholic charities many years ago. You gotta get serious about this stuff. So many times, organizations back into their budgets on the... This is programs we're doing. This is everything we're doing, and they do no assessment on the funding. Right? Or virtually no assessment. So they're basically in the hope and pray method that this expense budget, which had a lot of thought went into it, that we hope and pray that the revenue will be there, the funding will be there, or we have to use operating reserves or something. So we think... Well, I think this closes the gap on the... Or at least raises it to be more aware to people. Yeah. Okay. I would go with the no Sally approach in my mind. But either way, the the short answer is, Mike, create assumptions and support every funding source. Right? Exactly. Now I think every organization's out there for budgeting for salaries and how they do that. Paul and I wanna flip this a little bit is that we wanna isolate. Like, we look at... Take a quick look at funding on the front end. I like to look at our our labor on the front end because, there's other issues in the dollars, Paul. Right? And I think it's number two and number three is the... What's the capacity of our workforce and how are we allocating that labor? And there's... And it... It's a little arts here because sometimes we physically don't have the effective skills. Other times, we have the effective skills where the people are working on areas that don't really require those skills, and we're losing them where they could be more effective. So I think, Paul, it's hard for me in my mind to separate two and three there. But would you agree? I... It's really analyzing that capacity. It's a big risk factor. And then how are we using that labor force? And and it's not like we're just hiring, firing. It's usually just a little bit of an emphasis that people's need to spend a little more time over here, a little less over there, and the impact that will have on the bottom line is huge. And so we wanna take you through a little process, show you a little bit of a template here. But I think getting this early look will really impact how we're gonna allocate. And labor usually, Paul, I have no stats on this, but to me, I'm assuming most nonprofit organizations, the labor fully loaded with all the benefits, taxes, everything in there is close to 70% of the budget. And how we allocate that and use that, especially if we're not using time sheets, you know, really gives you some insight. And whatever you think in the budget process, it'll be different during the year, but it starts out with some expectations. So it's it's really important to divide that across the categories and such. And it's a visual. Now we don't share salaries. Right? But we can share how people are spending their time. And so here's a quick visual aid, and you notice that it has the salaries in here in the columns, but the key here is it's the middle section in the programs and fundraising g and a. It's those small percentages. And so this will be sitting somewhere in the database, somewhere in your systems. It... It'll be sitting in there. But having a visual aid for this and the way you could share this is the sheet is back out without the salaries. And I... You know, Paul, we still little tricks from different organizations. A couple organizations that really were high performing, we would have the core project managers, department heads get together and look at their staff and go through a sheet like this every way much longer without the dollars and talk about the percentages. And when you did that, sometimes some people coming in at a 150, some people coming in at 40%. You start to see, like, you know, here's our people. Here's what we have to do, and they're not lining up. And we start to move that around, and it really becomes a cultural thing where we we start to emphasize these department heads go back and they talk to their staff. You'd spend more time here, less time there because this is what's aligned submission. Maybe it's the board wants us to go there. And I'm gonna just do this quickly. Well, the slides will be available for everybody. But then once we do this, we repopulate the slot... The dollars back in for the salary. And then this this goes... Will give you the 70%, you know, for each individual department, sub department class, whatever they're in. You know, you... You'll get the totals. But I am always... Love, Paul, when you sit down and you look at the non dollar percent allocation of people's time. It... It's always interesting to me. Yeah. And and it helps you to make important decisions. Right? Because a a nonprofit status is just that. It's an exemption from a tax perspective. You still have to look at the nonprofit organization like a business and and assess and understand the results of programs, and how do you do that without allocating costs. by the biggest program. And, Mike, that... That's not... Again, not to say if a if a program is a quote, unquote, is losing money that you would shut it down. Right? It could be something that's furthering your mission that you say, hey. It's valuable. But now you know exactly how much resources are spent in that area, and that adds to your decision making ability. Exactly. And, you know, I always think of nonprofits as a compromise, and you equate a nonprofit to an eight cylinder car engine. The best nonprofits I've ever seen are running on three cylinders. Most are running on two or one. Because if we can run on six or seven cylinders, we'd be a for profit entity. There's for profit hospitals. There's nonprofit hospitals, you know, and such. So we're a compromise. And, Paul, to your point, there's gonna be programs that are financially losing money or huge to the mission and reputation of the organization. Right? And we just have to do this balancing act, and the salaries are the biggest