Budgeting for your organization's success
How many times have you plugged a number in the budget to make it balance?
How often are you biting your nails at the end of the fiscal year?
Whether you’re the top executive or the leader of a department, my guess is you’ve found yourself in one – or both – of these situations. The pressure to make the budget work often means being more aggressive with your revenue goals and/or cutting back on the expenses needed to achieve those revenue goals.
We kick the can down the road only to face it at the end of the fiscal year. I understand that approach and have done it myself as a chief executive. But I want to encourage you to face the tough decisions from the start, not the end. Here’s why…
In budgeting, there is a difference between setting stretch goals and unrealistic goals. I have seen more times than I can count an organization’s budget that has a revenue goal not even close to anything the organization has achieved in the past.
Recently, I worked with an organization that budgeted nearly three hundred thousand dollars in ticket revenue for their holiday show. When I looked at prior years’ sales, the highest amount they achieved in the last six years was just over two hundred fifty thousand dollars. When I asked why such a high goal was set, I was told “that’s what the board expects to see.”
Of course, what this does is force mid-season cuts to make up for the gap in revenue. It also demoralizes the staff who may have just achieved the highest sales in the past few years but still missed budget by twenty percent. What should be celebrated as a success is seen as another failure.
Another organization I recently worked with budgeted revenue based on the amount needed for the program to breakeven. Of course, this had no basis in how many tickets they would reasonably expect to sell for a given program. When I asked the staff how they felt about constantly missing their budgeted goals, they said it didn’t matter. They always miss the budget and just do the best they can.
What does the budgeting process look like in your organization? Do you consistently miss your budgeted goals or are you usually spot on?
My name is J.L. Nave. I'm the principal coach and consultant at Nave Strategies where I provide practical advice and services to small and mid-size arts and cultural organizations to help my clients move from surviving to thriving.
Today I’d like to share a different way to approach this.
This is my way of sharing what I have learned from decades in the industry and giving you the tools you need to help your organization realize its full potential.
Perhaps this will be a familiar scenario:
Your programming is set for next season and everyone has turned in their budget numbers. Your staff can back up their budgets with how many tickets they expect to sell and how many donations at each giving level they believe will come in.
The first draft shows a one hundred thousand dollar deficit, so you push your team to close the gap.
They come back with enough changes to cover sixty thousand dollars of the gap, still leaving a deficit of forty thousand dollars. You know everyone has been optimistically realistic in their planning. And yet, you still must present a balanced budget to the board. You decide to split the difference between marketing and development income and hope it all works out in the end.
As the season progresses, the operating deficit grows a little bigger each month. Finally, seven months into the fiscal year, your board directs you to close the gap. You meet with your marketing and development teams for their ideas, but they just give you an “I told you so” look.
At this point in the season, there aren’t very many opportunities to push on the revenue side. And since you’re seven months into the year, the flexibility in expenses is growing tighter every day. You end up making much larger expense cuts than you’d like. But what choice did you have, right?
There is only one time when you have one hundred percent of the options still available to you, and that is before presenting the budget to the board. Addressing the financial challenge from the beginning lets you make minor changes over twelve months than be faced with major adjustments in the final months of the fiscal year.
At the end of the day, your financials will work themselves out somehow. Being inaccurate in your budgeting will force you to make difficult decisions and add stress to your already difficult job. The sooner you accept the financial challenges, the more options you’ll have available to mitigate them.
I would be happy to help you budget more accurately and enjoy a more stress-free season.
There are three ways we can connect.
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If you have a question about your unique circumstance, direct message me through LinkedIn with that question. I’ll make sure to get back to you.
One final thought – Having a realistic budget from the start is the difference between your organization surviving and your organization thriving. Let me know if I can help your team get there.
I look forward to hearing from you, and thanks for watching.