Looking Ahead: Application Assignment Essay.
No one can predict the future, but accountants and financial managers must try and do exactly that! By examining net revenue, costs, and cash flow, you can get a clearer picture of what to expect in your organization’s (or one with which you are familiar) fiscal future. Using these metrics to look forward will enable you to more effectively plan budgets that accomplish organizational goals.Looking Ahead: Application Assignment Essay.
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When developing a budget, what variables do you have to take into account? In health care organizations, two of the largest groups of factors that you must consider are first, volume, and second, staffing and supply. The number of patients and tests performed each day, as well as employees and their pay rates are all crucial pieces of information when determining a budget.
In this Assignment, you address five scenarios: net revenue, fixed and variable costs, cash flow, volume budget, and staffing and supplies budget.
Note: For those Assignments in this course that require you to perform calculations you must:
Use the Excel spreadsheet template for the Week 5 assignment.
Show all your calculations and formulas in the spreadsheet.
Answer any questions included with the problems (as text in the Excel spreadsheet).
A title and reference page are NOT needed in this assignment. Put your name and assignment at the top of the Excel spreadsheet.
For those not comfortable with the use of Microsoft Excel, this week’s Optional Resources suggest several tutorials.
To prepare:
Review the information in this week’s Learning Resources regarding net revenue, fixed and variable costs, and cash flow, and how they are used in financial decision making.
Review the budgeting information in Week 5 Learning Resources dealing with volume, staffing, and supplies budget.Looking Ahead: Application Assignment Essay.
View the following tutorial videos, provided in this week’s Learning Resources.
Week 5 Application Assignment Tutorial: Cash Flow Scenario
Week 5 Application Assignment Tutorial: Fixed Variable Scenario
Week 5 Application Assignment Tutorial: Net Revenue Scenario
Week 5 Application Assignment Tutorial: Staffing and Supply Budget Scenario
Week 5 Application Assignment Tutorial: Volume Budget Scenario
Use the Week 5 Application Assignment Template, provided in this week’s Learning Resources, to complete this assignment. Carefully examine the information in each of the scenarios and provide the necessary calculations. Using this information will help you answer the questions.
Note: All the scenarios will be submitted as one document. Each scenario will be on a different tab in the spreadsheet.Looking Ahead: Application Assignment Essay.
Scenario 1: Net Revenue Scenario
Your clinic provides four kinds of services:
Comprehensive initial medical consultation is priced at $250
Established patient limited visit is priced at $75
Established patient intermediate visit is priced at $125
Established patient comprehensive visit is priced at $250
Question: The profile of your patients is such that the average collection rate is 75%. Assuming you have 100 visits of each type each month, what amount of new revenue will you generate in the next 12 months?
Scenario 2: Fixed/Variable Cost Scenario
You have performed a cost analysis of your health care organization and have determined the following: based on the latest three years of information, your annual cost of operations is $1,600,000 with annual volume of 10,000 procedures. You have determined that certain of your supply items are fixed in nature (those marked with an F) while others are variable (marked with a V).Looking Ahead: Application Assignment Essay.
Question: An insurance company that is considering directing its 1,000 units per year of procedure business to your organization has approached you. For the last three years, you have been charging a price of $165 per procedure (with a 100% collection rate). Your board has mandated that you make $5 of profit from each of the procedures. You obviously want the highest possible price, but as you enter the negotiations, what is the lowest possible price you would be willing to accept from this payer?
Hint: Calculate the variable cost.
Scenario 3: Cash Flow Scenario
Your new business venture will begin operation on July 1, 20X2. You will hire staff effective January 1, 20X2 with a cost of $40,000 per month. You know from experience that collections lag billing by 3 months (in other words, once you bill for a service, you must wait 90 days for the payment to be received.) Your business volume is projected to be as follows:
Question: If you have $380,000 of cash on hand on January 1, 20X2, how much cash will you have at the end of June 20X3? Assume a 100% collection rate.Looking Ahead: Application Assignment Essay.
Scenario 4: Volume Budget Scenario
You manage lab services in a large hospital. You have the following data on both the hospital’s budgeted patient days and visits for budget year 20XX along with the ratio of lab tests to patient days or visits.Looking Ahead: Application Assignment Essay.
Question: Based on this raw data provided , how many lab tests would you anticipate for the coming budget year? If each test is priced at $20.00, how much gross revenue would you budget? Assuming each full-time lab technician (FTE) can perform 200,000 tests each year, how many full-time lab technicians would you plan for?
Example on Template: 2 North Bldg calculated. You will need to complete 2 South Bldg, ICU and OPD
Scenario 5: Staffing and Supply Budget Scenario
Calculate the supplies budget necessary to operate your unit for the fiscal year beginning January 1, 20X8. It is your expectation that you will perform 24,820 procedures in the budget year. The following spending data is available for the period January 1 to March 31, 20X7 during which time procedure volume amounted to 3,240. Items marked (F) are considered fixed, those marked (V) are considered variable. Inflation is planned at 4%.Looking Ahead: Application Assignment Essay.
In reviewing performance to date, you note that in January, you purchased $150,000 of D5W fluid replacement charged to IV solutions, which represents an entire year’s supply. In addition, you returned $2,800 of office supplies for credit from the vendor in Febuary. These supplies were purchased in a previous fiscal year.Looking Ahead: Application Assignment Essay.
You also need to prepare the salary budget for the same fiscal year. You have determined that staff needs are for 6.5 FTEs.
A pay raise will be given to all staff on October 1st of each year at a rate of 8 percent. In making your calculations, always round to the nearest whole dollar for annual salary amounts, but keep pennies in the hourly pay rates. New staff begins the new fiscal year at $16.00 per hour.Looking Ahead: Application Assignment Essay.
When state policymakers are writing a budget, they should be mindful of the future, not just the present. The state budget is the single most important document that a state government produces each year, and it receives close public scrutiny. It serves as both a financial plan and a policy document — that is, a description of the policies the state intends to pursue in the future. The spending, tax, and other policy decisions that comprise the budget have consequences for a state’s fiscal and economic security that last long beyond the budget year.Looking Ahead: Application Assignment Essay.
Often, however, policymakers focus on the immediate effects of policy decisions and fail to account for their longer-term consequences. Many states, for instance, fail to produce multi-year spending plans, fail to establish sound “rainy day funds,” and/or fail to follow best practices for forecasting revenues, spending commitments, pension obligations and the like. These are proven methods to improve long-term planning, yet they are underutilized.
This report describes the ten key tools that can help states chart their fiscal course accurately and make corrections when needed; it also surveys the 50 states and the District of Columbia on the degree to which they use these tools. It finds that the use of these tools cuts across regional and partisan divides. For instance, Connecticut, Maryland, and Tennessee incorporate most of the ten tools into their budget processes. New Jersey, Oklahoma, and South Dakota incorporate the fewest.Looking Ahead: Application Assignment Essay.
