 The three of us are ready to knock this out of the park. So we have with us today, Justine Townsend, manager of your part-time controller. You might not recognize her because she has been on for Halloween and she was decorated as just two, you know, two of the nines. So you'll have to do this for next Halloween to see what Justine joins us for next time. But she's brought a conversation to us today and it's about budgeting tips that count. And that is intentional to use this play on words because Justine has some great insight to share with us. But before we jump into conversation, we want to remind all of you, our viewers and listeners around the globe, who we are. So hello to you, Julia Patrick, CEO of the American Nonprofit Academy, and I'm Jarrett Ransom, nonprofit nerd and CEO of the Raven Group. We are so extremely honored to have the pleasure of having these partners with us. So thank you so very much to Bloomerang, American Nonprofit Academy, Nonprofit Thought Leader, Fundraising Academy at National University, 180 Management Group, your part-time controller. Again, where Justine joins us from today. Also, thank you to Staffing Boutique, JMT Consulting, Nonprofit Nerd and Nonprofit Tech Talk. Thank you again to these amazing companies that allow us to continue these conversations. And if you missed any of the conversations or you want to go back and listen to them again, we have you covered. Go ahead and scan that QR code, download the app. You can also still find us on your streaming broadcast channels and your podcast channels. So that's enough of the housekeeping. We're getting down to business. Justine Townsend is here, manager of your part-time controller. Welcome back, Justine. Thank you so much. I'm so excited to be here. I love doing this with y'all. Well, we're thrilled to have you here because budgeting is one of those things where you hear like, you know, for a lot of organizations, everything slows down. They get all cranky and it's like a total drama. And so you're going to help us to understand how we can kind of navigate through this. And you start off with some starting points. Talk to us about this and what that means to you. So it's really important before we start the budgeting process to set ourselves up for success, not just during that budgeting process, but throughout the entire life of that budget. So these are my kind of hot tips for how to make sure that that budget is usable and workable and going to serve us and our organization and our mission throughout the entire life of that budget. So the first thing is to involve everybody, anyone who's going to have a stake in that budget. So your program managers, you know, even the people who are making some kind of smaller financial decisions, maybe they have approval of invoices up to 2,500, right? You still want to include those people in because when you have buy-in, you care about whether or not you succeed and whether or not that budget is realizable, which is an important component of this, right? So having everybody at the table, I always say, you know, a budget should be like a camel, right? So a horse is a camel is a horse created by committee. And so the budget should it should be kind of an onerous, not very efficient process, right? We're going to dig into historical data. Now, we've just had COVID. And so and I work in arts find a year where you had the same impact on your audience. So was it a year where there was a hurricane? I'm in Houston, you can tell. We're going to use holes as examples, right? Was there a hurricane and the whole town flooded and you had to cancel out the shows for the season? Well, that's a good season to use, right? To go back and look at that. So it might not be exact apples to apples, but you can get a lot closer. Then you're going to document your assumptions. What did you assume was going to happen? What grants did you assume you were going to get? That is a big one. We do not budget Manna from heaven as a line item. Oh, we need to actually know where it's going to come from. It might be a guess. You might be looking into your crystal bowl, but we're not going to count, you know, keep praying for the Manna from heaven. I'm not saying don't pray for it, but don't put it in the budget. But document what you did put in there and then pre-plan your pivots. When I give this budget to the board, I'm going to have a budget memo. And that budget memo is assumed we're going to happen. And then here is what we're going to do if that doesn't work. If these assumptions don't happen, here's where we pivot. If we don't get this big grant, then we're not going to do this work right here. Okay. Or if we do get this big grant, then this is going to happen. If not, this isn't going to happen. But really documenting out if audience return isn't at least 85% of pre-pandemic levels, then these are the areas we're going to cut. But having that pre-planned saves so much time later. And is that a narrative? Or is that actually another budgeted spreadsheet kind of situation? Oh, I do a narrative with that say here, but I've got that documented in my Excel spreadsheet, right? Like I've got a notes column on my budget where I'm like, okay, this is going, and then I can roll that up into that