The Year-End Operational Reset:

Turn your year-end review into an empowering plan with an agile budget and a mission-driven strategy. 

Year-end. Just hearing those words can make any leader feel stressed. Between wrapping up projects, balancing the books, preparing reports, and making plans for Q1, the end of a fiscal year can bring questions, challenges, and financial hurdles to navigate. It’s not just about accounting, however. Year-end is also a prime time for an operational reset as you lead your organization into a new year.  

The year-end operational reset is not just a chance to take stock of the financial health of the organization, it’s also an opportunity to analyze your systems and processes, resources and staffing, and compare costs incurred with the impact you made in the past year. By taking a 360 degree look at what your financial numbers are telling you, you can uncover insights that touch on all aspects of your organization, empowering you to make mission-aligned decisions about what to fund, cut, and prioritize as you move into the new year.

If you’ve found yourself treating your budget like an approval document instead of a working plan, or thinking profitability equals financial health, it may be time for you to undertake a year-end operational reset. 

In our 10+ years in business working with nonprofit and purpose-driven leaders, we’ve discovered key insights that can help leaders with this annual process. In this article, we’ll share what we’ve learned about the year-end operational reset and what your organization can do to start the new year with more clarity, confidence, and a stronger strategy. 

Budgets Should Change

Contrary to its name, your year-end operational reset should actually start long before the end of the year.

Ideally, finance managers and leaders should check in on a monthly basis to review the budget, keep track of monthly receivables to properly forecast cashflow, and stay on top of expenses. Monthly check-ins will not only provide consistent data, which will be helpful when interpreting the numbers for next year, but they also promote regular communication between finance managers, leaders, and boards. Also, when year-end comes around, instead of a hectic sprint to close the year and generate reports, the year-end financial review will be more of a “clean up”, since the budget was managed well and consistently. 

Budgets are dynamic. It’s perfectly normal to look at a previous year’s budget as a default or baseline from which to start, but leaders should also approach the budget with a flexible mindset. Without a dynamic budget, an organization will undoubtedly repeat past decisions, whether or not they are mission-aligned or likely to promote growth or increase impact. 

When it comes time to undertake the year-end review and operational reset, it is advisable to begin this process as close to the end of the year as possible to give yourself ample data from which to make decisions.

Financial Review Checklist

To help you get started, our Finance Manager came up with a handy accounting checklist for you to follow: 

• Revenue review (including ensuring tax receipts are sent)
• Expenses review
• Bank, credit card, balance sheet reconciliation
• Accounts receivable review
• Payroll and contractor review (including fringe benefits)
• Restricted and designated funds review
• Budget vs. actual review – look at significant variances
• Cash flow review and Q1 planning
• Meet with leadership

Finance Managers Belong at the Leadership Table

Experienced finance managers can offer much more than numbers and data; they can also offer unique insights that will set organizations up for a more confident Q1 because they are able to spot trends and correctly forecast cash flow. 

Involving your finance manager as a partner on the leadership team will not only improve internal communication, but also provide your organization with valuable strategic insights. Engaging your finance manager in high-level decisions will also help you anticipate and adjust to circumstances that come up throughout the year before they become urgent.

Advice for Finance Managers

Data isn’t just about numbers; it also tells a story. When presenting to the board, we suggest presenting the data visually, and including valuable metrics that will help guide practical decisions. For example, the impact of every dollar the organization brings in, or your organization’s administrative fees in comparison to others.

Budget Variances Often Uncover Key Insights 

When it comes time to conduct the budget vs. actual review, it’s important to pay attention to the variances. Budget variances are like alarm bells for leaders; they often highlight strategic information and give you opportunities to test your assumptions. 

For example, If funding from a grant is received late, this could test your assumption about funder reliability. Not receiving this funding on time would also affect your bottom line because you wouldn’t have the revenue to cover program costs at that time. This could also prompt you to test your program cost model to assess whether you need to cut costs or seek an additional grant to cover program expenses. 