The timing is right for states to adopt a much more rigorous approach to their long-term budget planning. The fiscal crisis of the last few years prompted skepticism about states’ ability to fund public services such as education, health care, and infrastructure. The Great Recession — the most severe recession in seven decades — blasted holes in state budgets from which they have yet to fully recover. State tax revenues remain just below where they were five years ago (after adjusting for inflation) even as costs such as health care have risen faster than general inflation and the number of students, the elderly, and other state residents needing services has grown. Demographic changes such as the aging population are putting increasing pressure on state budgets, while the future course of health care costs, one of the largest parts of state budgets, remains unclear. Also, the federal government, which provides about one-quarter of state and local revenues, is on track to make deep spending cuts (under the 2011 Budget Control Act and sequestration) that could hit states hard.Looking Ahead: Application Assignment Essay.
Despite these fiscal challenges, state-funded services are essential to the nation’s economy and will remain so long into the future. State policymakers should be thinking hard about the future whenever they write a budget, because their decisions will have very big implications many years down the road. They should be asking: Is our state’s future workforce well-suited for the jobs of tomorrow? Will our infrastructure meet emerging needs? Is our tax system sufficiently up-to-date for the 21st century economy? And how will our budget choices today affect our ability to provide residents with a high quality of life for decades to come? Laying out a clear roadmap of the implications of the state budget — using proven, nonpartisan methodologies — can reduce uncertainty and help a state handle the outside shocks that will inevitably arise.Looking Ahead: Application Assignment Essay.
Specifically, to budget wisely for the future, every state needs:
A map for the future: The budget and accompanying documents should include a detailed roadmap of the budget’s immediate and future impacts on the state’s fiscal health.
Professional and credible estimates: Standards and sufficient oversight are needed to guarantee that these analyses of the budget’s impacts are professional, credible, and prepared without political influence.Looking Ahead: Application Assignment Essay.
Ways to stay on course: Mechanisms should be in place to trigger any needed changes during the budget year, before too much damage is done.
These are achievable goals. Every state does these things to at least some extent. And a wide range of government budget experts agree they are needed (see box on page 5). But no state does them nearly as well as they could. The next sections outline the ten tools states should adopt for better fiscal planning.Looking Ahead: Application Assignment Essay.
Mapping the Future Impact of the Budget: Tools 1-3
We identified the ten tools in this report through a survey of existing reports and consultations with experts on state budget analysis. The most obvious first step toward sound long-term budget planning is that the budget should include a description of how today’s choices will affect the state’s future fiscal health.Looking Ahead: Application Assignment Essay. During the budget development process, a state can build in a focus on the long term by including revenue and spending projections for at least five years in its annual or biannual plan. These forecasts are most useful when they explain the trends they reveal. For example, they could examine such questions as: “Are debt service costs accelerating due to increased borrowing?” or “Is the design of the sales tax slowing revenue growth?” Producing regular projections forces the governor and legislators to confront the implications of their proposals for years beyond the upcoming budget. It also allows for a better informed debate by the public and outside observers.Looking Ahead: Application Assignment Essay.
States also should require, for bills that affect taxes or spending, timely and accessible fiscal notes that estimate the bill’s savings or costs for at least the upcoming five years.Looking Ahead: Application Assignment Essay.
States can further plan for the future by preparing a current services baseline, or projection of the cost of continuing to deliver the same quantity and quality of services as in the current budget period. This information allows the public and outside analysts to easily determine how proposed policy changes and program funding levels would affect public services. That, in turn, allows for more informed debates over the trade-offs required to balance the budget.Looking Ahead: Application Assignment Essay.
Ensuring That Projections Are Professional and Credible: Tools 4-6
It is not enough that long-term planning exists; it must also be based on credible, professional information so that it is not ignored. For example, states can depoliticize a critical part of the budget preparation process by creating a consensus revenue forecast, which is an agreement among the executive branch and both houses of the legislature on a revenue forecast for upcoming years. Another way to ensure that the fiscal plan is taken seriously is to establish a non-partisan, professional legislative fiscal office to provide a check on the information prepared by the executive branch.Looking Ahead: Application Assignment Essay.
Experts Agree on Need for Planning
A wide range of independent experts — including budgeting professionals, bond rating agencies, and academic researchers — have long recognized the importance of forecasting the potential impact of state tax and spending decisions for the long term. For example, eight of the major associations that represent elected officials and professional managers and finance professionals formed a commission called the National Advisory Council on State and Local Government Budgeting in 1999.Looking Ahead: Application Assignment Essay. The top of their list of recommended budget practices states, “A good budget process… incorporates a long-term perspective.”a Similarly, the head of the General Accounting Office listed “information about the long-term impact of decisions” as the first of four principles for the budget process in 2002 congressional testimony.b In addition, the criteria used by Moody’s and Standard & Poor’s,c major bond rating agencies, to determine the fiscal health of governments emphasize the importance of long-term planning.Looking Ahead: Application Assignment Essay.
These organizations — as well as the National Association of Budget Officers, various academics, and others that study public budgeting — all agree that planning ahead is important. They have also identified a number of mechanisms that states can use to carry out this planning.Looking Ahead: Application Assignment Essay. The budgeting tools most commonly identified are multi-year forecasts of base revenues and spending and the impact of changes in tax and spending policy, a consensus process for estimating revenues, rainy day funds, information on the cost of tax exemptions and credits, regular budget status reports, and oversight of debt levels and pension costs. In addition, some budget professionals recommend the use of current services baselines, independent legislative fiscal offices, and sunsets (expiration dates) for tax expenditures.Looking Ahead: Application Assignment Essay.
The ten tools that comprise the list of recommended tools in this report are drawn from this literature. CBPP also enlisted the help of state budget experts from the Rockefeller Institute of Government, the Council of State Governments, the National Association of State Budget Officers, and the Urban Institute to review the list of tools we compiled.d
National Advisory Council on State and Local Budgeting, Government Finance Officers Association, “Recommended Budget Practices: A Framework for Improved State and Local Budgeting,” June 1999.
United States General Accounting Office, Testimony before the Committee on the Budget, House of Representatives, Statement of Susan J. Irving, Director, Federal Budget Analysis, April, 25, 2002.
See US States Rating Methodology, Moody’s Investor Service, April 17, 2013 and U.S. Public Finance: U.S. State Ratings Methodology, Standard & Poor’s, January 3, 2011.Looking Ahead: Application Assignment Essay.
These experts agreed that these are important and useful mechanisms for state fiscal planning. They do not necessarily endorse each tool as required for each state to plan effectively
Pension costs are often cited as a concern for state budgets, and one key to reducing (or preventing) the accumulation of new, unfunded pension obligations is for a state to determine the level of contributions needed to state pension funds and make those contributions regularly. Because of the complexity this involves, regular reviews by independent authorities of the process used to determine pension contribution levels and underlying assumptions are necessary.Looking Ahead: Application Assignment Essay.