memo. But when we put it in narrative, the board members who are not always financially minded, invited into the conversation. Jared, I interrupted you. Sorry, first bullet, which is really to involve everyone. And I find often that is never the case, right? And I just said often and never together. But it's really not the case because I still hear Justine from staff members saying, I still don't know our budget. I don't even know my program budget. I don't know like my department budget. So like, how can we rewrite the ship so that we really do bring everyone to the table? Because I love that you said like, if someone has the authority to approve an invoice or something at 2500, they should be part of the conversation. Because they are responsible for executing the budget. That would be great. Me saying, you don't get to know what your annual goals are. But I am going to evaluate your performance based on the annual goals I have for you. But they're in my head. I'm not going to tell you what they are. They're they're a really deep secret. And we're keeping it a secret because we don't want anybody to know what our goals are. So how are we going to possibly achieve them? If we don't evolve the conversation, right? Can you achieve a goal if you don't know that that's a goal you have? Yeah, right. And I think what it does too is that it builds fear and then it makes the budget punitive. Because you only seem to hear the bad news at the end of the quarter, if you're lucky, but generally the end of the year. And then it's too late. You can't you can't use your word pivot. I mean, you can't be creative. You can't be defensive. It just seems to me that it creates so many more problems than it's worth. And I don't know why this occurs. Is this a power thing? Is it because we don't assume that non-financed people can engage with us? Like, what's the genesis of this of this trajectory that happens so often? Okay, so what I've seen are three main reasons this event. One, we don't want anybody to know everybody's salary information. Okay, that's my job anyway. The account is filling out that part and doing that salary budget separately. And then when I give somebody a budget template, that salary information is prefilled out and they can guess all they want at what percentage is theirs. But it's not a problem, right? Or it's we're going to be efficient. You know, we're going to do this fast. We don't have enough time to get this budget done. The board wants it by next month. We forgot we needed to do this. So we're just going to push it down. And then the third one, this is where I'm going to get in trouble with my fellow controllers and CFOs out there. But they call us controller for a reason. We're controlled people. And we are like, no, no, no, no, no, this is mine. You can't have it. I'll tell you what you can do, right? So we can be a little too onery of it. Sometimes you get an executive director that reflects that can get a little bit like, too, this is mine. You can't have it. Usually that comes from a place of fear, right, and anxiety of not feeling good about the numbers, not feeling good about your goals. But the thing is, the more people you invite in, the more ideas you have to solve those problems. So the more people who had input into that budget, the more people who understand potential pivots and who can get creative about problem solving, and that can give you ideas during the budgeting process of how to do things differently. The people who have been executing have been trying to figure out ways to get around you forever anyway. So bring them into the conversation. Okay, let me ask you another question before we move on. What should we be looking at? Like, when we involve people outside of our finance team or even the finance committee, this has got to add time, right? Oh, definitely. Our budget process should be about six months long, right? It's a long process. I know, I know, but it's a really long process. So we start with, we start with, which is like actually the next step of your prior year budget, which is your budget to actual comparisons every month. Yeah, that teaches you what you did well, and what you did not so well, what you guess well at, right, what your assumptions were that were right, what your assumptions were that were wrong. That really starts the process for the next year's budget. And as you're having budget to actual meetings, which you need to have with everybody who's a budget manager, and I like to do them in a group so that there's no shame missing budget, right? And so that this person who has a budget overage can maybe offer it to this person so they don't have to cut their program. Wow. Imagine. I know, what if we could use budgeting to build a more functional team? No, you didn't just say that. That would be amazing. Yeah. I love that trick. Thank you for sharing your secret trick. I really think there does need to be much more open conversations when it comes to budgets. And even, I mean, Justine, I know you know this, but when it comes to like equal pay, right, even salary information is being shared, you know, transparent from the onset when it comes to hiring. But you know, I'm also of the belief like, why, why aren't we sharing this? Because