1. Lecture 32: Budgets, Forecasts And Business Plans

2. Business Plans

3. Business Plans… …Need to be employed by anyone who is in business …Set a strategy for future growth and can be used to attract investors and loans

4. …Business Plans are also kept and developed over time by existing businesses, and even started over when new opportunities arise They aren’t just used by start-ups…

5. Types of Business Plan include: Summary Special Project Feasibility Mini Start-up Presentation Internal Growth

6. Business Plan Essentials: -Executive Summary -Business Strategy -Marketing Strategy -Team & Management Structure -Financial Budgets & Forecasts

7. Executive Summary Introduction to business Competitive advantages Brief summary of the plan

8. Business Strategy Tactics Strategic Impact Business’s core values

9. Marketing Strategy SWOT Analysis Market Research Distribution Channels Strategic Alliances E-commerce & Technology Marketing Budget Credibility & Risk Reduction

10. Team & Management Structure Skills, Experience, Training & Retention Advisers Management Systems

11. Financial Budgets & Forecasts Profit & Loss Forecast Cash Flow Forecast Balance Sheet Forecast Capital Expenditure Budget Break-even Analysis

12. Create a Business Plan as the first step on your path to success Building a Business Plan

13. At the end of this module, you will be able to: – Identify the essential elements of a Business Plan. – Identify how a good Business Plan can create an anchor for continued success. – List additional resources that can help you develop an effective Business Plan. Learning Objectives 13 Building a Business Plan

14. The Federal Deposit Insurance Corporation (“FDIC”) recognizes the important contributions made by small, veteran, and minority and women-owned businesses to our economy. For that reason, we strive to provide small businesses with opportunities to contract with the FDIC. In furtherance of this goal, the FDIC has initiated the FDIC Small Business Resource Effort to assist the small vendors that provide products, services, and solutions to the FDIC. The objective of the Small Business Resource Effort is to provide information and the tools small vendors need to become better positioned to compete for contracts and subcontracts at the FDIC. To achieve this objective, the Small Business Resource Effort references outside resources critical for qualified vendors, leverages technology to provide education according to perceived needs, and offers connectivity through resourcing, accessibility, counseling, coaching, and guidance where applicable. This product was developed by the FDIC Office of Minority and Women Inclusion (OMWI). OMWI has responsibility for oversight of the Small Business Resource Effort. About FDIC Small Business Resource Effort 14 Building a Business Plan

15. A Business Plan identifies key areas of your business so you can maximize the time you spend on generating income. Key investors will want to look at your Business Plan before providing capital. A Business Plan helps you start and keep your business on a successful path. You should prepare a Business Plan, although, in reality, many small business owners do not. Executive Summary 15 Building a Business Plan

16. A Business Plan is a written document that defines the goals of your business and describes how you will attain those goals. A Business Plan is worth your considerable investment of time, effort, and energy. A Business Plan sets objectives, defines budgets, engages partners, and anticipates problems before they occur. What is a Business Plan? 16 Building a Business Plan

17. 1.To attract investors. 2.To see if your business ideas will work. 3.To outline each area of the business. 4.To set up milestones. 5.To learn about the market. 6.To secure additional funding or loans. 7.To determine your financial needs. 8.To attract top-level people. 9.To monitor your business. 10.To devise contingency plans. 10 Reasons Why You Need a Strong Business Plan 17 Building a Business Plan

18. Business plans differ widely in their length, appearance, content, and the emphasis placed on different aspects of the business. Depending on your business and your intended use, you may need a very different type of Business Plan: – Mini-plan: Less emphasis on critical details. Used to test your assumptions, concept, and measure the interest of potential investors. – Working Plan: Almost total emphasis on details. Used continuously to review business operations and progress. – Presentation Plan: Emphasis on marketability of the business concept. Used to give information about the business to bankers, venture capitalists, and other external resources. How Detailed Should Your Plan Be? 18 Building a Business Plan

19. Every Business Plan should include some essential components: – Overview of the Business: Describes the business, including its products and services. – The Marketing Plan: Describes the target market for your product and explains how you will reach that market. – The Financial Management Plan: Details the costs associated with operating your business and explains how you will pay for those costs, including the amount of financing you may need. – The Operations and Management Plan: Describes how you will manage the core processes of your business, including use of human resources. Assembling a Business Plan 19 Building a Business Plan

