Budgeting for Board Members: A Contrary Approach

As a nonprofit board member, how do you view your role in the budget process? If you have a larger organization, you likely have a finance department that works with your executive director and treasurer to do most of the work. In this case, your role may simply be to review and approve the annual budget. However, if you serve on the board of a smaller nonprofit with limited staff, you may be expected to help create the budget. If you believe that creating a budget for your nonprofit is an onerous task, why not try a different approach this year? Let me share a process that some of my clients have used to create budgets that are useful tools both for planning and for fundraising.
At the first budget meeting, make sure that you have the previous year’s budget-to-actual report and this year’s annual goals on the table. Begin by carefully reviewing each of the goals. Include both administrative goals (e.g. to produce a quarterly newsletter) and program goals (e.g. to increase by 20% the number of people served by the education program). It is Basic Personal Financial Management important to review your goals before beginning because this will trigger areas where you either need to create or expand an expense line.. Look at the two examples given above. Do you need to outsource the newsletter? That is a new expense. Even if you don’t need more staff for the education program, it is likely that you will need new materials or equipment.
Once you have reviewed your goals, it’s time to begin the contrary approach. Do you begin to budget by projecting your revenue for the coming year and then creating the expense side to match the revenue? Most people do. I strongly encourage the opposite approach. Draft the expense side of your budget first. Why? Because this allows you to create a budget that will be useful in achieving your goals. If you begin by projecting those revenues that you think you can actually raise, then most likely you will feel that you have to limit expenses and this will result in limiting your goals.
On the other hand, a carefully-crafted expense budget will encourage you to project sufficient income to pay for the expenses needed to achieve your organization’s goals. You can refer to last year’s budget-to-actual report as a Loans For Bankrupts guideline, but don’t let it limit your thinking. Once you have reviewed every expense line (and created new ones where needed), it’s time to take a break, end this meeting and schedule the next one to work on the revenue side.
Begin your next meeting with a brief discussion of your nonprofit’s mission (because, after all, creating a useful budget is a key tool for achieving your mission). Next, review those annual goals again because you will be looking at the revenues needed to achieve those goals. Then carefully review last year’s budget-to-actual report to see how much you raised in each revenue category. Forget about the budget column here; it is the actual amount you raised that is the starting point. If the total revenues raised last year exceed your expenses for the coming year, you’ll have a short meeting. Just review each individual category, assess the likelihood of raising the same amount this year, and you may have completed your work.
However, if you have created new or expanded expense lines or, heaven forbid, you had a deficit budget last year, there is more work to do. Although your inclination may be to start cutting expenses – DON’T DO IT NOW. Start by brainstorming all the ways that you as board members can raise additional revenue this year. You may need more than one meeting. but this will be time well spent.
Ask each board member to come to the next meeting prepared to present one idea for raising more money. If you have an eleven member board and each member comes up with one suggestion for generating more income, you have eleven new ideas to talk about. Of course, you will have to do more than talk; every board member needs to be prepared to work to raise the increased funds.
What if there aren’t sufficient ideas and/or energy to ensure that the revenues for the coming year will meet the projected expenses? Then, as repellent as the idea is to me, I have to encourage you to look at the expenses again because I don’t believe boards should ever approve deficit budgets. Just make sure you have exhausted all avenues of potential support before cutting expenses. Unless the expenses have been inflated, such cuts will mean that you won’t be able to achieve some of your goals this year.
A�2011 Jane B. Ford

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