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Our top tips to planning your budget for the upcoming financial year
As the end of the financial year approaches for June year-end entities, it’s important for NFPs to begin preparing the new budget for the upcoming financial year.
This can be a challenging task, especially with the unique needs and limitations of NFP accounting. And if you don’t have an accounting background, you might find it even more tricky.
However, with proper planning and strategic thinking, you can set your organisation up for financial success in the year ahead.
Take a look at our need-to-know tips for planning your next year’s budget.
Tip #1: Review your current financial position
Our first tip is to review the current financial position of your NFP. This includes examining the income and expenses over the past year.
Are there any areas you can identify where overspending or underspending might’ve been a problem? What do your revenue forecast and expenses look like for the upcoming year – are there funding streams that are ending and are there any new opportunities on the horizon?
Knowing your current position gives you perspective on where you can improve and where you need to take action to ensure sustainability. A solid understanding helps you to set realistic budget goals for the upcoming financial year and ensure your organisation’s overall strategy and objectives align.
Understanding where you’re at gives you a better opportunity to understand where you’re going. So when you’re preparing the EOFY budget, consider your organisational long-term goals and plans to ensure you’re on track – the budget is the financial plan that resources and underpins the business or strategic plans, not the other way around. Resist the urge to ‘chase the money’ – any grant or funding opportunities should support your goals and mission.
Tip #2: Communicate with key stakeholders
Working closely alongside key stakeholders like your management team and board of directors can help you maximise your organisation’s financial position.
Your management team should be actively involved in developing the budget, including everything from programs and activities to funding streams, so any EOFY budget discussions should be productive and quick.
To ensure you’re capturing all the necessary information between management and accounts, make space in your budget document to capture notes and assumptions – you can’t keep all the assumptions in your head, and there’s always the risk that the head with the information in it may not be around when you need it!
By documenting assumptions – whether it is the expected award rate increase, the fundraising activities that make up the annual target or the grant or donor opportunities that you have budgeted – you are better able to understand variances when they happen during the year and to be able to tweak your budget when it comes time to re-forecast or if things change drastically.
Tip #3: Keep on top of award wage changes
In what might be our most important tip for next year’s budget, we encourage you to keep up to date with any award wage changes that might affect your budgeted salary allocations. Organisations that pay according to an award or that have an enterprise agreement linked to award rates or are in an industry covered by an award need to ensure they are meeting at least the minimum pay rates that are set by the award system.
Each year, Fair Work Australia conducts the Annual Wage Review that determines the uplift to pay rates in awards and the national minimum wage, taking into consideration the viewpoints of various bodies such as unions, welfare groups and corporations.
The determination is announced around mid-June, which doesn’t leave you much wriggle room to update your budget. So, what can you do? Well, when making decisions like this, the safest and most scientific approach is to work from what you know and make use of the facts.
Given that we saw an increase of 4.6% to award rates in last year’s decision, and the cost of living and inflation increases seen during this financial year, the likelihood of another significant award increase seems high.
Your ultimate budget for salary increments will depend on your organisation’s risk appetite and your current financial position, but if you’re keen to play it safe, consider allocating at least 5% to salary and wages in next year’s budget to absorb the potential rate increase.
If you’re planning on being highly conservative, then you might look at setting around 7% towards an increase. Allocating any less than 5% would be risky, unless you are budgeting a nice surplus to buffer any changes.
Regardless of your choice, having an increase planned within your budget anticipates an increase in salary expenses and softens any changes above and beyond what you might have assumed. On the flip side, to not factor in a salary increment pretty much guarantees your FY24 budget will be out of date before it even begins.
Key takeaways
Preparing your annual budget can be a challenging task, but with proper planning and strategic thinking, it can set your organisation up for financial success in the year ahead.
And if you’re feeling overwhelmed, the experts at Accounting For Good have a wealth of advice and resources on not-for-profit budgets to guide you.