20. Business plans must help investors understand and gain confidence on how you will meet your customers’ needs. Seven common parts of a good Business Plan are: 1.Executive Summary 2.Business Concept 3.Market Analysis 4.Management Team 5.Marketing Plan 6.Financial Plan 7.Operations and Management Plan Seven Common Parts of a Good Business Plan 20 Building a Business Plan

21. The Executive Summary of a Business Plan is a 3-5 page introduction to your Business Plan. The Executive Summary is critical, because many individuals (including venture capitalists) only read the summary. The Executive Summary section includes: – A first paragraph that introduces your business. Your business name and location. A brief explanation of customer needs and your products or services. The ways that the product or service meets or exceeds the customer needs. An introduction of the team that will execute the Business Plan. – Subsequent paragraphs that provide key details about your business, including projected sales and profits, unit sales, profitability, and keys to success. – Visuals that help the reader see important information, including highlight charts, market share projections, and customer demand charts. Part 1: Executive Summary 21 Building a Business Plan

22. The business concept shows evidence that a product or service is viable and capable of fulfilling an organization's particular needs. The Business Concept section: – Articulates the vision of the company, how you plan to meet the unique needs of your customer, and how you plan to make money doing that. – Discusses feasibility studies that you have conducted for your products. – Discusses diagnostics sessions you had with prospective customers for your services. – Captures and highlights the value proposition in your product or service offerings. Part 2: Business Concept 22 Building a Business Plan

23. A Market Analysis defines the target market so that you can position your business to get its share of sales. A Market Analysis section: – Defines your market. – Segments your customers. – Projects your market share. – Positions your products and services. – Discusses pricing and promotions. – Identifies communication, sales, and distribution channels. Part 3: Market Analysis 23 Building a Business Plan

24. The Management Team section outlines: – Organizational Structure: Highlights the hierarchy and outlines responsibilities and decision-making powers. – Management Team: Highlights the track record of the company’s managers. You may also offer details about key employees including qualifications, experiences, or outstanding skills, which could add a competitive edge to the image of the business. – Working Structure: Highlights how your management team will operate within your defined organizational structure. – Expertise: Highlights the business expertise of your management and senior team. You may also include special knowledge of budget control, personnel management, public relations, and strategic planning. – Skills Gap: Highlights plans to improve your company’s overall skills or expertise. In this section, you should discuss opportunities and plans to acquire new information and knowledge that will add value. – Personnel Plan: Highlights current and future staffing requirements and related costs. Part 4: Management Team 24 Building a Business Plan

25.  The Marketing Plan section details what you propose to accomplish, and is critical in obtaining funding to pursue new initiatives.  The Marketing Plan section: – Explains (from an internal perspective) the impacts and results of past marketing decisions. – Explains the external market in which the business is competing. – Sets goals to direct future marketing efforts. – Sets clear, realistic, and measurable targets. – Includes deadlines for meeting those targets. – Provides a budget for all marketing activities. – Specifies accountability and measures for all activities. Part 5: Marketing Plan 25 Building a Business Plan

26. The Financial Plan translates your company's goals into specific financial targets. The Financial Plan section: – Clearly defines what a successful outcome entails. The plan isn't merely a prediction; it implies a commitment to making the targeted results happen and establishes milestones for gauging progress. – Provides you with a vital feedback-and-control tool. Variances from projections provide early warnings of problems. When variances occur, the plan can provide a framework for determining the financial impact and the effects of various corrective actions. – Anticipate problems. If rapid growth creates a cash shortage due to investment in receivables and inventory, the forecast should show this. If next year's projections depend on certain milestones this year, the assumptions should spell this out. Part 6: Financial Plan (Slide 1 of 2) 26 Building a Business Plan

27. The Financial Plan is the most essential part of your Business Plan. It shows investors the timeframes you have scheduled to make profits. Some elements of the Financial Plan include: – Important Assumptions – Key Financial Indicators – Break-even Analysis – Projected Profit and Loss – Projected Cash Flow – Projected Balance Sheet – Business Ratios – Long-term Plan Part 6: Financial Plan (Slide 2 of 2) 27 Building a Business Plan

