Finance Question

[RogueLeader]

Doing prep for our upcoming SUI, and under the Finance Tab, I find this:
Does the unit complete its budget
IAW CAP regulation?
Verification - 100% for current FY
All budgets must be balanced,
meaning income equals expenses. (emphasis mine)


According to this, if I have $1000 to start with, I MUST end with $1000.  I accept that I should have to stay at or above $0.00, but why can't I use the funds  that we have for our programs and have to replace them?  Also, if we wanted to increase our savings for a larger purchase; it doesn't look like that's allowed either.  Any help?

[JeffDG]

I've asked the same question many, many times and given up. 

Basically, your budget is likely to be almost entirely fictional.  An organization that constantly budgets for zero balance, as CAP regulations require, has no reserve capacity for unforeseen circumstances.

So, submit a budget that comes out to zero, but keep track of your actual plan as well.  The fact that they differ is just something you have to go with.

Your budget is just a "plan", and does not control what you actually do.

[Eclipse]

You need to read the relevent regulation, not just the SUI checklist for clarification:

http://www.capmembers.com/media/cms/R173_001_F17766C8102F6.pdf
(9) Develop and approve an annual budget as a forecasting tool. The budget must be
sent to the wing director of finance by 1 October each year. Budgets will be entered at wing
level into QuickBooks® to provide quarterly reporting to units. The unit is expected to strive to
maintain a balanced budget – income equals expenditures other than projects for which reserves have
been set aside. To ensure solvency, if an expense category exceeds its allocated budget amount, the
overall budget must be revised to maintain a balanced budget. The unit must review their budget
quarterly. Review of the budget should be noted in the minutes of the Finance Committee. If the
unit determines there are no changes to the budget, the unit should note the review of the budget in
their finance committee meeting minutes. The unit is not required to notify the wing if no budget
changes are required.

The bottom line is that units aren't supposed to plan on expenditures with no plan for matching
revenue, other then that, squirrel away whatever you want.

Also, as JeffDG says, it's just a plan.

[RogueLeader]

We are planning on buying a laptop, projected cost is $398, we have $1000+/-  Why should I be REQUIRED to replace that money?  I'm not saying that it is not a good idea to do so.

[Eclipse]

Who says you are?

Notate the expense is coming from reserves.

Still balanced.

[SarDragon]

Balanced does not mean having the same "cash on hand" at the end of the year as you had at the beginning.

You add up all your income over the year and get a number. Do the same thing with your expenses. Add the income to the beginning balance, subtract the expenses, and compare to the ending balance. /they better be the same. If not, you do not have a balanced budget.

[lordmonar]

As has been noted.....the budget is a plan.   

CAP regs say we need to plan in such a way that we are not losing money....nor should we be raising money just raise the amount of cash we have in the bank account.

That is all that it is saying.

This does not mean you can't do long term/multi year planning/fundraising.   You simply budget that money for the "special" project.

[RiverAux]

The unit is expected to strive to maintain a balanced budget

In other words, you are not required to have a balanced budget. 

[lordmonar]

The unit is expected to strive to maintain a balanced budget

In other words, you are not required to have a balanced budget.

No...because....everyone know...including the reg writers that reality gets in the way.  Fundraisers sometimes don't bring in as much money as expected.....and sometimes more then expected.   No one can plan for some one to drop a big donation on you out of the blue.   Sometimes projects get canceled, come in under budge, or over budget.

Again.....no one expect a budget to end the year to balance out.

But they expect you to PLAN at the begging of the year to balance out and they expect you to conduct your operations to stive to maintain a balanced budget.

[RiverAux]

It sure sounds like you were agreeing with me despite starting with "No..."

[Eclipse]

The unit is expected to strive to maintain a balanced budget

In other words, you are not required to have a balanced budget.

No, the regs are clear you must, however a "balanced budget" does not equal "zero sum".

As Lord points out, we can't have units who plan to spend $500 o flags with no plan for the revenue,
nor should we have unit expended all sorts member effort on fundraising "just because" and then
sitting on that money for years (BTDT in 5 figures).

Now, are their inspectors who read that verbiage as "zero sum"? Probably.  Who cares?

[RiverAux]

The unit is expected to strive to maintain a balanced budget

In other words, you are not required to have a balanced budget.

No, the regs are clear you must, however a "balanced budget" does not equal "zero sum".

Unless the reg uses the magic words "shall, will, or must" as defined in 5-4, I would argue that "must" is not the case.  Alternatively, I would accept "required" as also indicating mandatory compliance.

"expected to strive" means that CAP "wants you to try" to achieve a balance budget.  It does not say, "The unit shall maintain a balanced budget". 

