5 Problems with Annual Budget Reviews
For many nonprofits, budgeting has been designated to occur only once per year during an annual evaluation. While this is better than nothing, and all some smaller nonprofits may be able to manage, it isn’t an ideal way to manage your bookkeeping process. If you’re currently operating under the once-per-year method of budgeting, it might be time to rethink your strategy, outsourcing accounting needs or hiring as needed.
Annual budget reviews are problematic--but why?
It’s easy to get it wrong
When organizations resort to an annual budget process, they’re making predictions for the entire year. While it is good to have a plan, it is difficult to see into the future. If your budget process is reduced to a once-a-year evaluation, you might be prone to a level of inflexibility that make adjustments difficult. Should something change (even small things), you need to be ready to make adjustments to your budget.
You forget about the whole picture
Annual budget review processes often only focus on the end of the year, which can result in money lost throughout. By maintaining a budget strategy that addresses things as they happen, companies are more on top of things like decreases in donations or less than ideal merchandise sales. When things are left until the end of the year, it is easy to get behind.
You run out of time
When you only do something once per year, it tends to take a lot of time. The process of making a budget is no small one, even for seasoned professionals. If multiple members of your staff are unavailable for other duties, it might be easier to either outsource or spread the process throughout the year. Overburdening accountants for an annual push results in higher burnout and a greater rate of mistakes.
Your budget isn’t accurate
When companies are subject only to an annual budget review, people tend to misjudge and mismanage departmental budgets. A great example of this is pushing expenses to the following year to ‘beat’ the budget or spending extra money to increase the budget for the following year. A use it or lose it mentality seldom works, and ultimately loses money for your nonprofit.
You focus on the wrong things
When you’re super focused on the budget, you neglect the needs of the communities you serve. Your resources are committed to budget review and creation, which takes you away from more important work. The lack of flexibility present in this type of budgeting process can make you hyper focused on the dollars, when you’d rather be focused on the service. When you work with a nonprofit accounting service, some of this pressure is relieved and you can spend your time where it matters most.