– So I’m Kylie Neary. I have my own business, which is in a virtual CFO space. I call myself a career accountant and I’ve worked in CFO roles and in the not for profit space as well. So I’m quite familiar with the processes and procedures and governance that your organisations probably need to undertake.  So I hope that I have some knowledge I can impart on you all today. So just to run through of the agenda. So what we’re going to do, discuss first of all, is check if the budget does meet the goals of your organisation. You need to understand what the future strategy of your organisation is. So with reviewing the budget, the first thing to to think about when you’re reviewing it is to start with the future in mind. Then we’re going to explore information and keywords used in budgets and check if, check your understanding of these or if there’s anything that we can help to give you some clarification on, then we’ll look at what red flags you should be looking out for when you’re reviewing and approving a budget. Then some good questions that you should ask around, what safety measures are in place? And maybe, when we say safety measures, it’s funny to think of that in terms of the budget but let’s explore that when we get to that item on the agenda. As a fresh set of eyes for the budget that you’re reviewing and approving, it’s interesting what you may pick up. So we’ll have a look at what those essential items are that you should be looking out for which would include insurance, GSD, staff costs, utilities. And we’ll just explore those further when we get up to that item. And then finally, what’s the questions that you should ask before voting on whether to approve the budget or not. So start with the future in mind. Now, how I’ve set this up is that there’s not a list of questions that I need, different graphics to run you through. So I’m going to stop sharing my screen and talk about what the things are that we should be looking for. So when we start to look at the budget, that’s been presented for approval, you do need to know what the strategy for the organisation is, for the budget period that you’re looking to approve. I’m not sure if you just want to share with me what your organisation is just to talk about your strategy at all, but you don’t need to, if you wanted to come off mute to share, you’re welcome to.

– I’ve just joined the business network. So as a board member, I’m representing the not profit sector. So it’s probably a bigger budget than I’ve ever had to deal with before. So, and they’ve also changed how the organisations, they used to have a CEO, but that was a voluntary role. Now they have paid CEO.

– Okay And for you, you’ve had experience on a board before?

– Yes.

– Great. What I did with preparing this was just to, and have you seen their strategy yet? Has that been given to you or you’re not aware?

– They’re actually working on it at the moment. So ’cause it’s all new. They just had their AGM a few weeks ago. So it’s all new to them and all new to, well even their existing board members though.