Ways to Stay On Course: Tools 7-10
The budget process is not over once the legislature adopts a budget. Some basic elements of a budget forecast, such as inflation, the state of the economy, or the makeup of the state’s population, cannot be known with certainty; even with the best methods, some assumptions will prove incorrect. A state must be able to manage revenues and spending throughout the year to deal with these uncertainties.Looking Ahead: Application Assignment Essay.
For example, when available revenues fall short of projected spending in the middle of the budget year due to a weak economy, adequate and well-designed rainy day funds can reduce the need for damaging service cuts and tax increases. But a state must fill its rainy day fund in good times to prepare for bad times. Formal deposit rules encourage states to make such deposits by making it harder to forgo deposits without attracting the notice of outside observers.Looking Ahead: Application Assignment Essay.
When recessions occur, states must scrutinize all forms of spending. An important tool for this is oversight of various tax expenditures (tax credits, deductions, and exemptions that reduce state revenue), which in many ways function as spending through the tax code. This will enable states to make sound choices between the most essential tax expenditures and those the state can forego. For example, states can regularly publish tax expenditure reports that list each tax break and its cost. And states can enact sunset provisions so that tax breaks expire in a specified number of years unless policymakers choose to extend them.Looking Ahead: Application Assignment Essay.
States also need tools for managing their long-term funding commitments. These include their pension obligations to retired state employees and their obligations to repay bonds that were issued to fund the construction of schools, roads, bridges, and other infrastructure.Looking Ahead: Application Assignment Essay. Because of the long-running and fixed nature of these obligations, it is particularly important that states regularly check whether they are meeting these obligations by establishing prudent rules on pension funding and debt levels. For example, states should make the full payment required each year to ensure that pension trust funds will be able to cover future costs — or should catch up quickly if they are temporarily unable to make the full payments. Also, to assure that debt service obligations remain affordable, states should establish guidelines for appropriate levels of debt relative to the size of a state’s economy.Looking Ahead: Application Assignment Essay.
In addition, a state must monitor the overall balance of the budget between revenues and spending throughout the year. No state will be able to predict all economic ups and downs or budget pressures and design a budget that addresses them all automatically. Regular revenue and spending status reports during the course of the fiscal year that combine revised revenue estimates with updated spending projections will shine a light on fiscal problems while there is time to correct them.Looking Ahead: Application Assignment Essay.
Ten Tools for Budgeting for the Future
Here are ten mechanisms states can use to inform long-term planning.Looking Ahead: Application Assignment Essay.
Does the Budget Provide a Map of the Future?
Multi-year forecasts of revenues and spending: projections of revenues and current services spending for at least five years. These projections should be a regular part of the budget and should be detailed and easily accessible.Looking Ahead: Application Assignment Essay.
Fiscal notes with multi-year projections: an established set of guidelines for preparing fiscal notes that estimate the savings, costs, or revenue changes for the current year and at least five future years. Estimates should be easily available.
Current services baseline: a projection of how much it will cost a state in an upcoming budget period to deliver the same quantity and quality of services to residents that it is delivering in the current budget period, taking into account factors such as inflation, expected changes in the number of people utilizing those services, any previously enacted rule changes that have not yet phased in, and ongoing formula-based adjustments.Looking Ahead: Application Assignment Essay.
Are the Projections Professional and Credible?
Independent consensus revenue forecast: a formal mechanism to create consensus among the executive and legislative branches on a revenue forecast.Looking Ahead: Application Assignment Essay.
Legislative fiscal office: a non-partisan agency that analyzes the budget and other bills that affect spending and revenues.
Pension oversight: regular reviews by independent authorities of methods used to determine future pension funding. These reviews should be published and easily accessible to the public.
Are Ways to Stay on Course in Place?Looking Ahead: Application Assignment Essay.
Well-designed rainy day fund: a reserve fund designated for situations where state revenues drop or expenditures increase unexpectedly. These funds should not be capped at an inadequate level (below 15 percent of the state budget) and should be governed by rules that encourage deposits in good times and provide notice if deposits are skipped.Looking Ahead: Application Assignment Essay.
Oversight of tax expenditures: expiration dates for tax expenditures after a set number of years to subject them to regular scrutiny of their cost and effectiveness, in addition to tax expenditure reports that list the costs of individual tax breaks.
Pension funding and debt level reviews: recommended standards for pension funding and guidelines for the amount of debt that the state can incur.Looking Ahead: Application Assignment Essay.
Budget status reports: regular reports by a professional fiscal authority on updated revenue and spending projections in order to determine if the budget is on track.Looking Ahead: Application Assignment Essay.
Rating the States
This report grades states on how well they have implemented the tools described above. We evaluated each state on its use of each tool and assigned a score on a simple scale: 0 if the state does not use this tool at all, 1/2 if it uses the tool but in a way that needs significant improvement, and 1 if the tool is in place, is well designed, and is accessible to the public.[1] Finally, we summed the scores on each of the individual tools to determine an overall score for each state on a scale of one to ten. Figures 1 and 2 show the results. (The District of Columbia is included in counts of states.)
Assignment: Looking Ahead: Application Assignment Net Revenue and Budgeting
No one can predict the future, but accountants and financial managers must try and do exactly that! By examining net revenue, costs, and cash flow, you can get a clearer picture of what to expect in your organization’s (or one with which you are familiar) fiscal future. Using these metrics to look forward will enable you to more effectively plan budgets that accomplish organizational goals. When developing a budget, what variables do you have to take into account? In health care organizations, two of the largest groups of factors that you must consider are first, volume, and second, staffing and supply. The number of patients and tests performed each day, as well as employees and their pay rates are all crucial pieces of information when determining a budget. In this Assignment, you address five scenarios: net revenue, fixed and variable costs, cash flow, volume budget, and staffing and supplies budget. Note: For those Assignments in this course that require you to perform calculations you must: •Use the Excel spreadsheet template for the Week 5 assignment.Looking Ahead: Application Assignment Essay.
•Show all your calculations and formulas in the spreadsheet. •Answer any questions included with the problems (as text in the Excel spreadsheet). A title and reference page are NOT needed in this assignment. Put your name and assignment at the top of the Excel spreadsheet. For those not comfortable with the use of Microsoft Excel, this week’s Optional Resources suggest several tutorials. To prepare: •Review the information in this week’s Learning Resources regarding net revenue, fixed and variable costs, and cash flow, and how they are used in financial decision making. •Review the budgeting information in Week 5 Learning Resources dealing with volume, staffing, and supplies budget.Looking Ahead: Application Assignment Essay.
