by Tyler Mosley
Audit Manager at Atchley & Associates, LLP
Many of the not-for-profit organizations we provide services for use budgets. For the most part, those budgets are static budgets that are set and approved by the board of directors at the beginning of the year and only modified if a significant event occurs during the year. I have seen a growing trend of companies moving towards flexible budgets which can be modified throughout the year based on updated information and current organizational conditions.
While static budgets are usually set at the beginning of a fiscal year and rarely modified, flexible budgets can be modified weekly, monthly or quarterly based on changing conditions. Most of the not-for-profit organizations that use a budget base their budget on projected cash inflows. While some not-for-profit organizations may have steady cash inflows and can reasonably project the fiscal year’s total revenues, many do not. Many not-for-profit organizations rely on donations from businesses and individuals which can vary in timing and magnitude. For these organizations a flexible budget would provide a more useful benchmark with which to manage program expenses. Program expenses could be budgeted for at the beginning of the year based on projected total cash inflow and then increased or decreased each month or quarter based on updated cash inflow information.
Updating the budget throughout the year will prevent surprises each period in which expenses may be under budget but exceed cash inflows. Alternatively, it would also prevent program expenses coming in well below cash inflows when the organization has a great fundraising year. When it is time for your organization to establish a budget, consider setting up so that it can be updated periodically throughout the year as you get more accurate information about your current cash flow situation.