5 Tips for Better (and easier) Annual Budgeting
At Maliasili, we've kicked off our 2022 annual budgeting process. Some of us (no names mentioned…) have in the past dreaded this process, finding it cumbersome and daunting. Enter Janelle Brazington, Maliasili's Director of Finance, who has made this process simple, clear, and valuable. We asked her to share advice on making annual budgeting better, so here it is.
Like most organizations, setting Maliasili's annual budget is one of the most important steps we take each year to align our financial and human resources with our mission, strategy, and annual work plan. In addition to outlining how we plan to spend money in the coming year, our budget also helps us to tell a story of how we plan to invest in our team and our work when describing our strategy to our donors. This helps to guide what we prioritize and how we will invest in our work.
We start building our budget with what we know we will need for next year. Our priority is our team - people are Maliasili's number one investment. Our annual budget is based on the salaries and benefits we will need for our current team. We then add what we know we will need for basic operations, including activities we have already committed to in the next year, such as the leadership program and partner workshops. This gives us an idea of the revenue we will need to secure in addition to whatever we already have, such as a multi-year grant, or annually renewed funding.
Once we have this foundation, we use the following five principles to ensure a robust and thorough budget. We hope these tips will inspire your process.
Include everyone →
We always ask each team member to estimate the resources they will need for their scope of work in the coming year. For example, our Finance Assistant will assess needs for office supplies and software upgrades. Our portfolio managers will review their plans with partners and estimate their time and travel or meeting expenses. And our directors will outline their needs for various programs and team meetings. When each person is given a chance to outline their needs, they feel more engaged. It also creates a sense of ownership in Maliasili's overall financial management. Across your organization, strive to find ways to make the budgeting process inclusive.
Start at the beginning →
While we manage a relatively large budget that ensures we can achieve our goals, we generally start by estimating our costs by activity, line by line. Our budget is built on what we anticipate requiring for each planned activity, program, project, or meeting. While the budget the board approves is compiled and organized in a high-level format, each piece of the budget can be tracked to a detailed budget estimated by activity.
Be conservative →
When estimating revenue, round down. When estimating expenses, round up. Only include secured income or revenue you are confident you will receive (maybe from long-time committed funders). This way, you won't overestimate your resources. Additionally, include all expenses you know you will need to spend to achieve your annual work plan. Whatever gap between the two is what makes up your fundraising goal. If it's not certain that you might receive certain revenue, do not include it. If you might have certain expenses, definitely include them. It is easier to allocate extra funds rather than cut costs mid-year.
Anticipate external financial pressures →
Plan for increases in operational expenses to account for inflation and other external financial pressures. For many conservation organizations, these external pressures could be a loss of tourism income or decreased donations. Some expenses will certainly increase, so anticipating a per cent increase in all line items creates a buffer in the budget to help you prepare for them.
Track expenses →
Use a monthly budget vs an actual report that you can share every month with your team. Once you set the budget, review your monthly budget vs actual report throughout the year to help you understand how well you've budgeted for your revenue and expenses. This will help you estimate better in the coming years. This report will also help you determine what activities you may need to postpone to reduce costs if your fundraising goals aren't met or delayed.
Finally, leaders should encourage a shift in mindset towards budgeting - and more broadly, finance - across the organization. It may seem boring and tedious, but when teams are involved in financial planning processes and decision-making (rather than being dictated to by management), it shifts their approach and thinking.
Also... You asked, and we listened. We are developing new tools for our partners to support their financial management capacity, including a Financial Management 101 resource brief for non-finance executives. Stay tuned in 2022 for more details as they become available.
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