Credit Union Budgeting Tips
As with every budget season, many credit unions find themselves struggling to find ways to reduce expenses and uncover sources for increased revenues. Let’s face it—money is tight these days and every nickel counts. And we should never forget, the money we spend is our members’ money. Every dollar we spend is one less dollar that we can return to members. We have a responsibility and duty to spend it wisely. These three simple steps can help reduce stress and identify solutions that minimize the expense side of your budget for the coming year.
Review Last Year’s Expenses—Carefully
Take a hard look at your expenses budget. Were you over or under? If over, what types of expenses broke the budget? Were the extra expenses necessary and just badly projected, or did you fail to adequately monitor expenses to stay within budget? Sometimes unanticipated expenses cause budgets to be broken—that’s life and often unavoidable. But most often, we take our eye off the ball and our expense discipline fails us. Managing expenses is everyone’s business. Those responsible for managing budgets must have some skin in the game. Are they incentivized to stay within or below budget?
The easiest path to creating a budget is to take the old one and update it for the coming year. That approach, however, can be dangerous. It assumes there aren’t more economical ways to achieve your objectives. It doesn’t hurt to do a side exercise where you start from scratch, asking yourselves, do we really need this? Are there cheaper ways to get this done? Yes, it can be time-consuming, but if you truly want to find ways to save expenses, it’s a worthwhile exercise. Zero-based budgeting (ZBB) is an approach that can help you prioritize projects and departments that deserve funding based on your goals. It can also help you keep old and new expenses in check, which can lead to lower costs. ZBB requires justification for both new and old expenses, whereas traditional budgeting only analyzes new expenditures. In addition, ZBB involves evaluating spending which must be re-justified each year, or it will be eliminated from the budget.
Explore Cost-Effective Alternatives—Doing Things Differently Could be the Answer
Have you explored alternatives to doing things the way you’ve always done them? For example, outsourcing certain back-office functions could help save you money and provide access to even higher, more experienced levels of talent. Many credit unions have moved to outsource back-office services. In most cases, you pay only for what you need, eliminating the cost of having full-time staff who may not be fully engaged all the time. In addition, you’re not having to provide benefits for these employees, and the service is considered an expense on your balance sheet. Collaborating with other credit unions to share services and split the costs of specific functions is another effective way to conserve valuable resources.
An increasingly popular strategy, especially for smaller credit unions, is utilizing a “fractional” C-suite resource. As a CEO, you might be juggling multiple roles, doing just enough to keep things running, but this can stretch you thin or push you into areas outside your expertise—critical areas for the credit union’s success.
Spend Wisely—Remember It’s Your Members’ Money You’re Spending
At the end of the day, it should be about finding ways to save precious resources and being a good steward of your members’ money. As credit union leaders (and Board members), we have a fiduciary responsibility to spend wisely, get the biggest bang for the buck, and make sure that we are doing everything we can to help the credit union thrive. Spending on business activities that we can handle more cost-effectively or efficiently simply makes sense. It helps lower expenses, strengthen the bottom line and free up funds to invest in products and services that directly benefit members, ultimately making the credit union more competitive.
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