– Yeah. Awesome. So with starting to look to approve a budget, it’s just important to know what that is. So before a budget’s put in front of you like a question would be to say, what is the strategy? Can I get a look at it? Keep that in mind when you’re discussing it. So a basic example that I’ve put into this just to which is just has a theme as I go through the presentation is just say, for example you’re on the board of a community based preschool. You’re actually lucky enough to experience that they have an 80 to a hundred percent capacity. So attendance and income and fees, isn’t the concern, but what the focus is over the next period is to update the playground. So when you’re reviewing the reviewing the budget, is there an allowance for that playground in the budget? So it’s a very small example, in relation to probably some of the things that you’ll be looking looking at in your strategy, but that’s just a theme that I’ve got as we go through the presentation. Just looking at that as the first thing to consider. So what information do we want to look for when we’re going to approve the budget? The most important thing is the profit, loss statement. This is going to show you the breakdown of the total income and expenditure. And how much detail is in the the profit loss will depend on the the size of your organisation. If we go back to that community preschool example, you would want to stand understand the assumption that have been made to determine from an income side. So the fees, in this case, how many places are there? What is the daily rate? What’s the percentage of enrollment that’s being factored in? Is there any fundraising income that has been budgeted for and how is this going to be achieved? So what is it? And also you might want to ask what the expectation of the board is to assist with that fundraising just so you have some awareness of how integral they want you to be in that. And how is that fundraising going to be organised? You also might want to ask about how much additional income they need to cover the cost of the playground, keeping that in mind that that was in the strategy and how the playground will be funded. So then are there any other income items and how that amount has been determined with putting it into the budget. In relation to the expenses, salaries are likely to be the main cost. So has an award increase been factored in? if employees are sick, have there been an allowance for casuals to cover leave? And so these are things that should have been done in their preparation of the budget but have they then been taken into account and there are questions that you could ask in understanding it to approve these budgets are the costs such as rent utility insurance. We can generally use the prior year costs but questions should be asked, if there’s any expected change with these. And if there’s a reference back to the strategy just to check on any of those items. So talking about that playground, that preschool again. So the playground is the big cost item to be incurred this year. So an understanding of how that is going to be funded and the timing for that. So just understanding when big ticket items are going to occur and even for large one-off items. So it’s just sometimes a good idea to have a separate budget to the normal operating budget in looking at large ticket items. So moving on the red flags. First of all, the first thing that I want to know, I want to go straight to the bottom of that profit, loss and see that it’s showing a profit. If it isn’t, there needs to be a deep dive and understanding into why. So have all income items being considered? Have we overstated on some of the expenses? Has there perhaps been expenses included that we can delay? And have expenses increased by a percentage that’s out of proportion to the prior year and, you know, asking if so why? At the same time, we also need to look at the budget and understand if it’s realistic. So if there’s a large surplus forecast, why? Depending on what type of organisation you have that may put us in a position where we need to return funds by the acquittal process. So have we actually taken all expenses into consideration in taking up the budget? We need to make sure that the targets that we set are attainable, which means it should be based on your organization’s history, any economic implications currently going on, or industry trends plus the overall size and strategy of the organisation. So, sort of the increase in fuel price has a major implication on some organisations depending on what you’re doing. So I’m not sure whether it probably does more for your members than with the direct organisation that you’re with. So another red flag is, is the budget purely a percentage increase on the prior year? If it is, it just demonstrates that there hasn’t been thought or analysis that’s gone into the preparation of the budget. So it’s something to be wary of if that’s how the budget has been prepared. You may or also want to consider if the person who has prepared and is presenting the budget to you can explain the preparation and the assumptions that they’ve made in the budget. If it does feel like you’re only getting half the story, then perhaps you are. So drill a bit deeper until you are satisfied with what they’re presenting to you. Also seek out if they’ve obtained input from others into the preparation of the budget. This is going to depend on the size of your organisation and if there are divisions that have needed to be consulted with preparing and developing the budget. And also as the board, you may, and your size like you may have actually had direct input into the preparation before it’s got to this final approval stage. So just consider if the overall budget does align with the strategy of the organisation which we talked about first up. Also look to see if there’s enough detail. Budgets that fail to specify enough detail may not have been prepared taking all of the organization’s factors into account. So that’s just something to think about. Anything else you could think of as to name as an example of a red flag that I haven’t mentioned?

– Not really, no. I mean, it’s hard to know unless you actually come across one that you have concerns about, but I guess anything you are concerned about, you should question.