28.  Short-term Forecast: Projects either the current year or a rolling 12- month period by month. This type of forecast should be updated at least monthly and become the main planning and monitoring vehicle.  Budget: Translates goals into detailed actions and interim targets. A budget should provide details, such as specific staffing plans and line- item expenditures. – The size of a company may determine whether the same model used to prepare the 12-month forecast can be appropriate for budgeting. – In any case, unlike the 12-month forecast, a budget should generally be frozen at the time they are approved. Different Financial Planning Options (Slide 1 of 2) 28 Building a Business Plan

29.  Strategic Forecast: Incorporates the strategic goals of the company into the projections. For startup companies, the initial Business Plan should include a month-by-month projection for the first year, followed by annual projections for a minimum of three years.  Cash Forecast: Breaks down the budget and 12-month forecast into more detail. The focus of these forecasts is on cash flow, rather than accounting profit, and periods may be as short as a week in order to capture fluctuations. Different Financial Planning Options (Slide 2 of 2) 29 Building a Business Plan

30. The Operations and Management section outlines how your company will operate. The Operations and Management section includes: – Organizational structure of the company. Provides a basis for projected operating expenses and financial statements. Because these statements are heavily scrutinized by investors, the organizational structure has to be well- defined and realistic within the parameters of the business. – Expense and capital requirements to support the organizational structure. Provides a basis to identify personnel expenses, overhead expenses, and costs of products/services sold. These expenses/costs can then be matched with capital requirements. Part 7: Operations and Management 30 Building a Business Plan

31. Business Plans are critical for the success of a company. Different businesses will require different types of Business Plans. All Business Plans have some essential sections that explain the core aspects of the company. In order to help your company have a better chance of gaining interest and investors, a Business Plan should include seven essential sections: 1.Executive Summary 2.Business Concept 3.Market Analysis 4.Management Team 5.Marketing Plan 6.Financial Plan 7.Operations and Management Plan Key Takeaways From This Module 31 Building a Business Plan

32. Small Business Administration, Business Planning, How To Prepare a Business Plan Gary Cadenhead, No Longer Moot Shirleen Glasin, ProSidian Consulting, Building a Business Plan Entrepreneur.com, Small Business Encyclopedia, Business Plans AllBusiness, A D&B Company, 10 Reasons Why You Need a Strong Business Plan Business Owners Toolkit, Total Know-How for Small Businesses Sources and Citations 32 Building a Business Plan

34. C HAPTER 5 F ORECASTING M ARKET D EMAND AND S ALES B UDGETS

35.  The importance of forecasting in a firm’s marketing decision support system.  The uses and different categories of sales forecasts.  The two forecasting methods – survey and mathematical – and their different uses.  That the responsibility for approving the final forecast rests at the top management level.  The need for knowledge of computers, because they are used in forecasting and developing sales budgets. L EARNING O BJECTIVES The process of forecasting helps an organization make decisions; it is necessary for determining information about future markets. This chapter should help you understand:

36. M ANAGING S ALES I NFORMATION “Our charge is to design, build, and implement decision support systems that help our field and marketing managers make business decisions.” Dan McKee Marketing decision support systems manager for Marion Merrell Dow, Inc.

37. F ORECASTING M ARKET D EMAND A marketing decision support system (MDSS) is an ongoing, future-oriented structure designed to generate, process, store, and later retrieve information to aid decision making in an organization’s marketing program. It involves problem-solving technology composed of people, knowledge, software, and hardware “wired” into the sales management process.

38. U SES OF S ALES F ORECASTS A sales forecast is the estimated dollar or unit sales for a specific future time period based on a proposed marketing plan and an assumed market environment.

39. 1.A sales forecast becomes a basis for setting and maintaining a production schedule – manufacturing. 2.It determines the quantity and timing of needs for labor, equipment, tools, parts, and raw materials – purchasing, personnel. 3.It influences the amount of borrowed capital needed to finance the production and the necessary cash flow to operate the business – controller. 4.It provides a basis for sales quota assignments to various segments of the sales force – sales management. 5.It is the overall base that determines the company’s business and marketing plans, which are further broken down into specific goals – marketing officer. A sales forecast is important for at least five reasons:

40. FIGURE 5.1 PLANNING/FORECASTING/BUDGETING SEQUENCE

41. T HE F ORECASTING P ROCESS The forecasting process refers to a series of procedures used to forecast.

42. A market factor is an item or element that (1) exists in a market, (2) may be measured quantitatively, and (3) is related to the demand for a product or service. A market index is simply a market factor expressed as a percentage relative to some base figure.

