Resources & Insights

Community banks and credit unions thrive on supporting their customers’ goals and helping them achieve financial wellness. But like all businesses, they have operating costs and overhead that can impact their ability to grow or fully support their customers’ needs. 

Creating a budget for a bank or credit union is essential for efficient operations. Provision IAM is here to guide you through constructing a budget that supports your financial institution’s short- and long-term goals.

Why Budgeting Is Crucial for Community Banks and Credit Unions

Budgets don’t just help you track your bank or credit union’s expenses and spending. They also help you identify ways to cut back and save on costs throughout the year. Additionally, they make it easier to create quarterly reports and adjust your plans for the rest of the fiscal year. 

A budget gives you a clear plan that prioritizes your financial institution’s goals and helps you remain accountable to your key stakeholders. Without a clear budget, your financial institution risks overspending on resources, labor, and routine expenses.

How to Construct a Budget That Works

A well-constructed budget provides a roadmap for financial stability and growth and ensures resources are allocated efficiently, aligning with your institution’s strategic goals. Here are the key steps involved in constructing a budget tailored to the unique needs of community-focused financial institutions.

1. Review Your Current Financial Position

Before you can create a budget for your credit union or bank, you need to know where you currently stand. Take the time to review your institution’s financial position, including:

• Your revenue and cash flow: Look at your cash flow patterns for the last quarter and the last year. This will help you identify your spending and earnings over time.

• Your fixed and variable costs: You’ll want to examine how much you’re spending on necessities like security measures, labor, utilities, marketing, and other expenses you need to cover month to month. You also want to consider any opportunities to cut down on unnecessary or excessive spending.
• How much you have after subtracting costs from revenue: Your revenue should cover more than you’re spending each month. To know how much you have left, you’ll need to subtract your fixed and variable costs from your revenue. This helps you determine how much you can afford to spend, how much profit you can expect, and how much money you need to reach your goals.

The aim is to gain a full understanding of what’s working financially, what you’re struggling with, and which areas you may be able to cut spending in. 

2. Set Clear Financial Goals

Once you have a good understanding of your current financial position, you can set clear and actionable goals for the budgeting period. These goals should be tailored to your financial institution but may involve the following:

• Targeted profitability margins: Having a firm profitability target can help you better navigate the budgeting period. 

• Growth objectives: If you’re planning to expand or grow your services, prioritizing those goals can help you stay on track.

• Cost reduction goals: If you’re concerned about your bank or credit union’s spending habits, setting cost reduction goals could make it easier to curb your expenses and identify ways to save in the long run.

3. Create Your Budget

Once you have an understanding of your financial situation and your goals for your bank or credit union, you’re ready to construct your budget. Remember, your fixed and variable expenses should be covered in full, but you should also be looking for ways to maximize your profits, increase cash flow, and reduce unnecessary spending each month.

Consult your budget regularly and make sure you’re on track. If you find yourself spending more than you should, you may need to look for ways to cut back. Get in the habit of reviewing your budget at least once per quarter to make sure it’s still working for your needs.

4. Have a Technology Plan

A strategic technology plan is essential to successfully establishing and tracking your institution’s budget, providing visibility into your cash flow and financial data, reducing human error and inefficiencies, and streamlining operations. 

Provision IAM’s solutions for credit unions and community banks can serve as a cornerstone of your technology plan, helping your institution:

• Automate access management
• Access comprehensive records and reports
• Enhance operational efficiency
• Improve cybersecurity
• Maintain compliance

How Our Video Guide Can Help

Budgeting for community banks and credit unions can be challenging, especially considering these institutions’ unique business structures, financial constraints, and regulatory requirements. Provision IAM is here to help. Our video guide offers expert advice on the fundamentals of constructing a budget for a bank or credit union.

To learn more about how Provision IAM can help your financial institution improve identity and access management and establish a robust technology plan, reach out to our team today.