Planning for 24 pt. 3 with Lee Wochner

Jaclyn Uloth: Welcome to the podcast that lightens the tension when things sort of get hard… That’s What C! Said, the Counterintuity podcast, featuring interviews with leaders and doers who have helped to make our world a better place through their actions — and especially through marketing, communications, and embracing change. Here’s our host Lee Wochner.

Lee Wochner:
Welcome back to our series on planning. As we were saying last week and the week before, there’s still time to plan for 2024. And it’s important that you do. And here’s why that’s important. Without a plan, you might wind up wandering around wondering why you’re not getting anywhere. With a plan, you can set your course, decide where you’re going and how you’re going to get there. And then your odds of getting there go up dramatically.

You can set out in a certain direction in order to arrive at the place you want to be. I’ve also been letting you know as part of this that this doesn’t need to be some big, complicated, onerous process. I’m an ardent foe of big, complicated, onerous processes unless you’re trying to colonize Mars. Then I think you need a big, complicated, onerous process, and we would be grateful for that. But no, this should be relatively simple.

And let me reinforce that by saying that some planning is better than no planning, and fast planning is better than no planning because at least you started. So the goal here is to get you started and to help you achieve the most you can as quickly as possible so that you can act on it because 2024 will be here right after December 31, and that’s only about 30 days away. So

How do you develop an action plan for 2024? That’s what we like to call them, action plans. One that helps you take action, make progress, and succeed. Past couple of weeks, we’ve been covering the topic buckets that hold most of your planning, and those topic buckets are vision, marketing, and finance. That’s it, vision, marketing, and finance. Two weeks ago, we covered vision. Last week, we covered marketing. Today, we’re going to discuss finance, money, vision you may recall is your identity, your brand, the who you are, what you are, what you do, where you do it, why you do it, when you do it, how you do it, lots of other who, what, where, when, why and how things. It’s your question for being, your reason for being, and how people see you and how you behave. It’s your identity and your focus and it’s strategic. Marketing comprises the actions you will take to align your vision with the desires of other people, and so that’s tactical. It involves writing a marketing plan, a simple marketing plan, again, an action plan, that says here’s how we’re going to let people know.

So two weeks ago, you reestablished your brand, your vision of who your organization or company is and how it acts and what it does, how what it sounds like. And last week, we covered your marketing, how to get the message out about who you are and what you do and how to get that out in 2024 and beyond. If you didn’t get a chance to listen to those podcasts yet, which we’ve done our best to keep blessedly brief, please take some time now and give them a listen and then come back.

I’m going to hang on right here while you do that.

Okay, great. Welcome back. This week, we’re going to cover finance, answering the question of how we’re going to budget for marketing and how we’re going to set expectations for what the results will be. And let me tell you, I believe in people. I believe in people, I believe in the future. And if you are in business, if you’re running a nonprofit, if you’re running a for-profit company, you’re probably an optimist too. So…

Whatever you think the difficulties will be, and there will be difficulties, I remind you that all sorts of things are possible and doable and it’s incredible what people can achieve. So we’re gonna talk about, as I said, finance, and we’re gonna set expectations for what the results will be, and we’re gonna talk about how to budget for things. And we’re gonna talk about two forms of budgeting, one of them not for the faint of heart and we’re going to talk about how to set revenue expectations and how to do an expense audit and all sorts of fun things. Okay, so let’s jump in. There are two main forms of budgeting, two ways to do it. The first one involves working from your previous budget or more properly, your actuals, the actual financial performance of your nonprofit, your company, your organization last year.

I’m going to assume that you’re on a bookkeeping platform, might be QuickBooks, might be FreshBooks, or Zero, or Parrow, or a host of others. I’m going to use QuickBooks as the frame of reference here, but any of them should be able to let you do what we’re discussing. In QuickBooks, you can set up a budget by automatically preloading all of your expenses for the past year to date, and then manually plugging in your expectations for the rest of this year. In other words, December.

Because December hasn’t actually happened yet. So the system will carry over just about everything, will just carry over everything from last year and enter it as next year’s budget. And then for December, you’re gonna wanna look at the previous year’s December revenue and expenses and manually enter them into the budget you’re building. And now you have a potential budget for next year. It’s really that simple. So you opened up a new budget, you plugged in last year’s automatically and then you manually typed in December and presto potential budget for next year. The problems with this approach are obvious. It assumes that next year will be precisely like next year. It assumes that next year will be precisely like last year. So if you had a terrific year financially, abracadabra, you’re all set to have another terrific year next year.