43. FIGURE 5.2 THE FORECASTING PROCESS

44. FIGURE 5.3 BASIC STEPS IN BREAKDOWN METHOD OF FORECASTING SALES

45. Company sales potential is the maximum estimated or potential sales the company may reach in a defined time period under given conditions. The company’s share of the estimated sales for an entire industry is referred to as market share. Industry sales forecast, or market potential, is the estimated sales for all sellers.

46. S ALES F ORECASTING M ETHODS Survey methods are qualitative and include executive opinion, sales force composite, and customer’s intention surveys. Mathematical methods are test markets, market factors, naïve models, trend analysis, and correlation analysis. Two categories of sales forecasting methods exist:

47. FIGURE 5.4 THE MORE POPULAR OF MANY FORECASTING METHODS

48. S URVEY F ORECASTING M ETHODS Four basic survey methods are Executive Opinion Sales Force Composite User’s Expectations Build-to-Order

49. Executive Opinion 1.By one seasoned individual (usually in a small company). 2.By a group of individuals, sometimes called a “jury of executive opinion.” Executive forecasting is done in two ways:

50. 1.Key executives submit the independent estimates without discussion, and these are averaged into one forecast by the chief executive. 2.The group meets, each person presents separate estimates, differences are resolved, and a consensus is reached. The group approach uses two methods:

51. Delphi Method Administering a series of questionnaires to panels of experts.

52. Sales Force Composite Obtaining the opinions of sales personnel concerning future sales.

53. User’s Expectations Consumer and industrial companies often poll their actual or potential customers.

54. Build-to-Order Companies build final products only after firm orders are placed.

55. M ATHEMATICAL F ORECASTING M ETHODS Test markets are a popular method of measuring consumer acceptance of new products.

56. Time Series Projections Time series methods use chronologically ordered raw data.

57. The trend component. The seasonal component. The cyclical component. The erratic component. Classical approach to time series analysis:

58. Naïve Method Next Year’s Sales = This Year’s Sales X This Year’s Sales Last Year’s Sales

59. Moving Average Moving averages are used to allow for marketplace factors changing at different rates and at different times.

60. P ERIOD S ALES V OLUME S ALES FOR THREE- Y EAR P ERIOD T HREE- Y EAR M OVING A VERAGE 1200 2250 3300750 4350900300 54501100 ( 3) =366.6 6? Period 6 Forecast = 366.6 TABLE 5.1 EXAMPLE OF MOVING-AVERAGE FORECAST

61. E xponential S moothing Exponential smoothing is similar to the moving-average forecasting method. It allows consideration of all past data, but less weight is placed on data as it ages. Next Year’s Sales = a (This Year’s Sales) + (1-a) (This Year’s Forecast)

62. Trend Projections – Least Squares Eyeball fitting is simply a plot of the data with a line drawn through them that the forecaster feels most accurately fits the linear trend of the data.

63. FIGURE 5.6 A TREND FORECAST OF SALES

64. Regression Analysis Regression analysis is a statistical method used to incorporate independent factors that are thought to influence sales into the forecasting procedure.

65. FIGURE 5.7 REGRESSION ANALYSIS

66. FIGURE 5.8 QUESTIONS TO ANSWER TO IMPROVE CHANCES OF HITTING THE FORECASTING BULL’S-EYE

67. TABLE 5.2 GUIDE TO FORECASTING F ORCASTING M ETHOD T IME S PAN M ATHEMATICAL S OPHISTICATION C OMPUTER N EED A CCURACY Executive OpinionShort to mediumMinimalNot essentialLimited Delphi MethodMedium to longMinimalNot essentialLimited; good in dynamic conditions Sales Force CompositeShort to mediumMinimalNot essentialAccurate under dynamic conditions User’s ExpectationsShort to mediumMinimalNot essentialLimited Test MarketsMediumNeeded Accurate Naïve MethodPresent to mediumMinimalNot essentialLimited Moving AverageShort to longMinimalHelpfulAccurate under stable conditions Exponential SmoothingShort to mediumMinimalHelpfulAccurate under stable conditions Least SquaresShort to longNeededDesirableVaries widely Regression AnalysisShort to MediumNeededEssentialAccurate if variable relationships stable

68. T HE S ALES M ANGAGER’S B UDGET The sales force budget is the amount of money available or assigned for a definite period, usually one year.

