Mr. Jeff Beaumont is a CPA working for a firm that focuses on serving the nonprofit community. His opinions are his own and do not reflect the opinions or positions of his firm in any way. Because he speaks for himself, I won’t identify him or his firm in any more detail. He doesn’t speak for me either.
He has about seven years experience as an auditor working on the issues discussed on this blog. This is the fourth post in a series.
By Jeff Beaumont, CPA
Part 4– Final thoughts
Introduction is here. Description of forecasting model is here. Calculations discussed here.
Okay, once the research is complete, we can put together a fair and reasonably accurate estimation of tithes and offerings for budgeting for next year.
Next, the smell test. I have learned the necessity of this. So if the model says next year will increase by 5-10%, I should look at what has happened in the past (at least with the past I won’t have to make any guesses since it already happened!).
If it has been increasing somewhere between 5-12% on average, attendance is increasing at the same rate, the overall and local economies are doing reasonably well, and there are no concerns on the horizon, then if your model is predicting to be within that range, it appears to have passed that test!
If, however, the model shows it should increase 25% but each of the past 4 years has only increased 3-8%, then the calculation may need to be re-thought. Hoping for a dramatic increase is nice, but building a budget for church ministries to rely on will only cause problems in a few months. So, unless there is something else such as the economy has suddenly turned around and people have drastically increased their giving in the past few months, be careful with zealously overestimating.
A few thoughts, warnings, and reflections to conclude with:
- Trends, patterns, and cycles are indications of what may happen should (most) everything remain static and unchanged. Because life is dynamic, the future will be different from the past. Forecasts are not designed to be 100% accurate, but serve as a starting point.
- There are multiple ways of preparing revenue models and though generally some are better than others, no one will ever be perfect all the time.
- Some drivers (premises) are better than others. For example, tracking the trend of the number of givers for a church would typically produce a more accurate picture and analysis than tracking total attendees. However, I do like to use both. For example, if there is a large contingent of the congregation that gives cash donations without a name, then I like to track attendance.
- It is best, once the model has been prepared, to monitor it with actual results to determine the accuracy of it. This way, modifications can be made to increase the accuracy down the road.
At this point, you have some good, useful information you can discuss and use for setting the budget. It may be a bit of work (especially the first year), but I have found that it has made us much more accurate by interpreting the data into something logical and understandable rather than quickly coming up with a figure because we thought 3%, 4%, or 5% would be fine.
What forecasting model do you use?
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