otherwise, it's really oppressing certain individuals. And I want to take that away as well. Oh, I've been wanting to listen, we can do a topic. If y'all want to do a topic about salaries and like how to evaluate your payroll and why it should be, you know, parent. Oh, I'm your girl. I've been wanting to talk about that forever. So let's talk about, let's get nerdy about the budget. So once it's approved, like now, what, what do we do from that? We have here, you know, after a budget is approved, convert to cash forecast, evaluate budget to actuals and as well as managing those variances. So talk to us about this, Justine, because once we set a budget, it's like done or no. No, then we babysit it, right? Then we babysit our budget. But first we need to convert it to cash because here's what a lot of people do. A lot of people will budget based on cash. And because in their mind, that's how they're running their business, right? So, and nonprofits are a business. That's a different soapbox, but nonprofits are a business. So that's the way we run our business, right? Is we're thinking about cash in and cash out oftentimes, especially in like development and executive directors. We're thinking about that cash in cash out, but that's not actually what you're evaluating. You're evaluating your accrual budget to actuals. So if you budget based on cash all year long, you're going to have all these variances that you're going to be explaining to your budget, to your board all year. Oh, that's a cash difference. Oh, that's a cash difference. Oh, that's an accrual difference. Oh, that's recognition. Well, how does that help you determine what decisions to make to achieve that budget if you're having to convert it all year long? So just go ahead, do it in accrual and then convert to cash. Then you can see, and we love at YBTC, we love a rolling cash forecast, right? So everybody gets one. That's part of our core package because you need to be evaluating not just your budget to actual, but your cash budget to actual. Is that, are we collecting on those pledges? We got a grant agreement. We said we were going to get $800,000. It has not come in, right? We've gotten to recognize it. So budget to actual, we're looking good, but cash to actual, we're not. So we can look at our budget to actual on an accrual basis at least month like cash, especially in an organization where you've got a cash crunch, I might look at that cash to actual weekly. I might look at it before payroll is due. I might look at it before I pay any invoices, right? So like that's something I can keep up with on a regular basis for my day to day management, but monthly to make sure I've got my eye on the prize and I'm headed in the right direction. I'm going to use that budget to actual on my accrual. Right? And then I've taken all of these pivots that I documented and I said, these are my assumptions. If this assumption doesn't happen, I'm a pivot. If this assumption doesn't happen, I'm going to pivot, right? So I'm already going to come to the board with suggestions, they've pre approved because they approve that when they approve my budget and my budget memo. So this isn't a discussion about what to cut or what to do, right? I've already done that pre sold what's important. So you you're just informing the board, hey, this didn't happen. So we're pivoting over here just like we previously discussed. And that's been reflected here in our forecast. And you're just going to walk them through it. Oh, sorry, go ahead, Jared. I can see I can see you're ready to talk. Go ahead. Because I don't think that there are enough organizations taking this proactive approach, right? Like, like Julia, we've seen it over the last four years. It's really just been, you know, oh my gosh, just so much like turmoil and scarcity mindset. But if we take this approach, Justine, and we say, okay, here's all of the bullet points in the narrative. If this than that, if this than that, what you just said literally blew my mind that we don't have to get this proved again, because it's already been approved. We're simply following the course of action a marriage in if all of our 1.8 million registered nonprofits, if the leadership right took this approach that to me, it's just, it's like, why aren't we doing it this way? I have never ever seen this done. I mean, in all the board approvals that I've been a part of in terms of the budget and the re discussion when something didn't work, right? I've never heard this ever ever Oh, it is so it makes it so smooth. I love the board meetings where it's like, okay, we've been saying this was a timing variance, but now we've realized it's a totally realized variance. And that's what I do in my budget to actual variances when we communicate them. We communicate, is this a timing difference? Or is this a realized difference? Yeah. Right. So does this require a pivot? Or are we just chugging along? And we're just going to keep monitoring this to make sure that it stays timing and it doesn't itself pivot into realized. And then we need to do something, right? But it makes it so efficient. So all the efficiency you lose and taking forever to get that budget done and everybody who has to say and who can impact that budget, increasing your