Setting Up Your Reporting For Success In The New Fiscal Year
Today I want to talk about the most important thing you can do going into the new fiscal year that can set you and your school up for success: Budget Curves
Managing a school's finances requires more than just setting annual goals; it demands understanding how financial performance unfolds each month. Traditional budgeting methods often split the annual budget equally across all months. Due to the seasonality of a school’s tuition collection, fundraising efforts and more, not having a budget curve can significantly distort your understanding of performance. This leaves you and the board wading through murky waters all year to truly understand how you are performing.
This is where the adoption of budget curves becomes essential. We simply cannot wait until the end of the year to analyze our numbers accurately.
What is a Budget Curve?
A budget curve is designed to model the expected inflows and outflows of cash over the course of a fiscal year, reflecting variations that occur due to seasonal activities or specific financial events. Unlike linear budgeting, budget curves align more closely with the actual financial rhythm of a school, helping leadership teams understand when funds will be available and when expenses are expected.
The Importance of Accurate Monthly Performance Understanding
The ability to accurately gauge monthly financial performance is crucial for several reasons:
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Supports Proactive Management: With a clear view of financial trends, you can make informed decisions about resource allocation, investments, and cost management before potential issues become critical.
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Facilitates Strategic Adjustments: When you understand your financial trajectory with accuracy, you can make timely adjustments to ensure you will meet your goals.
To illustrate, if you take a look at #1 and #2 below, you can see the gray dashed ‘Goal’ line. In #1, it is the goal divided by 12. Due to the timing of cash flows, if you report your December number against your goal, you are going to look significantly ahead of your goal. However, this is misleading and can lead to a false sense of security when in reality, you could be behind a true budget curve. Looking at the gray dashed ‘Goal’ budget curve in #2 gives a much more accurate picture of your performance.
How Do I Implement A Budget Curve?
It doesn’t have to be as hard as it seems. Start with your 2-6 largest line items in your budget and focus on those first. You can get 80% of the way to an accurate budget just by focusing on your key line item drivers.
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Gather Historical Financial Data: Start by analyzing financial data from past years to identify patterns in income and expenditure. Look specifically at tuition fee collection, timing of annual fund giving or other major donations, major fundraising events, and periods of significant spending.
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Create a Model: Use this historical data to develop a model that projects monthly cash flows. Usually you should only have to look at the prior year unless there were abnormalities in the prior year, then you can take an average of a few years. This model will form your budget curve, showing when you expect to see surges or dips in your finances throughout the year.
Example: If last year, you raised 10% of your annual fund in October, then you would apply 10% of your new annual fund goal to October’s budget.
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Develop Clear Visuals and Dashboard Reports: Implement dashboard reports that visually represent your budget curve against actual performance. These tools are invaluable for maintaining a clear, ongoing picture of financial status. They allow for quick, visual assessments of how well actual numbers align with projected figures.
Understanding monthly financial performance with precision is not just about meticulous bookkeeping—it's about ensuring that every financial decision supports your school's broader educational mission.
Budget curves, supported by clear visual dashboard reports, provide the detailed insights needed to manage school finances proactively and effectively. By moving beyond traditional budgeting methods to a more dynamic, data-driven approach, schools can achieve greater financial stability and success.
It’s time to stop wading through murky waters.
Want help setting up your budget curves? We are here to help. Please reach out to kaitlin@apte.io to set up a time to chat.
Kaitlin Windle, Founder, Apte
As a proud alum of Hathaway Brown School for girls, Kaitlin is particularly passionate about independent school data intelligence.
With a background of being a professional ballerina to working in investment banking and private equity on Wall Street with JPMorgan and Pantheon, Kaitlin then entered the nonprofit sector as a Development Director and then CFO.
Leveraging her investment banking skills for analyzing data, she started by manually standardizing board reports and delighting executive teams and board members with newfound analytics and reports.
Using these reports, she was able to help drive organizations to their most successful fundraising and financial performance in under a year. Seeing the difference that can be made in such a short time by using data to drive strategic decision making inspired her to start Apte to empower other organizations and independent schools.