expense component of this labor force and, the biggest impact on capacity. So, Paul, this is our last polling section, then we got two more quick sessions we gotta get through. Alright. Last polling question. Again, you wanna go to the polls tab. Does your organization assemble a labor budget at the front end of the budgeting process? Yes, no, we're getting there, or not sure. Mike, while everyone's responding to that, one question related to budgeting for benefits. How do you budget for benefits? Do you do it as a percent of salaries? I think that depends in my mind, Mike. Right? What do what do you think? Yeah. I do two things. Because I like to do a quick shot at this upfront, we do, just a flat percent. Okay? But behind the scenes, if you're a large organization, you have a HR department, you're doing an analysis of your benefits as a percentage. Okay? But even if you're a smaller organization, mid sized organization, you... You're you're why you're going back and doing the detailed budget. We're we're doing a standard budgeting practice around benefits. What are the costs? But, again, arts and science, Paul. You know, we could always add or take away benefits. You know? How do you put a mathematical number to it other than the dollar cost? You know? People... You know, it affects, you know, retention. Right? It affects, you know, feelings. It affects the culture. Paul, can I, I can't help myself? I think the question here is going to be that most people do a labor analysis. I just don't know if they're doing it on a on a front end basis. I I I have I have faith in our in our, attendees here. Yep. Let's go. ahead and share because we're getting towards the end. So here are the results. And, yeah, about 72% of you are doing at the front end. That's terrific. Fantastic. And and then the takeaway for us here is do it on the front end, but to also to, without the dollars, look at that allocation by percent of of the staff. Okay? So we're gonna go through two topics here, just a couple minutes on each one, and we've referred to these. But decentralizing the budgeting process and the projection process is critical. Paul, I think it's the biggest barrier to ownership that when you, you know, when you hand someone a budget and they've had no input into it, to me, it's like, you know, when I I... A few times a year, I have to rent a car. The best day for me on a rental car is the day I turn it back in and think I didn't get sued for any damage. You know what I mean? But I drive my own car. It's that pride of ownership. Right? And so we wanna get there. We... It's... There's no substitute, and you can't just rely on historical trends to pull a budget for the next year. Paul, your favorite thing, the salary budgets. Right? And it really shows critical, you know, that these non for manage... Managers will have a role in both the budgets and the projections. And we'll... Let's put these three up again. See, they come up again here. To decentralize, you're involving the nonfinancial managers. Okay. They're in the building and projection process. Okay. And they're... And it's interactive sharing of that information on a rolling basis. Yeah. And and I just wanna emphasize one thing Mike said there. For those of you who are evaluating new systems or evaluating going from Excel to systems, include the nonfinancial managers in that decision making and testing progress because if they don't interact with the systems, they don't like how the systems work, that implementation is not gonna be a success. And it's this back and forth. Now how do you do this back and forth a little bit? Paul, I think this is one of the places where I think as finance people, we can't consider our job is done when we get through a month end close or when our reports are going out. You know, it's a constant interactive process. And and and so we need to take the opportunities to get out from our virtual desk and out having conversations on these numbers. I'm gonna say something, Paul, that's probably gonna make you feel a little bit bad. I I want a very accurate high performing accounting system. But if it's not user friendly, to me, it's almost worse than having a system that's got some problems with it. But people basically understand it, and and they're using it. So you wanna have both. Right, Paul? I think chicken or egg, we do wanna have a system that's rock solid, timely, accurate, and compliant. Right? But if you can't read it or use it, how useful is it? Yeah. I would say that is a problem. Right? I I I think that's one of the biggest problems you could have in a system, which going back to it, that's why it's important to include a diverse group of users in your testing and implementation process. So you take a look here and... I'm back to one of my favorite words, but in an unfiltered way, it's one of the few times a year when you're preparing the next year's budget that they can, focus on their own area and not look at the whole organization and and get their ideas down. So look how many times the year shows up on the bottom. Selfish draft. Sometimes I call it the year draft or the budget now. But, you know, it's it's way for... It's your budget. You're talking to. It's your opportunity to design that program and show the changes that you've been advocating for. It's it's the time for your... To recognize your department and all the things that they're doing there and and how you wanna make changes for the future. So, really, that that first draft, I don't care what you call it, and that first draft of the budget, You know? And and and some of the, senior management needs to stay out of the way a little bit on that. Let them do that. Because if you go to someone, Paul, and say, hey. Your first draft of your budget's due in two weeks. Okay? And I'm looking for x y z. I want you to cut this, do this, do that. It becomes my budget, not yours. Let them