Unfortunately, life doesn’t work that way. Have you ever had two years in a row in your life that were precisely the same? Didn’t think so. It also doesn’t set you up to improve over last year by taking in more revenue or cutting unnecessary expenses. Did the office dogs really need the dog masseur to come in and give them a rub down or should you have done it? It also carries over any mistakes in your books to next year, and there’s a mistake in there somewhere, I’m sure, guaranteed at least one thing in there is misbooked, and now you’re assuming that it’s real money, and by the way, you have kind of misbooked it again by carrying it over.

Lee Wochner
So if you set up your budget in this way, and I actually remind, saying that again. So if you set up your budget in this way, and I actually recommend that you do, because last year does give you a sort of roadmap, a starting place, then what you’re gonna wanna do is walk through all of those revenue lines in your chart of accounts, and all of those expense lines in your chart of accounts, and you’re going to click through and examine each of them.

And I bet the other accounting software does it as well. QuickBooks makes it super easy. I mean, you can open a report on each of those, click through and go, what the heck is this? And so when you click through and look at each of those, you can note what you think will change. And what I like to do is I get a pad and a pen and I write down the chart of accounts number, the line number for each of those things so I can find it again and put question marks or write down what it is. And then I will ask someone on the team or look at it in previous years and ask myself what that thing is. So examples, last year you may have gone to a conference and it was great, but that conference isn’t happening this year and you’re not going to a different one. For next year you deduct that expenditure from the expense category it belongs in. On the other hand, if you know that your networked office printer is absolutely positively on its last legs,

Do a quick search to see what a new one will cost and enter that one in the appropriate expense category. As I said, review every expense that’s already showing up and in the months in which it’s showing up from the year just passed and reassess it. Will it cost more? Will it cost less? Or will you not need it at all? And it’s something you’re going to cut. And let me give you special advice to look at ongoing subscription costs. All of us now have online digital subscriptions to things that I mean at home, for instance, I’m sure you’ve got one, two, three, six, eight streaming services, right? And they don’t seem to cost that much. They’re $5 here, $7 there, $15 here. And the next thing you know, it’s a car payment. The same applies to the things that routinely get charged to a company credit card or ACH to write out of your account or something. So you’re gonna wanna take a look at those and ask yourself what you’re actually getting for those. And so we call that an expense audit. You’re gonna audit all of those and you’re gonna ask other members of your team, hey, do we really use this? Do we really need this? What do we need this for? Who’s using it? And we do this every year here and we find all sorts of things to cut. And we work with other people, clients and vendors of ours who’ve had the same experience. So as I said review every expense that’s already showing up and reassess it. Let’s look at your biggest expense. I mean, this is the one where you really want to pay special attention and that’s your people. Will you keep the same staffing level? Will someone get promoted? Are you going to add a position or cut a position? Are your benefits changing? You need to be especially thoughtful here in making sure you have enough money dedicated to the team you need, including yourself.

While also making sure you can afford everyone and that you’re not restricting other things you need, like your marketing as an example, or maybe that network printer or such forth. For marketing expenses, your marketing agency or chief marketing officer, whoever is in charge of your marketing with you, should be able to tell you what you’ll actually need next year. In other words, what’s going to serve you the best in helping you to succeed in your mission. If you’ve been doing big billboard campaigns, but no one is calling the number on the billboard and there’s no data otherwise showing that anyone is seeing the billboard, you cut the billboard and you save the money. The beauty of digital marketing is that results are demonstrable because impacts are trackable. With digital, it’s clear where sales and donations and revenue of all sorts come from. Get a report showing what’s working and apply more water and sunshine there so your business grows and prune the marketing that isn’t working.

Nobody aces where money should be spent and what the ROI is going to be. And there’s an opportunity cost in continuing to spend on things that aren’t performing. It’s not just that you spent that money. It’s that money could have been leveraged in a different way that would have given you a better return on investment. So what about the income side of your budget?