transparency, increasing those monthly budget meetings where you're pulling everybody in, you're looking at it together as a team, all of that kind of lost efficiency you think you're losing, you're really gaining on the back end when you need to make these decisions. So that you're giving yourself the flexibility and the time when you need it most, and you're giving it up when you need it the least so you can prioritize it, you have time to plan it out. You know, it also makes me think that because you've already pre-discussed these things, you are engaging your own team to be more flexible, to be more vigilant about what's coming down when you're like, oh my gosh, we planned for this or we didn't plan for this or you get them again away from that punitive aspect of the budgeting and more engaged. So I think it's fascinating to see the link from starting them with the engagement and having them go through as opposed to just the year end, year or nay. Well and when you plan your pivots, you create a permission structure where you're allowed to not make budget, right? When you've pre-planned what's going to happen if we don't make budget, then you've already put it on the table. It's a potential that we're not going to make budget and we're okay with that because we have these other things planned. So you create an environment, you're absolutely right where people feel a lot more safe and a lot more comfortable saying, I'm not going to make this goal. Can somebody help me find another solution? Can somebody help? That is like, well it's like, Jared, wasn't it fascinating to say, to think like in your mind, you're sitting around the table and somebody says, yeah, that's okay. I have this, I'll give it to you. Yes and that, I mean, that would be amazing which rolls us into really like forecasting versus re-budgeting because when we look at this, Justine, and you said this in the green room, it's like, no, no, no, don't just throw the budget away. There's still a lot of excellence still crafted and curated in this budget. So talk to us about forecasting versus a re-budget. Right. So with forecast, so when we re-budget, we're basically saying the world is 100% different than what we thought. Okay. Right. So when I re-budget, it is our mission changed. We merged with another organization. What we do on a daily basis has changed fundamentally. Okay. So during COVID, a lot of people wanted to do a new budget, right? Because the world had changed, but their business hadn't changed. There, a lot of their overhead hadn't changed. There was some changes, right? But not a lot. There was some layoffs, but not everybody was gone. So there was still a lot you could use in that budget. So it was a lot more efficient, right? So when we think about like gaining back the efficiencies we lost and taking a long time on that budget and letting it be a camel, right? Just go ahead and take your time. We get that back later when we're able to just say, okay, well, these are the assumptions that didn't happen. So let's come up with a forecast because a lot has changed. So let's come up with a forecast that is maybe even scenario planning, which is, here's our best case scenario. Here's the worst case scenario. And here's what we think is most likely to happen, right? Then that way, when we start heading in that best case scenario, we know already what decisions we're going to make. We've documented that in the same way that we documented our assumptions and we documented our pivots. We're going to do the same thing with our forecast when we do those scenario plans. So if we see that the worst possible outcome is happening, well, we can quickly say, okay, these were the layoffs we pre-planned. We are not going to get caught behind and caught confused or what to do. We're going to have a plan already to do that and we'll be able to pivot a lot more easily versus and then you don't need to take it back to the board to get them to re-approve it. Whereas if you do a whole new budget, you're going back through approval, you're going back through the entire process again. Sorry, go ahead, Jared. I know I can see you're ready. Well, it just reminds me, there's one particular organization and the CEO that always told me and I was working with them alongside as the contractor and they said, and I want to keep this non-gender, right? And so they said to me, my backup plan is in this drawer in the back of the cabinet, right? Like this is the backup plan. If we need to go to the bunker, we need to figure this out. But what I'm really hearing, Justine, is this backup plan should not be hidden and collecting dust. It really needs to be front and center and transparent with the team and the board. And I'm just going back to this visual in the conversation of like, well, here's the backup plan, but I'm loving, loving so much what you're saying, Justine, because I think the team should also help for that backup plan. I agree. 