With many nonprofits starting their fiscal year on July 1, I thought it would be good to discuss budgeting.
I know one executive director that loudly sighs when she talks about budgeting. Budgeting shouldn’t be a chore but an opportunity!
Budgets reflect priorities.
Think about that. Your budget tells the world – your board, staff, donors, clients – where your priorities lie. So what type of statement do you want to make?
While that’s a very big philosophical question that you will need to explore, I want to focus on the ways you can approach organizational budgeting. The way you approaching budgeting is also a philosophical stance.
Many organizations will look at last year’s budget and the actual financials (hopefully they are close) and then project an increase (say 10%) for the next fiscal year.
There are so many reasons why this is a problem:
- You haven’t evaluated which programs (or expenses) are needing to go away, grow, or start
- You don’t know if you can actually raise 10% more
- It’s not connected to your strategic plan or fund development plan
- It doesn’t tell you about your priorities!
I’d love to see organizations try a “zero-based” budget. It’s a great assessment tool. Essentially, the organization pretends it is starting from scratch. It focuses on the thorough re-evaluation of each program, unit, and activity to determine if it should be continued and if so, how. There are no built-in assumptions or automatically included items.
Wow. Imagine if your organization did this. That “sacred cow” fundraising event isn’t built into the budget. The program that isn’t aligned with your mission isn’t guaranteed. What could your organization do if it could honestly examine its operations, programs, and expenses? To me, that’s really powerful.
I’ll leave you with one final budgeting thought. Your organizational budget doesn’t have to balance. I know what you’re thinking – “But Sarah, that’s required!” Nope. In fact, there are very good reasons to build a surplus budget or even a deficit budget. See this article on Blue Avocado.
How do you feel about the annual budgeting process? Do it make you sigh with anxiety or do you find it to be a great opportunity to examine your practice?