Budgeting: Your nonprofit sustainability insurance policy

I was going to start off this post on budgeting with a quote, then reasoned that no matter how quirky or serious it was, it may distract from the message I wanted to convey.

But then I started to wonder—exactly what message should I convey. I mean, not many of us have as avid an affinity for numbers as accountants, bookkeepers and others in the financial management realm. Even as I pursued a degree in business administration, I had my confidence in my financial acumen tested.

So I asked myself: should I cheer you on, give you lots of encouragement to face your fears, learn what you can, then just get something down on paper: “It’s clearly a budget. It’s got a lot of numbers in it.”— George W. Bush

Or should I just assume that most NPO leaders view this responsibility as a necessary evil. Should I admonish you and take you to task for your reluctant participation in the financial accountancy portion of your role?

Should I tell you that there’s more to running an organization than training volunteers and hosting open houses? “The budget is not just a collection of numbers, but an expression of our values and aspirations.” –Jacob Lew

The truth is many of us, as nonprofit EDs, board members and staff have or will at some point in time come face-to-face with the inevitable and unenviable task of making an accounting for money, and there is no denying that it can scare the you-know-what out of us: “Budget: A mathematical confirmation of your suspicions” –A.A. Latimer

This is a really sobering notion given the levity of the responsibilities we assume at our organizations: a fundraiser’s primary role is to conduct activities that attract money; a board member’s primary role is to develop policies that secure and protect that money and an executive director’s primary role is to develop and manage the systems that account for that money.

We want to enjoy our roles, most certainly in terms of the level of competency we feel in performing them. Nobody should approach these roles in fear and trepidation. It goes without saying that you should invest in whatever training you, your staff and your leadership needs as regards financial management. Any blind person can see the rationale in that.

And any blind or sighted person, for that matter will also see that perspective can often facilitate how subtly some see what is blindingly obvious to others.

This came to mind recently when I read something about budgeting that positioned it as a form of risk management. I’d never thought of it like that before and it occurred to me that perhaps neither have many of you.

Risk management (in business) is a form of financial planning where assessments are made to determine how likely it is that your organization will meet with an untimely and devastating financial encounter, in concert with determining what actions you need to take to avoid or minimize the resulting impact.

To protect against life’s eventualities, we purchase insurance. Using this premise, we are employing risk management when we “insure” the solvency of our mission through budgeting. Making sure we are receiving and spending the money entrusted to us in a respectful, responsible manner can be viewed as a form of sustainability “insurance”.

To me it stood to reason then, that if we changed the way we looked and budgeting and its role in nonprofit sustainability, then maybe we could alleviate a lot of the angst we have around all or many of the finance-related activities we have to perform as a part of our organizational responsibilities.

Giving that perspective some thought, I surmised that there are two overarching reasons your organization needs this sustainability “insurance”, or budgeting. One, to enable discipline and the other, to disable obsolescence.

To enable discipline: “A budget tells us what we can’t afford, but it doesn’t keep us from buying it.” ― William Feather

That’s right. Only discipline does that. Discipline is freedom, I once heard.

While we may loathe the experience the first time around, creating a realistic budget gives us peace of mind and the ability to pursue only expenditures and activities that add value to our NPO’s bottom line or mission.

To disable obsolescence: “A budget is telling your money where to go instead of wondering where it went.” –Dave Ramsey

Imagine.

No more exhaustive discussions battling the kind stagnant thinking that keeps your NPO stuck recycling ineffective programs, plodding through low or no-yielding fundraising activities and losing organization market positioning to outmoded business models. With every succeeding year your budget, supported by other data, will speak more loudly with numbers the need for change than you ever could with words.

So I guess the message I want to convey about your torrid relationship with budgeting is, “When you change the way you look at things, and the things you look at, change”—Max Planck.

Bring a fresh perspective, considering it as you would any other risk management strategy you employ.

This organization is YOUR responsibility. Its continued viability is on you and the community of people you have enlisted to steward its progress. People are counting on you to be there for the long haul and that can only happen if your move aggressively to set it on a course of financial health, beginning with sustainability “insurance”.

(oh, and I don’t think a few well-placed quotes took too much away from my message …. do you?)

Next month: Tips and tools to create a realistic budget.