100%. They're going to be the ones to execute on that backup plan, right? Well, Jared, I agree. I always, I feel like the backup plan has always been on the back and the shoulder of the board chair and the CEO. Like between the two of them, they've kind of had this like, you know, secret meeting and they'll save the day versus, and then they'll announce it. They'll announce it to the group versus the whole group being in on it. It's a fascinating rewrite of structure. Well, and the whole idea behind DEAI, right, is that like we want diversity of thought, diversity of solutions. When you have two people that are usually quite alike, you know, behind the closed door, trying to figure out the solution, you're not going to have as many solutions to evaluate. You're not maybe going to come up with the best solution either because you've not looked at every angle. Sorry. No, I want to discuss you, Justine, because I feel like this, like this is very hard. How do you provide a backup plan that includes layoffs and having that front and center in a conversation with management and with the team to say, Hey, just so you know, like, this is part of our backup plan and it could in fact impact your payroll and your, you know, commitment to a full-time position. How do you advocate that? And do we even have enough time in this remaining show for you to address that? It's a great question, Jared, because it is a great question. I think you navigate it carefully, right? You use your diplomacy skills and you use the discernment that got you into a management position to determine who can handle that information and who could potentially not handle that information, right? So, so you, I mean, that's a, there are some people that can handle it and it will be very motivating for them to know that their team is on the line, potentially they are on the line. You will have some people that will volunteer to fall on the sword to save their team. And so it never hurts to explain to them that this is a solution we're looking at and they might say, those are not the right people to cut for my team actually. That's, if you want the most impact for your dollar, talk to me because I'm going to help you reevaluate this and instead take me part-time and cut this person. Like, you might come up with brand new solutions, you'd not even evaluated, but that's your job as a leader to determine who can handle that, who can have those conversations. Well, back to the whole thing of like bringing everyone to the table because we, like, I don't know myself, right? I can maybe come up with two, three solutions, but between the three of us, we can probably come up with four times that. And then you add more individuals to the mix and there's more solutions, more solutions. And so to me, it's just like, why not bring everyone to the table and have these conversations? Because first of all, no one owns the nonprofit, right? Like we're here to serve a mission, we're here to provide a solution to the community. So I just love this. I feel like it's, it's very disruptive and I'm all for disrupting our sector. So I'm right there with you, Justine. Thank you. Justine. You know, you are amazing. I always love your energy. I love your sensibility. I think it's really empowered and positive. And to use Jared's word while it's disruptive, it's positive, right? I mean, it's going to lend new opportunities to the organization. And so that's great. Also, you're a great witch. I just have to say that. For any of you watching, go back and check out Halloween 2023. And you'll, you'll know what we are 2022. Yeah, it was a spooky, scary situation, spooky, scary situations. In accounting. Yeah, it was not a talk about it all the time. It's a lot of fun. Justine Townsend, one of the managers over at your part time controller, based in the great state of Texas in the Houston area, check out YPTC.com, where you can learn more about the myriad of services and people that work for YPTC. It is the largest accounting and finance firm in the country for nonprofits. So they do a lot of different work every month. We have somebody on. They're always different, always, you know, pushing the edge and leaning into new ideas to make our nonprofit sector stronger and more financially viable, right? So Justine, it's always a hoot when you're on. We love it. It's a lot of fun. So thank you. Thank you. Thank you for being here. Thank you. I love this. Again, I'm Julia Patrick, CEO of the American Nonprofit Academy, been joined today by a nonprofit nurse herself, Jared R. Ransom, CEO of the Raven Group. Again, we have amazing partners that join us day in and day out. They include Blumerank, American Nonprofit Academy, Nonprofit Thought Leader, Staffing Boutique, your part time controller, 180 management group, Fundraising Academy at National University, JMT Consulting, Nonprofit Nerd and Nonprofit Tech Talk. These are the folks that really make it possible for us to move forward as we get towards our 1,000th show, which will be next week. Amazing. So thank you very, very much. Okay, Justine, you know, one of the cool things that you do as well as get me pumped up, you reduce my fear around the whole concept of nonprofit budgeting and finance. You make it seem a lot more achievable than I think. Yeah, sometimes we're like, it's not simple. It is. I love your attitude. You know, another attitude we have here at the nonprofit show is to end every episode with this message, and it goes like this, to stay well, so you can do well. We'll see you back here next time. Thank you, ladies.