Note: All the scenarios will be submitted as one document. Each scenario will be on a different tab in the spreadsheet. Scenario 1: Net Revenue Scenario Your clinic provides four kinds of services: •Comprehensive initial medical consultation is priced at $250 •Established patient limited visit is priced at $75 •Established patient intermediate visit is priced at $125 •Established patient comprehensive visit is priced at $250 Question: The profile of your patients is such that the average collection rate is 75%. Assuming you have 100 visits of each type each month, what amount of new revenue will you generate in the next 12 months? Scenario 2: Fixed/Variable Cost Scenario You have performed a cost analysis of your health care organization and have determined the following: based on the latest three years of information, your annual cost of operations is $1,600,000 with annual volume of 10,000 procedures.Looking Ahead: Application Assignment Essay. You have determined that certain of your supply items are fixed in nature (those marked with an F) while others are variable (marked with a V). Question: An insurance company that is considering directing its 1,000 units per year of procedure business to your organization has approached you. For the last three years, you have been charging a price of $165 per procedure (with a 100% collection rate). Your board has mandated that you make $5 of profit from each of the procedures.Looking Ahead: Application Assignment Essay. You obviously want the highest possible price, but as you enter the negotiations, what is the lowest possible price you would be willing to accept from this payer? Hint: Calculate the variable cost. Scenario 3: Cash Flow Scenario Your new business venture will begin operation on July 1, 20X2. You will hire staff effective January 1, 20X2 with a cost of $40,000 per month. You know from experience that collections lag billing by 3 months (in other words, once you bill for a service, you must wait 90 days for the payment to be received.) Your business volume is projected to be as follows: Question: If you have $380,000 of cash on hand on January 1, 20X2, how much cash will you have at the end of June 20X3? Assume a 100% collection rate.Looking Ahead: Application Assignment Essay. Scenario 4: Volume Budget Scenario You manage lab services in a large hospital. You have the following data on both the hospital’s budgeted patient days and visits for budget year 20XX along with the ratio of lab tests to patient days or visits. Question: Based on this raw data provided , how many lab tests would you anticipate for the coming budget year? If each test is priced at $20.00, how much gross revenue would you budget? Assuming each full-time lab technician (FTE) can perform 200,000 tests each year, how many full-time lab technicians would you plan for? Example on Template: 2 North Bldg calculated.Looking Ahead: Application Assignment Essay. You will need to complete 2 South Bldg, ICU and OPD Scenario 5: Staffing and Supply Budget Scenario Calculate the supplies budget necessary to operate your unit for the fiscal year beginning January 1, 20X8. It is your expectation that you will perform 24,820 procedures in the budget year. The following spending data is available for the period January 1 to March 31, 20X7 during which time procedure volume amounted to 3,240. Items marked (F) are considered fixed, those marked (V) are considered variable. Inflation is planned at 4%. In reviewing performance to date, you note that in January, you purchased $150,000 of D5W fluid replacement charged to IV solutions, which represents an entire year’s supply. In addition, you returned $2,800 of office supplies for credit from the vendor in Febuary. These supplies were purchased in a previous fiscal year. You also need to prepare the salary budget for the same fiscal year.Looking Ahead: Application Assignment Essay. You have determined that staff needs are for 6.5 FTEs. A pay raise will be given to all staff on October 1st of each year at a rate of 8 percent. In making your calculations, always round to the nearest whole dollar for annual salary amounts, but keep pennies in the hourly pay rates. New staff begins the new fiscal year at $16.00 per hour.Looking Ahead: Application Assignment Essay.
Be sure and include all of your calculations
Required Readings Baker, J. J., Baker, R. W., & Dworkin, N. R. (2018). Health care finance: Basic tools for nonfinancial managers (5th ed.). Burlington, MA: Jones and Bartlett Learning. •Chapter 7, “Cost Classifications” (pp. 55-61) In this chapter, you focus on the difference between direct and indirect costs and why it is crucial for financial managers to understand the difference. •Chapter 8, “Cost Behavior and Break-Even Analysis” (pp. 65-78) This chapter continues the discussion on costs. It describes the differences between fixed, variable, and semivariable costs. It demonstrates how to compute the cost-volume-profit (CVP) ratio and the profit-volume (PV) ratio. Zelman, W., McCue, M., & Glick, N. (2009). Financial management of health care organizations: An introduction to fundamental tools, concepts, and applications (3rd ed.). Hoboken, NJ: Jossey-Bass.Looking Ahead: Application Assignment Essay. Retrieved from the Walden Library databases. •Chapter 3, “Principles and Practices of Health Care Accounting” (pp. 87–120) Review: This chapter explores the accounting practices and principles of health care. The authors detail the rules for recording transactions and the process of recording and developing financial statements. •Chapter 4, “Financial Statement Analysis” (pp. 121–186)Looking Ahead: Application Assignment Essay.
Are we on track to reach our sales targets for this quarter? What sales objectives should I set my field sales team? How do I analyze the health of our sales funnel? Everyone of these common sales questions facing field managers starts and ends with a sales budget process.Looking Ahead: Application Assignment Essay.
That’s because the sales budget process acts as a guide directing you and your sales team over the rest of the month, quarter or year.
It shows not only how much money you think should be made over a set period of time, but where that money is expected to come from. This is why it’s often the first and most important written document put together by your business and sales management process model.Looking Ahead: Application Assignment Essay.
But as a field sales manager, how do you go about creating a sales budget? Why is it so important to you? And what is the actual sales budget process?
This is what we aim to teach you throughout this blog post.
Sales Budget Process vs. Sales Forecast
Now if you’re scratching your head thinking this sounds an awful lot like sales forecasting to me – your 100% right to do so – the two are extremely similar.Looking Ahead: Application Assignment Essay.
Both the sales budget process and sales forecast are tools used to by companies to get a glimpse into the future. An idea of which direction they want the company to go in and whether or not they are on course to get there.Looking Ahead: Application Assignment Essay.
Although the sales forecasting process and budgeting are often used together, there are distinct differences between the two:
Budgeting is a quantified expectation of what a company hopes to achieve for any given period of time – a summary of total revenue from all products or services sold. Forecasting on the other hand is an estimate of how much will be sold over the set period of time.Looking Ahead: Application Assignment Essay.
In other words, the sales budget process shows the direction your company would like to go in and the forecast indicates how likely you are to arrive there on time.Looking Ahead: Application Assignment Essay.
What is the Sales Budget Process?
Before we get started with the step by step process you’re going to need to gather the following data:
Quantity of units/services (you plan to sell)
Selling price of each unit/service
Period of time (month, quarter or year)
To make this as realistic as possible let’s look at an example of where the sale budget process can be applied.Looking Ahead: Application Assignment Essay.
In this case we are going to play the role of a field sales manager from the insurance industry. To keep things simple, we are going to focus on life insurance policies for people aged between 30-65 years old.Looking Ahead: Application Assignment Essay.
The sales budget will be created for the upcoming year and will be broken down on a quarterly basis.
The table we will create therefore will look something a little like this:
sales budget process
Do you remember the data we gathered at the start of the sales budget process? Well now’s the time to put it to use.Looking Ahead: Application Assignment Essay.
After conferring with our marketing director we’ve decided to increase the cost of our general life insurance policies by 5% next year.Looking Ahead: Application Assignment Essay.