– Yeah, exactly. So what do we mean by safety measures when we’re looking to approve a budget? I think that there’s a really great example that we can look at in relation to the last two years and what would happen if we had another COVID shutdown. So how organisations have pivoted which is like a well overused word over the last couple of years has demonstrated, if they do have safety measures in place, if we have those unforeseen circumstances. So giving some consideration to some of the things you perhaps have done over the last two years to pivot your organisation if COVID has been an impact. And just considering going forward, what things do you need to change up and think about? so some things that you can consider in looking at your safety measures is working out how much cash reserve your organisation does want to carry for the COVID day. So not for the rainy day. I think we should call it the COVID day now. And it’d be a good discussion point for the board to discuss. So is it three months worth of operating expenses that you want to carry in the bank account or six? And it really is. There’s no magic formula to work out what that is. And it does require discussion and just the risk that you’re prepared to take in setting that. And if there is that downturn, what things do you put in place to pivot your business? Like if that is to happen. Are you reliant on one income stream? So if you are, it may be an idea to including your strategy, how you can diversify from one that’s one stream if there is a downturn, just so you’re not reliant on that being your only cash source. And it may be something that you don’t have now but the board puts into its strategy for the future periods. And what do you need to do now to start to diversify that income. So even at the budget time, it’s even worth considering who the key people of the organisation are. And if something was to happen to them, how would they be covered? So they win the lotto, they resign, they’re out of here. What do we do to replace them? So just having that almost key person risk covered is, the budgeting time is a good time to think about that. And do we need to consider that in our cash reserve as well for a replacement of key people and just what that succession planning may be. The safety measure as well to look at is taking a look at the balance sheet and ensuring that you are in a net asset position and that all the items on the balance sheet are substantiated. So you just want to make sure there’s no ghosts on there. And that may be in the form of assets that are actually not real and that you can meet all the liability obligations of the organisation. So just at the budget time, it’s just a good opportunity to reconsider those things and take a deeper dive into them. So you know, where they’re sitting. So moving on to the essential items. So we’ve discussed checking in if the strategy has been taken into consideration, we’ve looked at the key words and then what rev flags to have a look at. And also good questions to ask to ensure that the safety measures are in place now. Now we want to think about what the essential items are, sort of wrapping all of that together. So staff costs is often like a major cost of an organisation. So have we taken into account , and annual increases on cost superannuation, annual leave cover, workers’ compensation maybe even run your eye over the list of staff to make sure everyone has been budgeted for and where you are happy with the process that was used in budgeting for staff costs. And then even if there needs to be a casual allowance if there’s people that need to be covered when they are off on sick leave or annual leave. Insurance is essential for any organisation. So what are the insurance costs? So consider if there’s public liability, professional indemnity, asset insurance, car building contents, and so what is needed and what has been budgeted for. I think it’s a good idea to engage with a broker and review your insurance needs to see if you’re getting the best available for your organisation. And they will put up all insurances that you can consider for your organisation. And then as a board, you can decide whether they’re the insurances that you need. So what your risk appetite is. The obvious essentials are the utilities. So including rent, electricity, any rates, and a good check on this is to have a look at last year and make sure everything is covered or ask the question, whether they’ve looked at that and considered that everything from last year has been covered. Then GST, so is your organisation registered for GST? If so, then the budget should be prepared on a GST exclusive basis. As the GST will be picked up through the balance sheet and paying the balance. If your organisation is not registered, which is generally with a turnover of less than 75,000, then you need to budget for your income and expenses, including GST. So a general review of the prior year is a good check to make, to make sure that everything has been picked up and considered but it’s also not the basis for preparing the budget just entirely based on the prior year. It is considering what strategy the organisation does have. Final thing is what questions do we ask in finally approving this budget? So everything we’ve talked about and looked at above is all getting us to this point of final approval but just have a think about if there’s any final questions you want to ask. And also remember there’s no silly questions. It’s quite often that one that someone else was just about to ask or they were too embarrassed to ask and you asked it for them. So there really is, ask a question, was the strategy of the organisation in mind when we prepared the budget? Were you provided with the key information in reviewing the budget? So the profit and loss balance sheet and cashflow and those assumptions that were made. Were there any red flags that you asked about? And have your questions been answered adequately or do you want more information? As a director on the board, you have the right to ask the questions and for more information. So are you satisfied that the budget has provisions in it for the unseen events that may occur? So just thinking back to those safety measure questions that we already talked about. And I think, as I mentioned, just in looking at that, it may be something that the board does want to take up in a future strategy, if it hasn’t considered it in diversify particularly income streams. If your heavily relying on an income stream, it might be something to consider diversifying. And then have you considered if all the essential budget items have been considered? So it’s amazing what a fresh set of eyes does cast on a budget and simple things that could be missed. So ask those what you may think are silly questions in reviewing and finally approving as well. So considering all of those questions, are you happy to approve the budget? Now’s the time to ask any final questions. So that’s actually it for the run through of my presentation.

– Thank you.

– No worries.

– That’s good because, I’m only new to this board and they’ve actually changed how they’re operating. Like I said, going from a non-paid position to now a paid position. So, and you know how they’re going to, how they’re going to come up with the with the money that they need now to match that payroll. So, and they only just started working on their strategy. Like I said, I’m only new to it. So they’ve only just started their new strategy. I got an email yesterday saying they just started working on it. So, but it’s good to understand how it all works.