69. Planning Coordination Control B UDGET P URPOSES

70. TABLE 5.3 SALES FORCE OPERATING COSTS 1. Base salaries 4. Special incentives a. Management 5. Office expenses b. Salespeople 6. Product samples 2. Commissions 7. Selling aids 3. Other compensation 8. Transportation expenses a. Social Security 9. Entertainment b. Retirement plan10. Travel c. Stock options d. Hospitalization

71. B UDGETS S HOULD BE F LEXIBLE Sales, costs, prices, or the competition’s marketing efforts are some factors that may be higher or lower than expected.

72. T HE B OTTOM L INE Because of the growing trend in business to centralize data collections, the job of forecasting has become an integral part of a firm’s marketing decision support system (MDSS). A sales forecast is the estimated dollar or unit sales for a specific future period based on a proposed marketing plan and an assumed market environment. Firms know sales forecasting is never 100 percent correct. Two categories of sales forecasting methods are survey methods and mathematical methods. Because the sales forecast has a major impact on the company, the top executives give final approval. To create a sales forecast, sales managers should know how to use a computer.

73. Carnegie Mellon Budget Theory

74. Why Budget and Forecast? Internal financial control by department Impacts decisions at higher levels of the University Reporting responsibility to University management Deans, VPs, President, Provost Reporting responsibility to Board of Trustees Three meetings per year plus executive sessions Reporting responsibility to bond holders Importance of good budgets and good forecasts.

75. Budget and Forecast Timeline Late August – Guidelines sent to campus for the fall financial review Late October – Formal financial review with the Provost and CFO of the current year forecast and the proposed budget for the next three years Mid November – Review of projections with university management Late November – Revised guidelines sent to campus for the winter financial review

76. Budget and Forecast Timeline Mid January - Formal financial review with the Provost and CFO of the current year forecast and the proposed budget for the next three years Mid February – Review of projections with university management and the Board of Trustees Mid February – Revised guidelines sent to campus for the final changes to budgets that will go the Board of Trustees in May Mid May – Board of Trustees review and approval of next fiscal year budget End of June – Budgets finalized in Oracle

77. Budget and Forecast Timeline Financial Review Review financial position Operating budget surplus / deficit Research update Future commitments Capital project requests Deficit review Other issues

78. Carnegie Mellon How Do We Budget and Forecast?

79. How to Budget and Forecast Information Needed to Start Your Budget or Forecast Input is required from many sources Department management Key personnel in the department (PIs, systems support, faculty that control significant funding from any source including discretionary funds, etc.) Financial assumptions from university management (salary pool, benefits rates, sponsored projects F&A rates, tuition growth, etc.) Most Important -- Your knowledge of your organization and business, including its current financial status

80. How to Budget and Forecast Information Needed to Start Your Budget or Forecast Financial Reports Operating Statement Funding Source Detail Financial Review Reports Allocation Letter Salary Information Planning Assumptions Application Desktop Integrator (ADI) Budget Development Integrator (BDI) Most Important -- Your knowledge of your organization and business, including its current financial status

81. How to Budget and Forecast First Steps Depend Upon Your Organization What is the largest part of your budget? By funding type? By expense type? Does one portion of your budget depend upon another portion of the budget?

82. How to Budget and Forecast Review of Operating Statement and Funding Source Detail Statement

83. General Operating Funding Sources Represents your department’s operating budget -- university allocation, summer programming, executive education, INI masters program, Heinz, GSIA, unrestricted contributions Allocation Budget Base Allocation - Funding Source 000002 - Revenue code 71100 One-Time Allocation - Funding Source 000003 - Revenue code 71200 In many cases, salaries and benefits are the largest part of the budget.

84. General Operating Funding Sources Allocation Budget continued Can segregate revenues, expenses, and transfers by activity codes for analysis purposes. First budget the monthly expense and transfer portion of the budget as these will be incurred, ensuring that the total equals the allocation, then match allocation revenue monthly to net to zero. The actual allocation revenue each month will equal the budget.