This would bring our median policy cost for all customers aged between 30-65 years old to $55.
Now seeing as we are working by quarter (and there are 3 months in a quarter) we are going to multiply our policy cost by x3 to match our period of time.Looking Ahead: Application Assignment Essay.
$55 x 3 = $165
Selling price per unit/service = $165
Let’s go ahead and pop that into our table:
sales budget process
Now we need to determine how many policies are going to be sold throughout the course of the year.Looking Ahead: Application Assignment Essay.
To do this it’s best that we extrapolate historical sales data from the previous year(s). There are many recommended quantitative methods of sales forecasting we could use, depending on our particular sales process, but one which performs consistently head and shoulders above the rest is exponential smoothing.Looking Ahead: Application Assignment Essay.
It’s considered the most accurate method for extrapolating data as it takes into account seasonality and rogue results by applying a damping factor – an optionally weighted bias towards recent sales data.Looking Ahead: Application Assignment Essay.
If we don’t have any historical sales data to work with we can choose a qualitative method. These include:
Market research studies
Expert opinion panels
Delphi method
Sales force polls
Once we have our estimated number of policies to be sold over the following quarters we can go ahead and add those to our table:Looking Ahead: Application Assignment Essay.
sales budget process
The next step in the sales budget process is to multiply the number of policies sold by the price per policy.
So for Q1 that would be:
1300 x $165 = $215,500
We then continue that process until we’ve filled out the table as follows:
sales budget process
As you can see the total annual sales budget, after the adding up the sum total for each quarter gives us:
$849,750
Importance of having a Sales Budget Process
So why did we go through the trouble of calculating a sales budget for the upcoming year?
First and foremost it provides a yardstick for which actual results can be measured against. As a field sales manager you are given a quota to hit based on the sales budget. In turn, this figure is broken down into different territories and targets assigned to the corresponding field sales reps.Looking Ahead: Application Assignment Essay.
But if they had no target to aim for, how are you to know if the sales process and strategy you’ve implemented has been a success?
It’s like asking them to fire down a shooting range without a target to aim at…something that might prove a little difficult to do!
Setting goals
As we discussed earlier, the sales budget process shows the direction we need to be heading in as a field sales team – it gives us a target to aim at.Looking Ahead: Application Assignment Essay.
But from a distance this target may seem overly ambitious and impossible to achieve, demotivating the sales team and reducing their incentive to achieve it.Looking Ahead: Application Assignment Essay.
So in order to reach our target it will need to be broken down into smaller bitesize goals.
Let’s take our insurance example from earlier to highlight this point.
Our Q1 target for total policies sold is 1300. Now our field sales rep may look at that and laugh it off immediately, calling your sales budget “ridiculous” or “unachievable”.
However, if we look at it a little closer, say, by breaking down that 1300 into smaller pieces by month or maybe even week we start to get a different picture.Looking Ahead: Application Assignment Essay.
So let’s say we decide to break our quarterly totals into months:
1300/4 = 325
Now we can go even further than that by breaking this total down into weeks:
325/4 = 81
Suddenly 81 policies a week doesn’t seem so bad. As a field sales manager you can then work with your individual team members to set strategies to incentivize them to hit these smaller, bitesize goals.
What’s more, research suggests that field sales reps that are able to track and visualize their sales goals are 20% more likely to improve their sales figures.Looking Ahead: Application Assignment Essay.
The implementation of target-setting sales software that can be plugged into your mobile CRM, such as GoalManager, gives field sales managers the flexibility to assign each rep individual goals. These goals can then be linked to overarching targets set by your sales budget, while providing reps with a visual dashboard from which they can monitor their progress.Looking Ahead: Application Assignment Essay.
Increased efficiency
An effective sales budget process increases efficiency not just across the sales team, but also by reducing waste in manufacturing and operations.Looking Ahead: Application Assignment Essay.
In sales it allows field managers to assign specific goals to their team, that once achieved, will have a direct and positive impact on the overall sales targets. There’s no energy wasted on non sales-driving activities.Looking Ahead: Application Assignment Essay.
If you work for a company that sells product, then an accurate sales budget is doubly important. In order to know how much stock to manufacture, order and distribute across the different depots nationwide the different departments will need to know how much is expected to sell.Looking Ahead: Application Assignment Essay.
So if you overcook your sales budgets you’re going to be left with excess product which will be written off as waste. Equally, undercooking your estimations could leave you short of product with some very unhappy customers to boot.
As we can see the sales budget process, along with the sales forecast form an integral part of any business strategy. Without the ability to make reasonably accurate predictions about the future not only are you handicapping your field sales team’s ability to do their job, but also leaving the direction your company is headed to chance.Looking Ahead: Application Assignment Essay.
It can be daunting to start the process of creating a budget, especially if you’re not familiar with some of the common accounting and budget terminology you will encounter, so we have provided a glossary of terms covered here, located toward the bottom of the page under the In Summary section of the page.Looking Ahead: Application Assignment Essay.
It is important for organizations to create accurate and up-to-date annual budgets in order to maintain control over their finances, and to show funders exactly how their money is being used. How specific and complex the actual budget document needs to be depends on how large the budget is, how many funders you have and what their requirements are, how many different programs or activities you’re using the money for, etc. At some level, however, your budget will need to include the following:Looking Ahead: Application Assignment Essay.
Projected expenses. The amount of money you expect to spend in the coming fiscal year, broken down into the categories you expect to spend it in – salaries, office expenses, etc.
Fiscal year simply means “financial year,” and is the calendar you use to figure your yearly budget, and which determines when you file tax forms, get audited, and close your books. There are many different fiscal years you can use.Looking Ahead: Application Assignment Essay. Businesses often use the calendar year — January 1 to December 31. The federal government’s fiscal year runs from October 1 to September 30. State governments — and therefore state agencies and many community-based and non-profit organizations that receive state funding – usually use July 1 to June 30. Most organizations adopt a fiscal year that fits with that of their major funders. You’ll want to prepare your budget specifically to cover your fiscal year, and to have it ready before the fiscal year begins. In many organizations, the Board of Directors needs to approve a budget before the beginning of the fiscal year in order for the organization to operate.Looking Ahead: Application Assignment Essay.
Projected income. The amount of money you expect to take in for the coming fiscal year, broken down by sources — i.e. the amount you expect from each funding source, including not only grants and contracts, but also your own fundraising efforts, memberships, and sales of goods or services.Looking Ahead: Application Assignment Essay.
The interaction of expenses and income. What gets funded from which sources? In many cases, this is a condition of the funding: a funder agrees to provide money for a specific position, for instance, or for particular activities or items. If funding comes with restrictions, it’s important to build those restrictions into your budget, so that you can make sure to spend the money as you’ve told the funder you would.Looking Ahead: Application Assignment Essay.
