Accurate estimations of annual goal expenses can seem an impossible task, and it is no small project to undertake. It is, however, central to the budgeting process. In budgeting, many people only want to think about grants and contributions coming in, thinking that the money coming in will determine expenses and all other financial planning. The truth is, though, your organization won’t run without expenses, so setting goals based on how much you will spend to keep the wheels turning is of the utmost importance.
5 tips to accurately estimate your annual goal expenses
1. Identify SMART goals
SMART business financial goals fall within the parameters of being Specific, Measurable, Attainable, Realistic, and Timely. Don’t set general goals based on your wants and desires, but be specific and use data and thoughtful research to set goals that are actionable and attainable through the resources you already have. There is no point in setting goals that you can’t reach or even track.
2. Attitude check: it’s not just a budget
Don’t think about your annual goal expenses as just another part of the tedious budgeting project, but consider that fact that what you are doing is making a streamlined financial plan. Especially when it comes to new nonprofits, budgeting can be a discouraging process because of the lack of data available, but financial planning is always important. Think about setting annual goal expenses as integral to your future as an organization. Without setting goals in a budget there is no space to improve or track improvement.
3. Don’t set goals based on income
This is a rookie mistake that is often the downfall in the practice of setting annual goal expenses. Your income will fluctuate, but your expenses won’t. People intuitively assume that their expenses will change when their income does, but this isn’t realistic. Sometimes you are in a situation where you have to do more with less and vice versa. You can’t change your expenses as quickly as your income can change.
4. What are your short-term expenses
If you aren’t going to base your annual goal expenses on your income, you need to figure out what your short-term expenses are to get an accurate estimate. For the most part, this is a simple process. However, there are some big annual bills you pay like insurance premiums that often get overlooked. Be sure to prorate these big annual bills so that you see what they are costing you each month.
5. Save, save, save
There is no more integral aspect of financial planning than saving money, and this is often central to annual goal expenses. This would certainly qualify as a SMART goal that you should take time considering whenever it is attainable. Having money in the bank can be your saving grace when unexpected expenses pop up, in which case you won’t miss your goals.
It’s never too early or too late to consider your annual goal expenses. Ideally, you’ll do it year-over-year and collect data and have more accurate estimations as times passes, but if you’ve never done it, start now! The process can be made much easier with streamlined budgeting software. If you want to learn more about how budget software works, visit our website where you can request a demo of our software in action.