85. General Operating Funding Sources General Unrestricted - Funding Source 000001 (GL) or 000005 (GM) Note: Very few organizations on campus use funding source 000005 Budget revenues and expenses monthly as they will be incurred. Budget transfers to / from the operating reserve as needed. Allocations revenue can be budgeted / forecasted as follows: One Time Allocation Revenue DIVISION – revenue object code 71210 – revenue allocated to the department by the division. Central Allocation Adjustments – Revenue code 71250 (Used for current year forecasts only for central funding approved during the current fiscal year) NOTE: When forecasting general operating, you may use only one funding source. Be sure not to double count budget and forecast dollars.

86. General Operating Funding Sources Other Issues to Consider Tuition that is split between colleges or departments – use the IC tuition object codes to record the tuition transfer in both units (65100 for IC UG tuition transfer, 61502 IC graduate tuition transfer) Financial aid can be paid by the university (financial aid) or paid by the students from their university wages (graduate student wages). The first is a reduction in revenue, the second is an expense. Split financial aid between undergraduate (75100) and graduate (75102). Budget tuition revenue and financial aid as they will be incurred, including an estimate of the quarterly deferral for revenue recognition.

87. General Institutional Funding Source Represents general university expenses -- Insurance, legal expenses, general banking fees, external audit services, commencement, diplomas, etc. Allocation Budget Base Allocation - Funding Source 000004 - Revenue code 71100 Budget expenses monthly as they will be incurred. Budget allocation revenue monthly to net budget to zero. Other General Institutional - Funding Source 000004 Budget revenues, expenses, and transfers monthly as they will be incurred.

88. Designated Operating Funding Sources Operating Reserve - Funding Source 060000 Budget transfers to / from other funding sources as they will be incurred. Ensure that transfers match. Cost Sharing - Funding Source 063000 Any costs incurred and funded by the university that can be directly attributable as support to an existing sponsored project. Expenses are budgeted in grants by project, task and cost sharing award. Transfers to fund cost sharing and expenses are budgeted in summary in the GL. The university funds Facilities & Administration expense in cost sharing. Either the department or the university can fund the direct cost sharing expense per agreement.

89. Designated Operating Funding Sources Other Designated Operating Funding Sources Faculty Discretionary Funds - Funding Source 061000 Internally Funded Projects - Funding Source 062000 Faculty Development Grants - Funding Source 064000 SURG - Funding Source 065000 Affiliate Programs - Funding Sources 066000-069999 Technology Transfer - Funding Sources 800000-809999 Royalties are transferred to the departments and colleges. Do not budget beginning net assets. These are generated yearly by the University based on prior year ending net asset actuals.

90. Sponsored Projects Funding Sources Federal Sponsors - Funding Sources 071000 - 075000 Army, Air Force, Navy, Department of Energy Non-Federal Sponsors - Funding Sources 081000 - 083020 Industry, State Government, Affiliate Sponsors Future Funding - Funding Source 089000

91. Sponsored Projects Funding Sources Sponsored projects are budgeted in detail in the Grants Management module of Oracle. Award identifies the type of funding or revenue source. Project and task define the work to be done -- budget expenses as they will be incurred. Salary budgeting and balancing is important.

92. Sponsored Projects Funding Sources Sponsored projects then need to be summarized and budgeted in GL by funding source. Revenues, expenses, and transfers should be budgeted as they will be incurred. Do not budget beginning net assets. These are generated yearly by the University based on prior year ending net asset actuals. Issues to be considered Use of Budget Management Spreadsheet (BMS) for actuals, budgets, GL funding sources, etc. Budgeting / forecasting in future funding

93. Sponsored Projects Funding Sources Other Issues to Consider Status of current contracts in hand Status of open proposals Department trends in win / loss on proposals Historical sponsored projects trends for the department Current information of the status of the funding from your major sponsors Timing of revenue recognition (revenue, transfers) Required cost sharing and funding

94. Auxiliary Funding Source Auxiliary - Funding Source 050000 Auxiliaries include operations such as Dining, Housing, Parking, Printing, Retail, Telecom Identified as a unique entity in Oracle to allow it to be analyzed as a stand-alone business -- operating statement, balance sheet, cash flow. Auxiliaries are expected to cover all of their costs, so university overhead is charged to each auxiliary. Revenues are based on business generated by the auxiliary. Expenses will often be directly related to revenues. Many auxiliaries carry inventories.