Adjustments to reflect reality as the year goes on. Your budget will likely begin with estimates, and as the year progresses, those estimates need to be adjusted to be as accurate as possible to keep track of what’s really happening.Looking Ahead: Application Assignment Essay.
WHY SHOULD YOU PREPARE AN ANNUAL BUDGET?
It sharpens your understanding of your goals
It gives you the real picture – by accurately showing you what you can afford and where the gaps in funding are, your budget allows you to plan beforehand to meet needs, and to decide what you’re actually able to do in a given year
It encourages effective ways of dealing with money issues – by showing you what you can’t afford with known income, a budget can motivate you to be creative – and successful – in seeking out other sources of funding
It fills the need for required information – the completed budget is a necessary element of funding proposals and reports to funders and the community
It facilitates discussion of the financial realities of the organization
It helps you avoid surprises and maintain fiscal control
SOME PRACTICAL CONSIDERATIONS
It’s important to note that not everyone has the skills or desire to create and manage a budget single handed. Fortunately, there’s help available, both within the organization (by hiring a bookkeeper, accountant, or CFO) and elsewhere. There are organizations like SCORE (Service Corps of Retired Executives) that exist to assist with things like budgeting. Local universities or government agencies may maintain offices that help small businesses and non-profits with financial planning. The possibility of an accounting or similar position shared with or loaned by another organization may also exist.Looking Ahead: Application Assignment Essay.
PLANNING AND GATHERING INFORMATION TO CREATE A BUDGET
THE PRELIMINARIES: WHAT WILL YOU NEED TO SPEND MONEY ON NEXT FISCAL YEAR?
It is important to know what the priorities are and what makes the most sense for the organization at its particular stage of development. Actually figuring out what you should be spending your money on involves an organization-wide planning process.Looking Ahead: Application Assignment Essay.
Consider these questions:
What are the activities or programs that will do the most to advance your cause and mission, and that you think you can carry out with the income and resources you know you have or can foresee?
How many staff positions will it take to run those activities or programs well?
How much, how (hourly wages, salary, consultant fees, benefits), and from what sources will those staff members be compensated?
What else will be needed to run the organization and its activities — space, supplies, equipment, phone and utilities, insurance, transportation, etc.?
ESTIMATING EXPENSES: WHAT WILL IT ALL COST?
Step 1: Develop ways of estimating your expenses
Estimate your expenses for the coming fiscal year. In some cases — yearly rent, or salaries, for instance — you’ll probably have real figures for what these expenses will be. In other cases — telephone and utilities, etc. — you’ll have to estimate of an average monthly cost.Looking Ahead: Application Assignment Essay.
Be sure to add in some money in a “miscellaneous” category, in order to be prepared for the unexpected. There are always expenses you don’t anticipate, and it is part of conservative estimation to make allowances for them.Looking Ahead: Application Assignment Essay.
Conservative estimation: When preparing a budget, try to be as accurate as possible. Always use actual figures if you have them, and when you don’t, estimate conservatively for both expenses and income.Looking Ahead: Application Assignment Essay.
When you estimate expenses, guess high — take your highest monthly phone bill and multiply by 12, for instance, rather than taking an average. By the same token, when you’re estimating income, guess low — the smallest number realistically possible. Estimating conservatively when you plan your budget will make it more likely that you stay within it over the course of the year.
Step 2: List the estimated yearly expense totals of the absolute necessities of the organization
For most organizations, they include, but aren’t necessarily limited to:
Salaries or wages for all employees, listed separately by position
Fringe benefits for all employees, also broken out by position. Remember that even if you have no formal fringe benefits, you still have to pay part of the Social Security and Medicare taxes, as well as Workers’ Compensation and Unemployment Insurance, for any regular employees (people who work a fixed schedule). These costs can be considerable, amounting to 12 to 15% added on to your total payroll.Looking Ahead: Application Assignment Essay.
Rent and/or mortgage payments for the organization’s space
Utilities (heat, electricity, gas, water)
Phone service
Internet provider or server costs, depending on your organization’s needs
Insurance (liability, fire and theft, etc.)
Step 3: List the estimated expenses for things you’ll need to actually conduct the activities of the organization
Program and office supplies: pencils, paper, software, educational material, post-it-notes, etc.
Program and office equipment. Wherever you classify computers and peripherals, copiers, faxes, etc., be sure to figure in the annual estimated costs of repairs or service contracts in addition to purchase or lease costs.Looking Ahead: Application Assignment Essay.
For budgeting purposes, it may be useful to separate program supplies and equipment from office supplies and equipment. In the case of state and federal funding, at least some office expenses are often considered “administrative”, and funding for administrative expenses may be limited, sometimes to as little as 5% of your budget.Looking Ahead: Application Assignment Essay.
Step 4: List estimated expenses for anything else the organization is obligated to pay or can’t do without
Loan payments
Consultant services – these may include an annual audit, accounting or bookkeeping services, payments to other organizations for specific services, etc.
Most non-profit organizations are required, either by funders or by the IRS, to undergo an audit every year. This means that a CPA (Certified Public Accountant) must check the organization’s financial records to make sure they are accurate, and work with the organization to correct any errors or solve problems.Looking Ahead: Application Assignment Essay. If there is nothing illegal or seriously wrong, the CPA then prepares financial statements using the organization’s books, and certifies that the organization follows acceptable accounting practices and that its financial records are in order. The larger an organization’s budget, the more complicated an audit is likely to be, the more time it is likely to take, and the more it is likely to cost. An audit of a $100,000 budget might cost $2,000 to $4,000, for instance; that of a $1 million budget might cost $15,000.Looking Ahead: Application Assignment Essay.
Printing and copying, if not done within the organization
Transportation: travel expense for staff, participants, and/or volunteers; and vehicle upkeep and expenses for any organization-owned vehicles
Postage and other mailing expenses
Now that you’ve gathered your necessary expenses, you can take a look at your wish list.Looking Ahead: Application Assignment Essay.
Step 5: List estimated expenses for things which you aren’t sure you can afford, but would like to do
These might include staff positions, new programs (including staff, supplies, space), equipment, etc.
Step 6: Add up all the expense items you have listed
This total is what you would like to spend to run your organization. In other words, it’s your projected expense for the coming fiscal year.Looking Ahead: Application Assignment Essay.
ESTIMATING INCOME: WHERE ARE WE GOING TO GET ALL THAT MONEY?
Use last year’s figures, if you have them, as a baseline and estimate conservatively, rather than being overly optimistic, and laying yourself open to disappointment and worse.Looking Ahead: Application Assignment Essay.
Step 1: List all actual figures or estimates for what you can expect from your known funding sources
This includes sources that have already promised you money for the coming year, or that have regularly funded you in the past. These may include federal, state or local government agencies; private and community foundations; United Way; religious organizations; corporations or other private entities.Looking Ahead: Application Assignment Essay.