Lee Wochner
Here’s what I would strongly advise you not to do and that is to simply say we want to grow by 50% next year 50% more in donations or sales or whatever and then plugging that in as Budgeted revenue that you’re planning on I would caution you against doing that. Revenue growth requires a plan an actual marketing plan that answers the questions of where is that money going to come from? And how are you going to get it? Who is going to spend it with you?

What’s your cost going to be in getting it and so forth? And that’s what a marketing plan should do for you. Without a marketing plan, you’re doing wishful thinking. And to quote the Blues Brothers, a sandwich is two slices of bread that you wish had some meat between them.

The best way to predict revenue is to first assess the revenue by month that you took in last year, so slot it in each month last year, and ask yourself if it’s going to recur next year and in those same months. So in September, let’s say, you got a grant from the Miriam A. Paellella Fund. I’m making this up. Don’t Google it. It doesn’t exist. You got a grant from the Miriam A. Paellella Fund.

Is that a two-year grant and it’s coming again next September? Then plug it in. Do you have monthly recurring revenue because of a program or sales effort that you’re doing? And every month that’s 25,000, 100,000 or whatever, 10,000. And everyone’s happy including the people paying you? Then plug it in. But take out whatever you reasonably believe will not recur. Don’t be optimistic, be realistic.

Whatever is not going to recur is your churn. Deduct the churn from your anticipated revenue for next year. Now you’ve got a reduced amount of anticipated revenue for next year. Then you’re going to add new revenue. You’re going to add that once you’ve got a plan for how to get that revenue. Once you’ve got a plan for how you’re going to increase sales or donations or grants or other forms of revenue for next year, you can add that amount to your next year’s budget.

So again, it’s your current revenue for the past year minus the churn, money that you think is not going to come back, clients or donors you will lose, grants you will not get again, et cetera. And then you’re going to add what you reasonably believe you’re going to get as long as you have a plan to go get it.

Lee Wochner
QuickBooks or your other accounting software will show you how your year will wind up as you’re working on this budget, in profit or surplus or in the red. If you’re in the red, so it’s not balancing out and you’re projecting you’re gonna lose money, you’re going to have to cut expenses or raise revenue, it’s that simple. Don’t despair about it, just act upon it. It’s better to know in advance and to monitor your progress regularly than to get upset. Or you know what?

get upset for 15 minutes, it’s okay. Everybody can be upset for 15 minutes and then you just set out asking yourself, how am I gonna fix this? Because the good news is forewarned is forearmed, right? At least now you know, rather than asking yourself in six, nine months, gee, where did all of our money go? What’s going on here? If that sounds simplistic, it’s not. It’s also not necessarily complicated. And that’s one of our goals here to make sure that things are actionable for people. Depending on the size and complexity of your operation, you can do an annual budget in a day, or maybe two or three, or in weeks. But again, it prepares you to make smart choices for next year. To do a budget, you have to think through how you’re going to operate your operation, and that’s far better than expecting a genie to show up with a magic lamp. Oh! And what’s the other way to budget? Okay, here it goes. The other way is zero-based budgeting. Far, far fewer people do zero-based budgeting, mostly, I think, because it’s emotionally challenging and because a zero-based budget rarely gets enacted. But here goes on how it works.

Lee Wochner
You set up a new budget in QuickBooks for the next year, and you don’t carry over any of the revenue or expenses from the previous year. Now you enter things only when you can justify every bit of expense or income. You can probably already hear why it’s not for the weak need. So here’s how that’s different. In the previous usual way of budgeting, we carried over the overhead and the staff expenses and the cost of goods sold and everything and then looked at that information from the perspective of what pre-existed.

Lee Wochner
With zero-based budgeting, we ask ourselves, rent. Are we going to continue paying rent? What if we just went virtual and all worked from home? That networked printer that’s dying, what if we just didn’t print anything? What if once a week we just ran over to FedEx or Staples to get some printing? What about Maria? Are we keeping her? Do we really need her position? What’s she doing anyway?

On the revenue side, let’s assume we’re starting from scratch. Where is every dollar going to come from? So you can see how disruptive zero-based budgeting could be. It’s hard to grow when you assume every year is just like starting over. Still, there are things to be learned from this exercise. Maybe you start to question the rent you’re paying and decided to make more sense to buy a building or downsize your office needs, things that you hadn’t been thinking about until you started challenging every assumption.