95. Auxiliary Funding Source Budget revenues, expenses, and transfers monthly as they will be incurred. Do not budget beginning net assets. These are generated yearly by the University based on prior year ending net asset actuals. Capital is charged to the balance sheet, not the operating budget Depreciation expense is charged to all auxiliaries. Consider items that will become fully depreciated during the planning cycle, as well as new capital that will need to be depreciated. For internal loans, interest is expensed; principal payments are charged to the balance sheet. Any surplus or deficit falls to the bottom line (net assets) and is carried forward to the next fiscal year. Business is evaluated on cash flow.

96. Recharge Center Funding Source Recharge Centers - Funding Source 055000 Charge services to other parts of the campus. Budget revenues, expenses, and transfers monthly as they will be incurred. Do not budget beginning net assets. These are generated yearly by the University based on prior year ending net asset actuals. Any surplus or deficit falls to the bottom line (net assets) and is carried forward to the next fiscal year (Note: surpluses cannot be used by other parts of the department or university). The recharge center is expected to build prior year balances into future pricing.

97. Unrestricted Endowment Funding Sources Unrestricted Endowment - Funding Sources 000100 - 049999 The endowment is much like a mutual fund. The gift buys shares in the endowment, and a yearly distribution of income is made based on shares. Budget endowment revenue at the beginning of each quarter; budget expenses as they will be incurred. Do not budget beginning net assets. These are generated yearly by the University based on prior year ending net asset actuals. Balances carry forward into the next fiscal year.

98. Temporarily Restricted Funding Sources Temporarily Restricted Endowment - Funding Sources 100000 - 199999 Temporarily Restricted Contributions - Funding Sources 200000 - 299999 Revenue must be spent per donor specifications. Budget endowment revenue at the beginning of each quarter;budget gift revenue as it will be realized; budget expenses as they will be incurred. DO NOT BUDGET TRANSFERS. Do not budget beginning net assets. These are generated yearly by the University based on prior year ending net asset actuals. Balances carry forward into the next fiscal year

99. Capital Reserve Funding Source Capital Reserves - Funding Source 090100 Budget transfers to / from other funding sources as they will be incurred. Ensure that transfers match. Do not budget beginning net assets. These are generated yearly by the University based on prior year ending net asset actuals.

100. Agency Funding Sources Agencies - Funding Sources 900000 - 910000 Not included on the operating statement. Represents a group outside of the university that uses the university’s services and then either repays the university or is funded by the university. Unique object code for university funding -- 85802 - Agency Funding Examples include student organizations, clubs, etc. May have university phone service, copy service, etc.

101. How to Budget and Forecast Other Issues to Consider When forecasting gifts, consider past trends plus any knowledge that you have on future prospects. When forecasting salaries, consider the following: Source of funding for faculty, staff, and students – salaries and benefits need to be budgeted in the proper funding source. Include new employees with the best estimate of where their time will be charged. Graduate wages must be split into stipends and tuition.

102. How to Budget and Forecast Other Issues to Consider When forecasting other operating expenses, consider any extraordinary spending in the current year that will not be required in future years, as well as any new initiatives that will require funding for the first time. When forecasting capital expenditures, consider any extraordinary spending in the current year that will not be required in future years, as well as any new initiatives that will require funding for the first time.

103. How to Budget and Forecast Other Issues to Consider Balance transfers within your organization – i.e. to fund a deficit in operations, reflect the debit in the designated operating reserve and the credit in general operating. Include transfers to fund capital projects. Coordinate all transfers, IC graduate tuition transfers, IC undergraduate tuition transfers, IC educational program transfers, and IC other income for Portugal transfers with the organization that is forecasting the other side of the entry to ensure that all your numbers agree and will balance across the university.

104. How to Budget and Forecast Funding Source Mapping – Operating Statement to Financial Review Financial Review – General Operating General Operating General Institutional Financial Review – Sponsored Projects Sponsored Projects Financial Review – Auxiliary / Recharge Auxiliary Recharge Financial Review – Designated Designated Unrestricted Endowment Capital Reserve Financial Review – Temporarily Restricted Temporarily Restricted

105. How to Budget and Forecast Verify your budgets and forecasts in Oracle. Run Financial Review Reports report set Run Budget Reports report set Review yearly historical trends versus future yearly growth