Assessing budget variances allows leadership to reflect on the cost-effectiveness of programs, systems, and processes. What is costing the organization money? If budget variances are large, why do they exist? How would you explain them to the board and funders? If you look at them closely, budget variances can uncover opportunities where you can adjust your budget and set your organization up for a more successful year. 

Cashflow: Take a Closer Look

We all know “cash is king”; it’s important to ensure that you have enough cash in the bank at any time of year. This is especially crucial in setting yourself up for a confident Q1; but, cash isn’t only a crucial component of accounting, it’s also tightly linked to every strategic decision your organization makes. 

For example, as highlighted in the above grant revenue example, the timing and restrictions attached to funding decides when and how you can spend it, and whether or not you need to wait until the next quarter. Your P & L (profit and loss) report could show that you have cash in the bank, but if that revenue is designated for a different program or expense, you can’t use it. 

A large share of restricted or designated revenue can look healthy on paper while leaving very little discretionary capacity. Leaders should know which funds are restricted and which are unrestricted. For example, U.S. reporting separates net assets into two separate categories: with and without donor restrictions. In other words, just because your P & L report says you’re “in the black”, this doesn’t necessarily mean you have the cash to spend. 

If you’re able to stockpile operating reserves, this is always highly encouraged. Reserves give leadership room to act. For example, the Nonprofit Operating Reserves Initiative (NORI) recommends a minimum of three months of operating expenses in reserve. Surveys have repeatedly found that many organizations are below that, which is likely due to the current state of the world and its effects on the financial landscape of the nonprofit sector. Decisions made at the federal level of government are affecting nonprofits everywhere, which is making it difficult to forecast revenue and stockpile reserves. 

When faced with this, we suggest diversifying your revenue streams so the organization doesn’t rely entirely on government funding or grants. Earned revenue is an excellent way to increase revenue without relying on other organizations; it puts the power back in your organization’s hands, empowering you to self-fund. If you’re interested in learning more about earned revenue, we’ve done a deep dive on this topic—take a look. 

Mission First, then Strategy, then Budget

Everything you do needs to align with your organization’s mission. This is a widely known fact among nonprofit and purpose-driven leaders, but it’s also an excellent reminder to keep in mind when undertaking a year-end operational reset. Analyzing the numbers against your mission is an effective way of proving or disproving that the money you’re spending is actually doing you some good, which can be especially helpful when reporting to the board. 

Strategy should drive the budget, not follow it. Start with what matters most, then plan your budget accordingly. We’ve found it helpful to map out an ideal strategy without worrying about what it would actually cost. Then, refer back to your mission to help you decide whether or not a program or initiative is worth the investment. 

For example, if a program generates high impact and you’re able to cover the cost, the numbers are telling you that it’s worth continuing to invest. If the program generates high impact but it’s losing money, you might consider running the program, but adjusting the budget. Conversely, if a program provides little impact and it’s losing the organization money, you would likely cut this program before moving into Q1. 

Advice for Leaders | Open Eye Can Help

As you prepare for a year-end operational reset, remember that your budget should change. If your organization had a particularly difficult year, you can take this as an opportunity to peel back the layers of what your organization has been doing and discuss possible changes that will help you move into Q1 with more clarity and confidence. Take some time to compare your programs, systems, and processes with those of industry peers—are you underestimating your program costs? Are you investing properly in the best people and resources? Are you over-paying in some areas where you could cut back? 

If you’re feeling overwhelmed, one thing you can do now is schedule a 60-minute session with your finance manager. Items on the agenda could be: the three largest budget variances this year and what caused them; and the three decisions the board is expecting leadership to make heading into the new year. As you analyze the numbers and prepare reports, make sure to tie every figure to a decision or an outcome; not just a total. 

At Open Eye, we work with clients in various capacities when it comes to the year-end operational reset. In some cases, we’re already working with clients in an operational capacity, which allows us to work alongside them to analyze the numbers and strategize for the year ahead. 

Whether you need strategic support or an extra set of eyes to help you track the numbers and spot key variances, Open Eye can help. Connect with our experts: h@openeye.email

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