If your association continually has challenges with budgeting, the best place to look to improve in that area is usually the fundamentals. It only takes a fundamental mishap or two to transform a well-planned and well-formed budget into a complete disaster. Read on for six simple tips that will help you put together a solid association budget:
1. Know why you are budgeting.
The reason for budgeting is to help you spend less than what your association is taking in from members and events. It shows your spending weaknesses and provides the structure for you to get stronger in those areas. It is not a solution itself but serves as guidance toward being able to effectively and naturally spend less than what is in the bank.
2. Have a specific, concrete long-term goal in mind.
For many associations, it is debt freedom. For others, it might be saving for a special event, such as a clinic or camp or offering scholarships to members. Whatever it is, having a big long-term goal in mind, particularly something that would have a big impact on your association, is useful when planning a budget.
Why? An effective budget is likely going to involve a few difficult choices. You will likely be agreeing to cut some spending and probably planning to do a few other things that on the surface seem like they will reduce the quality of the association a little, like offering beverages and snacks after every meeting. Knowing that those little choices are in fact adding up to something specific and tangible — and something that the association really wants — makes the process much more palatable.
3. Know how much you take in.
The correct answer here is not just annual revenue, nor is it dividing your annual revenue into 12 parts for a monthly budget. Instead, you should be basing your budget on the association’s revenue either per month or for that season.
Make sure you know exactly what the association is bringing in because that is the number you will use as the framework when you budget.
4. Have some accurate data when it comes to spending, both monthly and irregularly.
Similarly, when you go to plan a budget, it works best if you plan it based on real numbers. That means pulling out the association’s bills and receipts from the previous year — all of them — and figuring out what is actually being spent. Your first “budget” should not actually be a budget at all but should instead reflect your spending in an average month.
Don’t forget any irregular bills. Those bills should not be unexpected surprises. Plan for them by socking away a little each month for them.
5. Have a simple budgeting tool that you understand how to use — start with pencil and paper if you must.
Your first budget should be easy to use and manage, and you should understand it from the inside out. That is why the best bet is usually to use pencil and paper for your first budget. For an established association, work off the previous year’s budget and format. If you want to move it to an electronic format, try something simple like a free spreadsheet (if you are familiar with Excel).
That is not to say programs like Quicken or Microsoft Money are not great options because they are. The problem is that they offer so many options that it can often overwhelm the new user, and if you are overwhelmed, you are quite likely to just give up because “budgeting is too complicated.” Don’t let that happen — start with simple tools, then move to more complex ones if you feel a need.
6. Be realistic.
Budgeting is like diet planning — it is not going to work if you make huge, unrealistic assumptions right off the bat. If you are trying to diet, moving to a lettuce and tofu diet might work for a few days, but eventually you will crack. A much better solution is to be realistic — instead of drinking a sugar and fat-heavy coffee in the morning, cut down to a low-fat version, and instead of eating a double cheeseburger for lunch, bring your own cold cut sandwich. Small steps work; big steps result in failure.
The same rule applies to budgeting. Don’t pledge to reduce a certain segment of spending by 80 percent — it won’t work over the long haul. Instead, just average out what you have spent on that segment for the last few months or season, and pledge to a cap of just five or 10 percent below that average. Then, after some time and some success, trim it a bit more. Going whole hog right off the bat will almost always end in failure over the long run.
Budgeting is an essential process that officials associations use to forecast current and future revenue to expenses. The goal is to make sure that enough money is available to keep the association running, to grow, to compete and to ensure a solid emergency fund.
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