have input. Yeah. Maybe I'd do some wordsmithing there, but I think it's important to. to emphasize that we're incorporating everybody's feedback, and we wanna get your feedback specifically. So we're ending here on something that's, I don't know if you can make this formal or not, but whenever I've operated as a rental, Paul, you know what I mean, as a CFO when I'm out there doing that, from a consulting basis, I really feel like I've been able to do everything that we've talked here about today if I take the time to meet with people, not just around the month close when the reports come out, that I I meet with them, before the reports come out. It's a little bit of... And, Paul, I have to keep saying my virtual hallway. But when you walk up to someone and you've got, you know, the September report in your hand and say, I wanna talk to you, it's like you're back in grade school again and your report card just came out. You know what I mean? But if you could go in and have the conversation and, oh, you know, we're a few days away from closing out the month. What's going on? It... It's nonconfrontational. Right? And and, again, I think we use the word work to do this, but it's it's not work. I think it's just like, it it gets that ownership, but also that confidence and trust up there. Now I rarely have ever advocated for formalizing this, but as a CFO, a director of finance, even a controller, in my mind, I wanna have a basis. Like, some department heads, I'm not gonna meet with all the time, but some of them, I am. Like, if you have a membership organization and it's such a huge part, you might be meeting with the director of membership or or fundraising or something. But, informally, I'm just sorta like, you know, I haven't talked to x y z person in a while. I'm gonna go find an excuse to sit down without the financial report in my hand. And and it's just like, you know, whatever works best, but show some flexibility and don't meet to waste people's time. So I I sort of lean towards the informal, I think, works best. And I'm going back, and there might be certain individuals in the organization I'm meeting more often with, but I don't wanna ignore anybody. Does that does that make sense? Yeah. Yeah. It does, but I also think it goes back to knowing the people you're interacting with. Doing informal just showing up unexpectedly for some folks, that's not gonna sit well with them. And, again, you're not gonna know that without knowing that person. So I'd say know the party, and based on that, you'll know the best way to interact with them, whether it's setting up meetings, whether laissez faire is the way to go. And that's the type knowing who you're talking with, Paul. You you you hit the nail on the head. You're not gonna treat these meetings the same for everyone. And I don't think they're like, oh, you know, Paul or Mike's coming down to talk to me. I don't think it's like an an every month thing. You you just gotta get... You gotta base your own on your own intuition when when the timing is. Because you you... You know, these things could go the other direction. And people could see like, oh, you're just here to check a box. No. We're here to... You know? It's gotta be a good use of time, you know, for people. So I think it's less confrontational. You really want it lower key, and you're trying to get a little bit of information out. And and that benefits to us. You know? What's in it for the finance department is, you know, there's a lot of things that, we might miss in the finance department because we just weren't aware that something happened. Right? And then when the postmortem happens, you know, two months later and you go back and you go, well, if someone were to... You know, if I just would have gotten that bit of information, it would have changed the way the report, a journal entry. You know, I would have asked another question, and all of a sudden, everything just flows so much smoother. So I think that there are real benefits to the finance department, here. Okay. So three things on these meetings. You know, be really flexible with the rotation. Paul, you referred to this, the frequency of the meetings. I don't think it's formalized. Okay? Be attentive to those needs of the department heads that you're talking to and really be sensitive to the stresses that they're dealing with, either just from a a a workload stress or more of a timing stress or economic stress or what's going on. And and it's just a chance to say, you know, there's so many things that go through my head where we've had to make tough budget moves. Right, Paul? It's not just about the dollars and and those things. It it affects people's lives. And so now I get too weepy over it. But but, Paul, that that leads us to the end here. That brings us to the end of our slides. We just got a minute or two left, but here's your contact information. Yeah. If Johnson Lambert can be a resource to you, feel free to, subscribe to our insights. We regularly release content. And if we could assist you with audit, tax, outsourced accounting, or other services, we'd love to see your RFP. And on the state of education for nonprofits, this is an all volunteer effort. We put information up every week in articles, podcasts, templates, resources, such. We encourage you to go there. You'll find articles based on each of the topics that we've talked about here, and go to the budgeting tab in the archive section. You'll see a lot of resources there. Okay. Thank you. Awesome. Thank you both so much. That was great. I've pushed out another poll question for people just if they're interested in learning about our solutions. It's not required, but feel free to respond to that. And then you'll also find we have today's slides, a few blog posts, and a buyer's guide in the docs tab as well. But thank you for joining us today, and have a great rest of your day. Thank you.