Maybe you have three network printers, and now you realize that actually with so many people working from home, maybe you could get by with two, and so you don’t need a new one. And maybe you pulled Maria’s last three quarterly reviews and realized afresh that she’s doing a great job, and you’d better have a meeting with her to discuss her future growth with your company so she stays with your team. This is why I actually do encourage you to spend some time doing a zero-based budget.

Not to implement it. Again, implementing a zero-based budget every year runs the risk of keeping you trapped in the past. But you might do it to challenge your own assumptions. Zero-based budgeting can be a great thought exercise, one that helps you think about the next year in a new way. So that’s the quick and dirty way to do some budgeting for next year. I wanna remind you of two things. Number one.

It’s important to check in on that budget on a regular basis to compare your budget against your actuals, against what actually happened. You might do it every month. Here at Counter Intuity, we do that every week to see how we’re performing. And two, don’t freak out when you find you haven’t perfectly pegged what your expenses or your revenue will be of a nonprofit with a guy who had been one of the founders of the Disney Channel. And I’ll never forget what he said when we had completed the budgeting process for the nonprofit. He said, one thing we know for sure about this budget is it’s wrong. Of course, because no one’s a perfect predictor of the future. The budget provides you a guideline. The actuality of reality provides you with detours, off ramps, alternate routes, and lots of exciting change.

Just remember to be adaptable and enjoy the ride. So that’s it for how to set your budget for next year. That all sounds doable, right? It’ll take you some time, it’ll prompt some new thinking, and it’ll help you chart your course for the next year rather than clawing around in the dark. Last week, I offered this quote often attributed to Peter Drucker. The best way to predict the future is to create it. I love that saying.

But I’m going to take a gamble here. And this week, I thought I’d make a prediction. So here goes. And it’s about the economy. I’ve done a lot of reading about the economy, checking in on what a variety of leading economists think, economists across the spectrum. I really like a lot of input. And I put it together with my own thoughts after all these years in a bunch of different businesses, both nonprofit and for-profit, and also checking it against the patterns of consumer behavior I’ve noticed.

I think the economy will hold steady or generally improve in the first six months of next year. The fundaments of the economy right now are strong, but high interest rates are definitely holding back spending. A phenomenon I remember well from the 1970s, my then business partner when I was a teen, got a new car and the interest rate on the new car was 26%. I remember those days well.

Interest rates right now are holding. They’ve certainly gone up, but they’re holding. And there’s a chance they might ease down a bit, which would spur growth. But the big factor for next year, barring something wildly unforeseen, and who would think something wildly unforeseen would happen, right? Except all the time. But the big factor next year, barring the wildly unforeseen, will be the presidential election of 2024.

Lee Wochner
When you look back at recent presidential election years, the economy generally tightens the closer we get to the election because of the uncertainty around it. Individuals pull back on spending and so do companies. Probably most of them without even realizing it, people just start to get a feeling. So the closer we get to next November, I think the tighter things are gonna probably get. That might happen, probably will, but might not, but might. But what it does mean, is that you should focus on getting as much revenue as you possibly can in the next six or seven months. Get your donation requests out. Get your services and product offerings out there because you’re likelier to do better in the first half of the year. The other thing is there’s a whole bunch of generational wealth that’s gonna change hands from greatest generation who are left and boomers down to the next generation.

Ask for donations if you’re a nonprofit, push for sales if you’re a for-profit, and keep asking. But either way, no matter what’s gonna happen with the economy, either way, let’s make 2024 everything we know it can be. Thanks for listening. If you like our podcast, please give us a review. We’d sure appreciate it. Just like we appreciate you spending some time with us. Very grateful and aware that you’ve got lots of other ways to spend 20, 25 minutes and we sure appreciate you being here. And we’d love to hear from you about your thoughts for the new year and questions about anything related to marketing and strategy, nonprofit management, anything. Send me an email at lee@counterintuity.com. That’s lee@counterintuity.com. I’d love to hear from you. Let’s plan toward an incredible year.

Jaclyn Uloth: Thanks for listening! We’re glad you came. That’s What C! Said is produced by Lisa Pham and engineered by Joe Curet. It’s available on Apple Podcasts, Spotify, and wherever you get your podcasts. Please like and follow the show. Visit counterintuity.com to sign up and learn more.