[Eclipse]

Fair enough. I agree the SUI guide isn't regulatory.

I might be nice if the verbiage matched.

[RiverAux]

On the other side of the issue, some squadrons may be in the mode of trying to build up some reserves and may raise more than they spend.  I think that is a fine thing (up to some undetermined point where the unit is sitting on a pot of gold). 

[FW]

Squadrons need to keep track of their finances.  Following a budget is the best way to accomplish this.  Balancing the budget is not difficult, however it requires the ability to understand, when subtracting expenses from income, you must have a total which is greater or equal to zero.  It also should be understood that the squadron has the ability to move money from one "account" to another if and when necessary. I think it should also be obvious you need to insure an income stream which is appropriate for the unit's care and feeding.

BTW; money left over is good! expenses that require getting more cash from members' pockets is bad...

[JeffDG]

All that about having more revenue than expenses is good.

However, many FM directors and even WFAs are insisting not that Revenue >= Expenses, but that Revenue == Expenses, not one penny more or less.

The "explanation" is that "We're a non-profit, so we shouldn't have a profit."  Well, in the non-profit world, you simply rename the terms from "Profit" and "Loss" to "Surplus" and "Deficit".  Poof, no more profits.

This insane demand that R==E leads to a fictional budget that you submit to Wing et. al., and a real budget that you actually use to plan with.  Which means that those "up the chain" who could use the visibility into a unit's medium-long term plans receive the required, but fictional, budget, not the real plan.

[JeffDG]

Who says you are?

Notate the expense is coming from reserves.

Still balanced.

GAAP wise, draws from reserves are not "revenue".  They show up on your cash-flow, but not on your Income Statement or P&L.  Similarly, adding to reserves is not an "Expense".

[Eclipse]

The "explanation" is that "We're a non-profit, so we shouldn't have a profit." 

Gee-zus, - people who purport to be finance professionals actually say things like that out loud, around other people.

The sad reality is that words like "budgets" and "plan" are all fiction the way CAP does them, and drives anyone
with business experience insane.

Some of it is the government / military mindset and processes, some of it is the low risk tolerance, and some
of it is the unwillingness to ask questions or hold people to expectations. or even common sense.

Some of the discussions that I and my compadres have had about these things are simply mind boggling.

[FW]

All that about having more revenue than expenses is good.

However, many FM directors and even WFAs are insisting not that Revenue >= Expenses, but that Revenue == Expenses, not one penny more or less.

The "explanation" is that "We're a non-profit, so we shouldn't have a profit."  Well, in the non-profit world, you simply rename the terms from "Profit" and "Loss" to "Surplus" and "Deficit".  Poof, no more profits.

This insane demand that R==E leads to a fictional budget that you submit to Wing et. al., and a real budget that you actually use to plan with.  Which means that those "up the chain" who could use the visibility into a unit's medium-long term plans receive the required, but fictional, budget, not the real plan.

I seriously doubt a WFA is demanding that revenues = expenses; it doesn't make sense.  "Profitable" units have "Fund Balances" which carry over from year to year.  Simple budget changes put "excess revenues" into the "Fund Balance" account.  It's good to have a healthy and growing "Fund Balance"...

Why would anyone want a zero sum game? Have things changed that much since I cared about such things?

[lordmonar]

All that about having more revenue than expenses is good.

However, many FM directors and even WFAs are insisting not that Revenue >= Expenses, but that Revenue == Expenses, not one penny more or less.

The "explanation" is that "We're a non-profit, so we shouldn't have a profit."  Well, in the non-profit world, you simply rename the terms from "Profit" and "Loss" to "Surplus" and "Deficit".  Poof, no more profits.

This insane demand that R==E leads to a fictional budget that you submit to Wing et. al., and a real budget that you actually use to plan with.  Which means that those "up the chain" who could use the visibility into a unit's medium-long term plans receive the required, but fictional, budget, not the real plan.

No...you should not be doing that.   You should be sending up a budget that show where you plan to use your programed surplus.    So let's say you are goign to buy some new toy...not this FY, but may in three years.   You figure it will cost say $1000....you plan this year's fundraising efforts to make a "profit" of $300....over planned expenses.....so you put that $300 into the "special projects" column and you are good.

If the Wing FM has a problem...then he needs to work out where you are going to raise the money.

The point being....and your FM is correct.....if we have a plan to fund raise $XXXX then we need to have a plan to spend $XXXX......even if we plan to spend some of that money in another FY.

Again....we don't fund raise....simply to fund raise....we should have a plan to use those funds.