Step 2: If your organization fundraising, estimate the amount you’ll raise in the next fiscal year
Fundraising efforts might include community events (a raffle, a bowl-a-thon), more ambitious events (a benefit concert by a world-class performer), media advertising, or phone or mail solicitation.Looking Ahead: Application Assignment Essay.
Step 3: If you charge fees or sell services, estimate the amount you’ll take in from these activities
This could be consulting services your organization offers, training materials that you created that can be sold to others interested in the same work, etc.
Step 4: If you solicit members who pay yearly dues or fees, estimate the amount that membership will yield
Step 5: If you sell items, estimate what these sales will bring in
This could include pins, T-shirts, books, blood pressure cuffs, etc.
Step 6: If you sublet or rent space to others, record the estimate of what this will bring in
Step 7: If you have any income from investments, estimate what you’ll realize from these
This could include investments, endowment income, annuities, or interest income (e.g., from a certificate of deposit, or from a Money Market or checking account)
Step 8: List and estimate the amounts from any other sources that are expected to bring in some income in the coming fiscal year
Step 9: Add up all the income items you have listed
This total is the money you have to work with, your projected income for the next fiscal year.Looking Ahead: Application Assignment Essay.
PUTTING IT ALL TOGETHER: CREATING AND WORKING WITH A BUDGET DOCUMENT
ANALYZING AND ADJUSTING THE BUDGET
Step 1: Lay out your figures in a useful format
If your budget is going to be useful, it has to be organized in such a way that it can tell you exactly how much you have available to spend in each expense category.Looking Ahead: Application Assignment Essay.
The easiest way to do this is by using a grid, usually called a spreadsheet. In its simplest terms, a spreadsheet will have a list of funding sources along its top edge and a list of expense categories running down its left-hand edge, so that each vertical column represents a funding source, and each horizontal row represents an expense category. Where each column and row meet (this meeting place is called a cell), there should be a number representing the amount of money from that particular funding source (the column) that goes to that particular expense category (the row). A simple spreadsheet for a small organization might look like this:Looking Ahead: Application Assignment Essay.
Spreadsheet: United Consolidated Metropolitan Health Agency (UCMHA)
Dept of Public Health United Way Membership Dept of Welfare Totals
Salaries 15,000 2,500 2,500 21,000 41,000
Fringe 3,000 500 500 4,200 8,200
Supplies 300 200 0 500 1,000
Equipment 1,500 1,500 0 0 3,000
Phone 400 150 0 600 1,150
Utilities 500 200 0 500 1,200
Insurance 800 200 0 400 1,400
Rent 4,000 500 0 3,000 7,500
Totals 25,500 5,750 3,000 30,200 64,450
A spreadsheet format allows you to assign restricted funds to the proper categories, so that you can see how much money is actually available to you for any given expense category. In the above example, if the Department of Public Health says that no more than $18,000 of its grant can be spent on salaries and fringe, for instance, then you know that you have to find the rest of the $49,200 total in those categories from other sources.Looking Ahead: Application Assignment Essay.
Step 2: Compare your total expenses to your total income
If your projected expenses and income are approximately equal then your budget is balanced.
If your projected expenses are significantly less than your projected income, you have a budget surplus. This circumstance leaves you with the possibility of expanding or improving the organization, or of putting money away for when you need it.Looking Ahead: Application Assignment Essay.
If your projected expenses are significantly greater than your projected income, you have a budget deficit. In this case, you’ll either have to find more money or cut expenses in order to run your organization in the coming year.Looking Ahead: Application Assignment Essay.
Step 3: (For balanced budgets) Make sure you are able to use your money as planned
If you’ve filled in the numbers in accordance with your funding restrictions, your spreadsheet should immediately let you know whether you have enough in each of your expense categories. If there is a problem, there are several ways of addressing it.Looking Ahead: Application Assignment Essay.
It may be possible to come to an arrangement with the funder that allows you to use the money in the ways that you’d like to, or that allows you more freedom
You may be able to reassign some expenses from one category to another. If you don’t have enough money to pay an Assistant Director, for example, it may make sense to make her the coordinator of a particular program, and to pay part of her salary out of the funds allotted to that program.Looking Ahead: Application Assignment Essay.
In some cases, it might be necessary to rethink your priorities a bit, so that the money can be spent in accordance with funding restrictions
It’s important to remember, however, that the mission, philosophy, and goals of your organization should drive its funding, and not the other way around. Creating a program simply to make use of available funding is usually a bad idea, unless the program is one you’ve already planned for, and will clearly fit in with and advance the mission of your organization.Looking Ahead: Application Assignment Essay.
Step 4: (For budget surpluses) Be aware that it may not show up as cash until the end of the coming fiscal year
The most conservative course is to try to stick to your budget, and invest the excess money at the end of the year. This will give you something to draw on in emergencies, or money you can use in the future for something that the organization really wants or needs to do.Looking Ahead: Application Assignment Essay.
“Invest” here doesn’t necessarily mean putting money in the stock market, which usually doesn’t make sense unless you have a lot of money, and you’re willing to stay with it for a long period of time – ten years or more. Certificates of Deposit, which give high interest rates in return for keeping money in the bank for a set period (generally, you can choose a period of from six months to five years), or Money Market accounts, which give a high interest rate in return for keeping a large balance, are easy ways for an organization to earn interest on its money, while still keeping it available for emergencies.Looking Ahead: Application Assignment Essay.
You can use your surplus to improve working conditions within the organization: raise salaries, add a benefit package, etc. It is important to remember that once you’ve instituted this type of change, you’re obligated to maintain it.Looking Ahead: Application Assignment Essay.
You can buy items that you haven’t been able to afford previously
You can consider adding positions or starting a whole new program or initiative, perhaps one you’ve been planning for a long time. If you’re starting a new program, you’re also implicitly making a commitment to maintaining it for a period of years, so that it will have enough time to be successful.Looking Ahead: Application Assignment Essay.
You can think about a long-term capital investment, like buying a building. You could lock in your rent for the duration of the mortgage (probably 20 years), and you might be able to provide the organization with income as well, by renting part of the building to other organizations.Looking Ahead: Application Assignment Essay.
Your surplus may not be large enough to enable your organization to make significant changes on its own, but it may provide the means for you to enter into a collaboration with other organizations to achieve a goal that none could have accomplished alone.
Step 5: (For budget deficits) Consider combining several or all of the following possibilities to make your budget work
If you have enough money in the bank or in investments from prior years, you can use it to make up the gap in your budget
You can try to raise the additional money you need through grantwriting, fundraising efforts and events, increasing your fees for service, etc. If you have a plan for raising money – such as a raffle to finance a new copier – it should be listed with your estimated income. But be aware that such a projection isn’t “real” money until the financial goal it represents is actually reached.Looking Ahead: Application Assignment Essay.
You can explore saving some money by collaborating with another organization to share the costs of services, personnel, or materials and equipment
You can try to cut expenses by reducing some of your costs: use less electricity, use recycled paper, try to get donations of some items you planned to buy, etc.