106. PURPOSE AND USE OF BUDGET PLANNING MODELS Donna Kidd, Associate Vice President George Mason University dkidd1@gmu.edu Barbara Maddox, Director of Budget Operations George Mason University bmaddox@gmu.edu Southern Association for Institutional Research Annual Forum/VAMAP Budget Officers Track October 17, 2006

107.  WHY IS A BUDGET PLANNING MODEL NECESSARY?  WHAT IS ACHIEVED WITH A BUDGET PLANNING MODEL?

108. WHY IS A BUDGET PLANNING MODEL NECESSARY? – Set priorities for the institution in pursuit of achieving goals – Identify highest priorities to be accomplished with available funds

109. WHY IS A BUDGET PLANNING MODEL NECESSARY ? – Identify and plan for future programmatic needs – Identify and plan for financial resources needed to support overall activity

110. WHY IS A BUDGET PLANNING MODEL NECESSARY? – Identify and project financial resources available – Identify and incorporate enrollment, staff, facility, and financial data into overall plan

111. WHAT IS NEEDED FOR A GOOD BUDGET PLANNING MODEL? – Document all assumptions clearly – Document assumptions for revenue and expenditures separately – Review and update assumptions on a regular basis

112. WHAT IS NEEDED FOR A GOOD BUDGET PLANNING MODEL? – Begin with two years of actual data to build plan data for future years – Review and update data on a regular basis

113. WHAT IS NEEDED FOR A GOOD BUDGET PLANNING MODEL? – Set a model that is flexible for easy changes for all key factors (salary increases, enrollment, etc.) – Set a model that is flexible for easy modeling and what-if’s

114. WHAT IS NEEDED FOR A GOOD BUDGET PLANNING MODEL? – Provide summary data for presentation to executive administration – Provide back-up detail to address answers to specific questions as needed

115. WHAT IS NEEDED FOR A GOOD BUDGET PLANNING MODEL? – Share the model on a regular basis with other audiences within the institution – One of the most important things is to share the model on a regular basis with Board of Visitors or appropriate governing body

116. WHAT ARE COMPONENTS OF A GOOD BUDGET PLANNING MODEL? – Multi-Year (three to five years plan with two years actual) – Develop separate models for Educational & General and Auxiliary Enterprises activities

117. WHAT ARE COMPONENTS OF A GOOD BUDGET PLANNING MODEL? – Sources of funds by major category – Uses of funds by major category

118.  WHAT ARE COMPONENTS OF A GOOD BUDGET PLANNING MODEL?  Total enrollment by year (fte enrollment)  Assumptions for in-state versus out- of-state enrollment

119.  WHAT ARE COMPONENTS OF A GOOD BUDGET PLANNING MODEL?  FTE staff by category by year  Compensation increases by category by year

120. WHAT ARE COMPONENTS OF A GOOD BUDGET PLANNING MODEL? – Base funding by year – Fixed cost increase requirements by year

121. WHAT ARE COMPONENTS OF A GOOD BUDGET PLANNING MODEL? – Inflationary costs by year – Special programming needs by year

122. WHAT ARE COMPONENTS OF A GOOD BUDGET PLANNING MODEL? – Funding by source of funds – state, tuition, other – Expense by major category – salaries, benefits, direct expenses

123. WHAT ARE COMPONENTS OF A GOOD BUDGET PLANNING MODEL? – Institutional funding set-aside for financial aid per year – Projected tuition and fee rate increase per year

124. WHAT ARE COMPONENTS OF A GOOD BUDGET PLANNING MODEL? – Revenue per fte student – state, tuition/ other by year – Expense per fte student – total by year

125. A SAMPLE TEMPLATE FOR A BUDGET PLANNING MODEL

129. IMPORTANT THINGS TO REMEMBER – – SHARE THE BUDGET PLANNING MODEL ON A REGULAR BASIS SO OTHERS UNDERSTAND WHAT THE ASSUMPTIONS ARE – ESPECIALLY IMPORTANT TO SHARE WITH GOVERNING BODY

130. IMPORTANT THINGS TO REMEMBER – – SHARING THE MODEL ON A REGULAR BASIS ENSURES A SMOOTHER APPROVAL OF ANNUAL BUDGETS AS THERE ARE FEWER SURPRISES

131. GOOD LUCK AND HAVE FUN AS YOU BUILD YOUR PLANNING MODEL! QUESTIONS?