You can cut expenses by eliminating some things from your budget
A Guide for Budget Cutting
If you’re going to cut your budget, it’s a good idea to have a rational system for doing so. Here is a suggested step-by-step process which allows you to look at what is more and less necessary, and to make considered decisions about what you can do without and what you can’t.Looking Ahead: Application Assignment Essay.
Look first at those items that aren’t essential to the running of the organization.
Can you cut or cut down the amount of physical, tangible items you need to run the program, or cut the cost of services in some way?
Finally, if nothing else will serve to balance the budget, you may have to consider cutting back on whatever it is the organization does, which usually translates to dealing with the positions of paid staff.Looking Ahead: Application Assignment Essay.
Reduce the hours of one or more staff, if people are on hourly wages – for instance, consider reducing the work week from 40 to 37.5 hours, or even further
Reduce one or more positions from full to half time – keep in mind that in many organizations, this reduction would eliminate benefits for those affected
Ask staff to pay a larger share of their fringe benefits (if there are fringe benefits)
Lay off one or more staff members
You can borrow the money you need, being sure to add the loan payments to your projected expenses and figure them into your revised budget
CREATING AN ACTUAL BUDGET DOCUMENT
While the spreadsheet is probably what you’ll use to keep track of your finances, you might also want to put the budget in a form everyone in the organization can understand.Looking Ahead: Application Assignment Essay.
Probably the simplest budget document is one which lists projected expenses by category and projected income by source, with totals for each. Thus, anyone can see how much you intend to spend, how much you intend to take in, and what the difference is, if any. Referring back to the spreadsheet example above, a simple budget would look like this:Looking Ahead: Application Assignment Essay.
UCMHA Annual Budget for Fiscal 2001 (July 1, 2000 to June 30, 2001)
Expenses: Estimated Dollar Amount:
Salaries 41,000
Fringe 8,200
Supplies 1,000
Equipment 3,000
Phone 1,150
Utilities 1,200
Insurance 1,400
Rent 7,500
Total Expenses 64,450
Income:
Department of Public Health 25,500
United Way 5,750
Membership 3,000
Department of Welfare 30,200
Total Income 64,450
Another possible form would be similar, but would include a budget narrative, explaining how various items were arrived at.Looking Ahead: Application Assignment Essay.
The salary item, for instance, might look like this:
Salaries
Director ($17.00/hr for 20 hrs / week, for 52 weeks)
$17,680
Health Educator ($14.95/hr for 30 hrs / week, for 52 weeks)
$23,322
Total Salaries $41,002
Other categories would be handled in the same way, with explanations of what they included and how the money would be spent.Looking Ahead: Application Assignment Essay.
A final possibility would be to use the spreadsheet itself as a budget document, for those who wanted to see exactly how the money was to be allocated. Many organizations provide their Boards with both a simple budget and a spreadsheet, so that those Board members who are eager to understand the organization’s finances can get a clear picture, while others can simply see whether the budget is in balance.Looking Ahead: Application Assignment Essay.
WORKING WITH YOUR BUDGET
Most organizations make sure to review their budgets on a regular schedule – once a month is usually reasonable – and revise them to keep them accurate. If you get a grant you didn’t anticipate, or if your spending estimates are off, these things should be figured into the budget.Looking Ahead: Application Assignment Essay.
The budget becomes the basis for financial documents that you might prepare during the course of the year (balance sheets, for instance) which give an up-to-the-minute picture of the financial status of the organization.Looking Ahead: Application Assignment Essay.
Your budget should:
Tell you if there are still any gaps in funding, and exactly where they are
Show you exactly what you need to do to close those gaps
Make it possible to keep careful track of your money, to adjust to changes, and not to overspend
IN SUMMARY
Devising a budget process that examines the organization’s priorities, and using it to produce an accurate, balanced budget for the coming fiscal year will help you keep control of the organization’s finances, and will help guide the work of the organization. A rational and accurate budget will allow you to give accurate reports to funders and to spend their money as you have promised. And it will give you clear guidelines about what you can spend and when.Looking Ahead: Application Assignment Essay.
GLOSSARY
This glossary covers some of the basic accounting terminology used in the section.
Accounting: The method by which one keeps track of and manages money. There are various accounting systems that an organization can use, but the goals of all of them are to assure accurate records, and to give the organization the ability to know exactly how its money is being spent and how its financial position compares to its budget at any given moment.Looking Ahead: Application Assignment Essay.
Audit: A CPA (Certified Public Accountant) checks the organization’s financial records to make sure they are accurate, and works with the organization to correct any errors or solve problems. The CPA then prepares financial statements using the organization’s books, and either certifies that the organization follows acceptable accounting practices and that its financial records are in order, or explains any problems with the financial records and suggests corrective measures.Looking Ahead: Application Assignment Essay.
Balanced Budget: Projected expenses and projected income are approximately equal.
Budget Deficit: Projected expenses are significantly greater than projected income.
Budget Surplus: Projected income is significantly greater than projected expenses.
Conservative Estimation: Using the highest reasonable figures when estimating expenses and the lowest reasonable figures when estimating income, so you will be more likely to create a budget that will keep you from overspending.Looking Ahead: Application Assignment Essay.
CPA: Certified Public Accountant. A certified audit, which is what most funders require, must be conducted by a CPA.
Fiscal Year: This term means financial year, and is the calendar which you use to figure your yearly budget (July 1 to June 30, for example) and which determines when you file tax forms, get audited, and close your books.Looking Ahead: Application Assignment Essay.
Fund Accounting: The practice of keeping a separate record of the expenditures for each separate grant or contract administered by an organization. Thus, a grass roots AIDS prevention initiative might keep separate records for funds they receive from the Department of Health, the Department of Social Services, the Department of Welfare, a local community foundation, and the AIDS Action Committee.Looking Ahead: Application Assignment Essay.
Line-Item: An expense category (salaries, telephone, office supplies).
Line-Item Budget: Generally, a budget agreed upon with a funder that specifies how much of the funder’s money will be spent on each line-item. It could also refer to any budget that is broken out by line-item.
Projected expenses: The amount of money you expect to spend in the coming fiscal year, broken down into the categories you expect to spend it in — salaries, office expenses, etc.Looking Ahead: Application Assignment Essay.
Projected income: The amount of money you know or can reasonably expect to take in for the coming fiscal year, broken down by sources — i.e. the amount you expect from each funding source, including not only grants and contracts, but also your own fundraising efforts, memberships, interest and investment income, and sales of or fees for goods or services.Looking Ahead: Application Assignment Essay.
Spreadsheet: A grid format for setting out a budget in order to see expenses, income, and the ways they interact all in one place. In a budget spreadsheet, each vertical column represents a funding source, and each horizontal row represents an expense category. In the space where a column and row meet (called a cell) a number represents the amount of money from that column’s funding source spent on that row’s expense category.Looking Ahead: Application Assignment Essay.
